MONOLITHIC POWER SYSTEMS, INC. 10-K

Item 8. Financial Statements and Supplementary Data MONOLITHIC POWER SYSTEMS, INC. CONSOLIDATED FINANCIAL STATEMENTS Contents Page Reports of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) 42 Consolidated Balance Sheets 44 Consolidated Statements of Operations 45 Consolidated Statements of Comprehensive Income 46 Consolidated Statements of Stockholders ’ Equity 47 Consolidated Statements of Cash Flows 48 Notes to Consolidated Financial Statements 49 41 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Monolithic Power Systems, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Monolithic Power Systems, Inc. (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 29, 2024 expressed an adverse opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Inventory Valuation Description of the Matter The Company’s inventories totaled $383.7 million as of December 31, 2023, representing 15.8% of total assets. As explained in Note 1 to the consolidated financial statements, the Company values inventories at the lower of standard cost (which approximates actual cost determined on a first-in first-out basis) and estimated net realizable value in each reporting period. Excess and obsolete inventory is written down to its estimated net realizable value if less than cost. Auditing management’s estimates for excess and obsolete inventory involved subjective auditor judgment because management’s assessment of whether a write down is required and the measurement of any excess of cost over net realizable value is judgmental and considers a number of qualitative factors that are affected by market and economic conditions outside the Company’s control. In particular, determination of excess and obsolete inventory utilizes assumptions, including estimated demand for the Company’s products, new product launches, expected industry sales growth, and product lifecycle. How We Addressed the Matter in Our Audit Our audit procedures included, among others, evaluating the significant assumptions stated above and testing the completeness and accuracy of the underlying data used in management’s excess and obsolete inventory valuation assessment. We evaluated inventory levels compared to forecasted product demand, historical sales and specific product considerations. We also assessed the historical accuracy of management’s estimates and performed sensitivity analyses over the significant assumptions to evaluate the changes in the excess and obsolete inventory estimates that would result from changes in the underlying assumptions. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2019. San Jose, California February 29, 2024 42 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Monolithic Power Systems, Inc. Opinion on Internal Control Over Financial Reporting We have audited Monolithic Power Systems, Inc.’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, because of the effect of the material weakness described below on the achievement of the objectives of the control criteria, Monolithic Power Systems, Inc. (the Company) has not maintained effective internal control over financial reporting as of December 31, 2023, based on the COSO criteria. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management’s assessment. A material weakness was identified in controls related to the company’s inventory demand forecasting process. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes. This material weakness was considered in determining the nature, timing and extent of audit tests applied in our audit of the 2023 consolidated financial statements, and this report does not affect our report dated February 29, 2024, which expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP San Jose, California February 29, 2024 43 Table of Contents MONOLITHIC POWER SYSTEMS, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except par value) December 31, 2023 2022 ASSETS Current assets: Cash and cash equivalents $ 527,843 $ 288,607 Short-term investments 580,633 449,266 Accounts receivable, net 179,858 182,714 Inventories 383,702 447,290 Other current assets 147,463 42,742 Total current assets 1,819,499 1,410,619 Property and equipment, net 368,952 357,157 Goodwill 6,571 6,571 Deferred tax assets, net 28,054 35,252 Other long-term assets 211,277 249,286 Total assets $ 2,434,353 $ 2,058,885 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 62,958 $ 61,461 Accrued compensation and related benefits 56,286 88,260 Other accrued liabilities 115,791 113,679 Total current liabilities 235,035 263,400 Income tax liabilities 60,724 53,509 Other long-term liabilities 88,655 73,374 Total liabilities 384,414 390,283 Commitments and contingencies Stockholders’ equity: Common stock and additional paid-in capital: $ 0.001 par value; shares authorized: 150,000 ; shares issued and outstanding: 48,028 and 47,107 , respectively 1,129,937 975,276 Retained earnings 947,064 716,403 Accumulated other comprehensive loss ( 27,062 ) ( 23,077 ) Total stockholders’ equity 2,049,939 1,668,602 Total liabilities and stockholders’ equity $ 2,434,353 $ 2,058,885 See accompanying notes to consolidated financial statements. 44 Table of Contents MONOLITHIC POWER SYSTEMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) Year Ended December 31, 2023 2022 2021 Revenue $ 1,821,072 $ 1,794,148 $ 1,207,798 Cost of revenue 799,953 745,596 522,339 Gross profit 1,021,119 1,048,552 685,459 Operating expenses: Research and development 263,643 240,171 190,627 Selling, general and administrative 275,740 281,596 232,415 Total operating expenses 539,383 521,767 423,042 Operating income 481,736 526,785 262,417 Other income (expense), net 24,105 ( 1,848 ) 9,802 Income before income taxes 505,841 524,937 272,219 Income tax expense 78,467 87,265 30,196 Net income $ 427,374 $ 437,672 $ 242,023 Net income per share: Basic $ 8.98 $ 9.37 $ 5.28 Diluted $ 8.76 $ 9.05 $ 5.05 Weighted-average shares outstanding: Basic 47,610 46,727 45,851 Diluted 48,771 48,358 47,889 See accompanying notes to consolidated financial statements. 45 Table of Contents MONOLITHIC POWER SYSTEMS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) Year Ended December 31, 2023 2022 2021 Net income $ 427,374 $ 437,672 $ 242,023 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments ( 9,528 ) ( 32,293 ) 8,404 Change in unrealized gains and losses on available-for-sale securities, net of tax of $( 1,352 ), $ 184 and $ 613 , respectively 5,543 ( 6,664 ) ( 2,664 ) Other comprehensive income (loss), net of tax ( 3,985 ) ( 38,957 ) 5,740 Comprehensive income $ 423,389 $ 398,715 $ 247,763 See accompanying notes to consolidated financial statements. 46 Table of Contents MONOLITHIC POWER SYSTEMS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS ’ EQUITY (in thousands, except per share amounts) Accumulated Common Stock and Other Total Additional Paid-in Capital Retained Comprehensive Stockholders’ Shares Amount Earnings Income (Loss) Equity Balance as of January 1, 2021 45,267 $ 657,701 $ 298,746 $ 10,140 $ 966,587 Net income - - 242,023 - 242,023 Other comprehensive income - - - 5,740 5,740 Dividends and dividend equivalents declared ($ 2.40 per share) - - ( 115,890 ) - ( 115,890 ) Common stock issued under the employee equity incentive plan 972 17,322 - - 17,322 Common stock issued under the employee stock purchase plan 17 4,670 - - 4,670 Stock-based compensation expense - 123,533 - - 123,533 Balance as of December 31, 2021 46,256 803,226 424,879 15,880 1,243,985 Net income - - 437,672 - 437,672 Other comprehensive loss - - - ( 38,957 ) ( 38,957 ) Dividends and dividend equivalents declared ($ 3.00 per share) - - ( 146,148 ) - ( 146,148 ) Common stock issued under the employee equity incentive plan 837 5,358 - - 5,358 Common stock issued under the employee stock purchase plan 14 5,877 - - 5,877 Stock-based compensation expense - 160,815 - - 160,815 Balance as of December 31, 2022 47,107 975,276 716,403 ( 23,077 ) 1,668,602 Net income - - 427,374 - 427,374 Other comprehensive loss - - - ( 3,985 ) ( 3,985 ) Dividends and dividend equivalents declared ($ 4.00 per share) - - ( 196,713 ) - ( 196,713 ) Common stock issued under the employee equity incentive plan 911 1,118 - - 1,118 Common stock issued under the employee stock purchase plan 17 7,568 - - 7,568 Repurchase of common stock ( 7 ) ( 3,741 ) - - ( 3,741 ) Stock-based compensation expense - 149,716 - - 149,716 Balance as of December 31, 2023 48,028 $ 1,129,937 $ 947,064 $ ( 27,062 ) $ 2,049,939 See accompanying notes to consolidated financial statements. 47 Table of Contents MONOLITHIC POWER SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year Ended December 31, 2023 2022 2021 Cash flows from operating activities: Net income $ 427,374 $ 437,672 $ 242,023 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 40,168 37,114 28,699 Amortization of premium (discount) on available-for-sale securities ( 5,277 ) 4,375 4,674 Loss (gain) on deferred compensation plan investments ( 8,505 ) 6,600 ( 4,563 ) Deferred taxes, net 5,865 ( 13,220 ) ( 2,772 ) Gain on sale of equity investment ( 1,424 ) - - Stock-based compensation expense 149,711 160,992 123,479 Other ( 23 ) 97 110 Changes in operating assets and liabilities: Accounts receivable 2,884 ( 77,903 ) ( 37,976 ) Inventories 63,583 ( 188,073 ) ( 102,323 ) Other assets ( 24,310 ) ( 177,284 ) ( 15,311 ) Accounts payable 4,797 ( 11,240 ) 32,926 Accrued compensation and related benefits ( 31,187 ) 28,514 16,536 Income tax liabilities ( 308 ) 16,559 11,771 Other accrued liabilities 14,865 22,471 22,737 Net cash provided by operating activities 638,213 246,674 320,010 Cash flows from investing activities: Purchases of property and equipment ( 57,578 ) ( 58,843 ) ( 94,420 ) Purchases of investments ( 582,603 ) ( 65,785 ) ( 394,886 ) Maturities and sales of investments 468,308 128,610 113,755 Contributions to deferred compensation plan, net ( 6,853 ) ( 16,492 ) ( 2,542 ) Purchases of intangible assets - - ( 793 ) Net cash used in investing activities ( 178,726 ) ( 12,510 ) ( 378,886 ) Cash flows from financing activities: Property and equipment purchased on extended payment terms ( 2,826 ) ( 2,055 ) ( 2,834 ) Proceeds from common stock issued under the employee equity incentive plan 1,118 5,358 17,322 Proceeds from common stock issued under the employee stock purchase plan 7,568 5,877 4,670 Repurchase of common stock ( 3,741 ) - - Dividends and dividend equivalents paid ( 185,844 ) ( 137,965 ) ( 109,364 ) Net cash used in financing activities ( 183,725 ) ( 128,785 ) ( 90,206 ) Effect of change in exchange rates ( 3,310 ) ( 6,039 ) 3,400 Net increase (decrease) in cash, cash equivalents and restricted cash 272,452 99,340 ( 145,682 ) Cash, cash equivalents and restricted cash, beginning of period 288,729 189,389 335,071 Cash, cash equivalents and restricted cash, end of period $ 561,181 $ 288,729 $ 189,389 Supplemental disclosures for cash flow information: Cash paid for income taxes, net $ 85,128 $ 85,031 $ 21,148 Non-cash investing and financing activities: Liability accrued for property and equipment purchases $ 1,784 $ 5,743 $ 17,877 Liability accrued for dividends and dividend equivalents $ 53,213 $ 40,939 $ 33,059 See accompanying notes to consolidated financial statements. 48 Table of Contents MONOLITHIC POWER SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Monolithic Power Systems, Inc. (the “Company”) was incorporated in the State of California on August 22, 1997. On November 17, 2004, the Company was reincorporated in the State of Delaware. MPS designs, develops and markets high-performance, semiconductor-based power electronic solutions. MPS’s mission is to provide innovative power solutions in the storage and computing, enterprise data, automotive, industrial, communications and consumer markets. Basis of Presentation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and reported amounts of revenue and expenses during the reporting period. Significant estimates and assumptions used in these consolidated financial statements primarily include those related to revenue recognition, inventory valuation, valuation of share-based awards, contingencies and income tax valuation allowances. Actual results could differ from these estimates and assumptions, and any such differences may be material to the Company’s consolidated financial statements. Certain Significant Risks and Uncertainties Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents, short-term and long-term investments and accounts receivable. The Company’s cash equivalents include short-term, highly liquid investments purchased with remaining maturities at the date of purchase of three months or less. The Company’s short-term investments may consist of corporate debt securities, certificates of deposit, commercial paper and government agency bonds and treasuries, and the long-term investments consist of government-backed student loan auction-rate securities. The Company does not require its customers to provide collateral to support accounts receivable. The Company assesses the collectability by reviewing accounts receivable on a customer-by-customer basis. To manage credit risk, management performs ongoing credit evaluations of the customers’ financial condition, monitors payment performance, and assesses current economic conditions, as well as reasonable and supportable forecasts of future economic conditions, that may affect collectability of the outstanding receivables. For certain high-risk customers, the Company requires standby letters of credit or advance payment prior to shipments of goods. The Company participates in the dynamic high technology industry and believes that changes in any of the following areas could have a material adverse effect on its future financial position, results of operations or cash flows: advances and trends in new technologies and industry standards; competitive pressures in the form of new products or price reductions on current products; changes in product mix; changes in the overall demand for products offered by the Company or in specific markets; changes in third -party manufacturers or the terms of such arrangements; changes in key suppliers; changes in certain strategic relationships or customer relationships; litigation or claims against the Company based on intellectual property, patent, product, regulatory or other factors; fluctuations in foreign currency exchange rates; risk associated with changes in government policies and regulations on trade restrictions and corporate taxes; availability of necessary components or sub-assemblies; availability of foundry capacity; ability to integrate acquired companies; and the Company’s ability to attract and retain employees necessary to support its growth. 49 Table of Contents Foreign Currency In general, the functional currency of the Company’s international subsidiaries is the local currency. The primary subsidiaries are located in China, Taiwan and Europe, which utilize the Renminbi, the New Taiwan Dollar and the Euro as their currencies, respectively. Accordingly, assets and liabilities of the foreign subsidiaries are translated using exchange rates in effect at the end of the period. Revenue and costs are translated using average exchange rates for the period. The resulting translation adjustments are recorded in accumulated other comprehensive loss on the Consolidated Balance Sheets. In addition, the Company incurs foreign currency exchange gains or losses related to certain transactions, including intercompany transactions, that are denominated in a currency other than the functional currency. In connection with the remeasurement and settlement of the balances, the Company recorded foreign currency exchange gain (loss) of $( 0.2 ) million, $ 0.5 million and $( 0.7 ) million for the years ended December 31, 2023, 2022 and 2021 , respectively, which were reported in other income (expense), net, on the Consolidated Statements of Operations. For intercompany transactions that are of a long-term investment nature, the Company records the foreign currency exchange gains and losses in accumulated other comprehensive loss on the Consolidated Balance Sheets. Cash Equivalents and Debt Investments The Company classifies all highly liquid investments with stated maturities of three months or less from date of purchase as cash equivalents. The Company may classify investments with maturities beyond one year as short-term based on the nature of the investments and their availability for use in current operations. Cash equivalents are stated at cost, which approximates fair market value. The Company’s short-term and long-term debt investments are classified as available-for-sale securities and are stated at their fair market value, with unrealized gains and losses recorded in accumulated other comprehensive loss on the Consolidated Balance Sheets. Premiums and discounts on debt investments are generally amortized or accreted over the life of the related available-for-sale securities. Interest income is recognized when earned. The cost of investments sold is determined on the basis of the specific identification method. Available-for-sale investments are subject to impairment reviews when the fair value is below the amortized cost basis. If the Company determines that the decline in fair value below the amortized cost basis is due to credit-related factors, the impairment is recognized as an allowance on the Consolidated Balance Sheets with a corresponding adjustment to earnings. An impairment that is not credit-related is recognized in accumulated other comprehensive loss on the Consolidated Balance Sheets. If the Company intends to sell the impaired investments, or more likely than not will be required to sell such investments before recovering the amortized cost basis, the entire impairment amount is recognized in earnings with a corresponding adjustment to the amortized cost basis. Equity Investments Equity investments in privately held companies without readily determinable fair values are accounted for under the measurement alternative method, provided that the Company does not have the ability to exercise significant influence or control over the investees. Under this method, the Company measures the investments at cost, less any impairment, and adjusts the carrying value of the investments to fair value resulting from observable transactions for identical or similar investments of the same issuer. The Company records the investments in other long-term assets on the Consolidated Balance Sheets, and gains and losses on the investments are recognized in other income (expense), net, on the Consolidated Statements of Operations. The Company monitors its non-marketable equity investments for impairment indicators, such as negative changes in industry and market conditions, financial performance, business prospects, and other relevant events and factors. If indicators exist for a security and the fair value is below the carrying amount, the Company writes down the security to fair value. 50 Table of Contents Fair Value of Financial Instruments Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value, the Company considers the principal or most advantageous market in which the Company would transact, as well as assumptions that market participants would use when pricing the assets or liabilities. Fair value is estimated by applying the fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement. See Note 4 for additional information on the fair value of the Company’s financial instruments. Inventories Inventories are stated at the lower of standard cost (which approximates actual cost determined on a first -in first -out basis) and estimated net realizable value. The Company writes down excess and obsolete inventories based on their age and forecasted demand, which includes estimates taking into consideration the Company’s revenue forecast, outlook on market and economic conditions, technology changes, new product introductions and changes in strategic direction. Actual demand may differ from forecasted demand, and such a difference may have a material effect on recorded inventory values. When the Company records a write-down on inventory, it establishes a new, lower cost basis for that inventory, and subsequent changes in facts and circumstances will not result in the restoration or increase in that newly established cost basis. Property and Equipment Property and equipment are stated at cost. Depreciation commences when an asset is placed in service and available for its intended use. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Buildings and building improvements have estimated useful lives of 20 to 40 years. Leasehold improvements are amortized over the shorter of the estimated useful lives or the lease period. Production equipment, lab equipment and software have estimated useful lives of three to eight years. Transportation equipment has estimated useful lives of 5 to 20 years. Furniture and fixtures have estimated useful lives of three to five years. Land is not depreciated. Impairment of Long-Lived Assets The Company evaluates its long-lived assets other than goodwill for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when the sum of the undiscounted future net cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount. Such impairment loss would be measured as the difference between the carrying amount of the asset and its fair value based on the present value of estimated future cash flows. The Company did not record material impairments in any of the periods presented. Goodwill Goodwill represents the excess of the fair value of purchase consideration over the fair value of net tangible and identified intangible assets as of the date of acquisition. Goodwill is not amortized. The Company tests goodwill for impairment at least annually in the fourth quarter of each year, or whenever events or changes in circumstances indicate that goodwill may be impaired. The Company has elected to first assess the qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If the Company determines that it is more likely than not that the fair value of the reporting unit is less than the carrying amount, then a quantitative goodwill impairment test is performed to measure the impairment loss. No impairment of goodwill has been identified in any of the periods presented. Deferred Compensation Plan The Company has a non-qualified, unfunded deferred compensation plan, which provides certain key employees, including executive officers, 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. 51 Table of Contents The liabilities for compensation deferred under the plan are recorded at fair value as of the end of each reporting period. Changes in the fair value of the liabilities are included in operating expenses on the 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, mutual funds and money market 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 and money market 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 and money market fund investments are included in other income (expense), net, on the Consolidated Statements of Operations. The following table summarizes the deferred compensation plan balances on the Consolidated Balance Sheets (in thousands): December 31, 2023 2022 Deferred compensation plan asset components: Cash surrender value of corporate-owned life insurance policies $ 23,545 $ 19,089 Fair value of mutual funds and money market funds 54,836 43,933 Total $ 78,381 $ 63,022 Deferred compensation plan assets reported in: Other long-term assets $ 78,381 $ 63,022 Deferred compensation plan liabilities reported in: Accrued compensation and related benefits (short-term) $ 384 $ 118 Other long-term liabilities 80,903 64,863 Total $ 81,287 $ 64,981 Revenue Recognition The Company recognizes revenue when it transfers control of promised goods or services to its customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. See Note 2 for further discussion. R&D Costs incurred in R&D are expensed as incurred. Warranty Reserve The Company generally provides either a one - or two -year warranty against defects in materials and workmanship and will repair the products, provide replacements at no charge to customers or issue a refund. As they are considered assurance-type warranties, the Company does not account for them as separate performance obligations. Warranty reserve requirements are generally based on a specific assessment of the products sold with warranties when a customer asserts a claim for warranty or a product defect. Leases The Company determines if an arrangement is a lease at inception. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Operating lease right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term, and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of remaining lease payments over the lease term. ROU assets also include any initial direct costs incurred and prepaid lease payments, less lease incentives received. Because the implicit rate in each lease is not readily determinable, the Company uses its estimated incremental borrowing rate to determine the present value of the remaining lease payment. The Company recognizes operating lease costs on a straight-line basis over the lease term. The Company does not record short-term leases with a term of 12 months or less at the commencement date on the Consolidated Balance Sheets. For lease arrangements that contain lease and non-lease components, the Company accounts for them as single lease components. For lease arrangements where the Company is the lessor, the Company recognizes lease income from operating leases on a straight-line basis over the lease term. 52 Table of Contents Stock-Based Compensation The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The fair value of RSUs with only service conditions is determined based on the grant date stock price. The fair value of all other awards is determined based on the following valuation methods: Type of Awards Valuation Method RSUs with performance conditions (“PSUs”) that have a purchase price adjustment Monte Carlo simulation model RSUs with market conditions (“MSUs”) Monte Carlo simulation model RSUs with both performance and market conditions (“MPSUs”) Monte Carlo simulation model Shares issued under the employee stock purchase plan (“ESPP”) Black-Scholes model The valuation models consider inputs including stock price, expected volatility, expected term of awards, risk-free interest rate, and expected dividend yield. Expected volatility used in the models is determined based on historical volatility of the Company’s stock price for the period, which corresponds to the expected term of the awards, immediately preceding the granting of the awards. Compensation expense related to awards with service conditions is recorded on a straight-line basis over the requisite service period. Compensation expense related to awards subject to performance or market conditions is recognized over the requisite service period for each separately vesting tranche. For awards with only market conditions, compensation expense is not reversed if the market conditions are not satisfied. For awards with only performance conditions, as well as awards containing both market and performance conditions, the Company recognizes compensation expense when it becomes probable that the performance goals will be achieved. Management performs the probability assessment on a quarterly basis by reviewing external factors, such as macroeconomic conditions and the analog industry revenue forecasts, and internal factors, such as the Company’s business and operational objectives and revenue forecasts. Changes in the probability assessment of achievement of the performance conditions are accounted for in the period of change by recording a cumulative catch-up adjustment as if the new estimate had been applied since the service inception date. Any previously recognized compensation expense is reversed if the performance conditions are not expected to be satisfied as a result of management’s assessment. The Company accounts for forfeitures of equity awards when they occur. Accounting for Income Taxes The Company recognizes federal, state and foreign current tax liabilities or assets based on its estimate of taxes payable or refundable in the current fiscal year by tax jurisdiction. The Company also recognizes federal, state and foreign deferred tax assets or liabilities for its estimate of future tax effects attributable to temporary differences and carryforwards. The Company records a valuation allowance to reduce any deferred tax assets by the amount of any tax benefits that, based on available evidence and judgment, are not expected to be realized. The Company’s calculation of current and deferred tax assets and liabilities is based on certain estimates and judgments and involves dealing with uncertainties in the application of complex tax laws. The Company’s estimates of current and deferred tax assets and liabilities may change based on, in part, added certainty, finality or uncertainty to an anticipated outcome, changes in accounting or tax laws in the U.S. or foreign jurisdictions where the Company operates, or changes in other facts or circumstances. In addition, the Company recognizes liabilities for potential U.S. and foreign income tax for uncertain income tax positions taken on its tax returns if it has less than a 50% likelihood of being sustained. If the Company determines that payment of these amounts is unnecessary or if the recorded tax liability is less than its current assessment, the Company may be required to recognize an income tax benefit or additional income tax expense in its financial statements in the period such determination is made. The Company has calculated its uncertain tax positions which were attributable to certain estimates and judgments. Litigation and Contingencies The Company is a party to actions and proceedings in the ordinary course of business, including 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. The Company may also be subject to litigation initiated by its stockholders. The pending proceedings involve complex questions of fact and law and will require the expenditure of significant funds and the diversion of other resources to prosecute and defend. In addition, from time to time, the Company becomes aware that it is subject to other contingent liabilities. When this occurs, the Company will evaluate the appropriate accounting for the potential contingent liabilities to determine whether a contingent liability should be recorded. In making this determination, management may, depending on the nature of the matter, consult with internal and external legal counsel and technical experts. Based on the facts and circumstances in each matter, the Company uses its judgment to determine whether it is probable that a contingent loss has occurred and whether the amount of such loss can be estimated. If the Company determines a loss is probable and estimable, the Company records a contingent loss. In determining the amount of a contingent loss, the Company takes into account advice received from experts for each specific matter regarding the status of legal proceedings, settlement negotiations, prior case history and other factors. Should the judgments and estimates made by management need to be adjusted as additional information becomes available, the Company may need to record additional contingent losses. Alternatively, if the judgments and estimates made by management are adjusted, for example, if a particular contingent loss does not occur, the contingent loss recorded would be reversed. 53 Table of Contents Net Income per Share Basic net income per share is computed by dividing net income by the weighted-average number of shares of common stock 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 shares of common stock, and calculated using the treasury stock method. Contingently issuable shares, including equity awards with performance conditions or market conditions, are considered outstanding shares of common stock 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 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 the requisite service requirement and, as a result, the awards do not vest. Accordingly, these awards are not treated as participating securities in the net income per share calculation. Comprehensive Income Comprehensive income represents the change in the Company’s net assets during the period from non-owner sources. Accumulated other comprehensive loss presented on the Consolidated Balance Sheets primarily consists of unrealized gains or losses related to available-for-sale investments and foreign currency translation adjustments. Recently Adopted Accounting Pronouncement In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021 - 08, Business Combinations (Topic 805 ): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers . The guidance requires an acquirer to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Accounting Standards Codification 606, Revenue from Contracts with Customers , as if it had originated the contracts. The Company adopted this guidance at the beginning of fiscal year 2023 prospectively and it did not impact the consolidated financial statements for the year ended December 31, 2023. The Company is evaluating the impact of this guidance on its recent acquisition but does not expect a material impact on its consolidated financial statements. See Note 17 for additional information regarding this acquisition. New Accounting Pronouncements Not Yet Adopted as of December 31, 2023 In November 2023, the FASB issued ASU 2023 - 07, Segment Reporting (Topic 280 ): Improvements to Reportable Segment Disclosures , which aims to improve disclosures regarding a public entity’s reportable segments, primarily through more comprehensive disclosures around significant segment expenses. The guidance will be effective for the annual reporting for fiscal year 2024 and interim reporting for the first quarter in 2025, and should be applied retroactively to all prior periods presented. The Company is evaluating the impact of adoption on its consolidated financial statements. In December 2023, the FASB issued ASU 2023 - 09, Income Taxes (Topic 740 ): Improvements to Income Tax Disclosures , which aims to improve an entity’s income tax disclosures around its effective rate reconciliation, income taxes paid, disaggregation of income before income taxes and income tax expense. The guidance will be effective for annual reporting for fiscal year 2025. The standard should be applied prospectively and retrospective application is permitted. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements. 2. REVENUE RECOGNITION Revenue from Product Sales The Company generates revenue primarily from product sales, which include assembled and tested ICs, as well as dies in wafer form. These product sales accounted for 99 %, 98 % and 97 % of the Company’s total revenue for the years ended December 31, 2023, 2022 and 2021 , respectively. The remaining revenue primarily includes royalty revenue from licensing arrangements and revenue from wafer testing services performed for third parties, which have not been significant for the periods presented. See Note 15 for the disaggregation of the Company’s revenue by geographic region and by product family. The Company sells its products primarily through third -party distributors, value-added resellers, OEMs, ODMs and EMS providers. For the years ended December 31, 2023, 2022 and 2021 , 80 %, 83 % and 88 %, respectively, of the Company’s product sales were made through distribution arrangements. These distribution arrangements contain enforceable rights and obligations specific to those distributors and not the end customers. Purchase orders, which are generally governed by sales agreements or the Company’s standard terms of sale, set the final terms for unit price, quantity, shipping and payment agreed between the Company and the customer. The Company considers purchase orders to be the contracts with customers. The unit price as stated on the purchase orders is considered the observable, stand-alone selling price for the arrangements. 54 Table of Contents The Company recognizes revenue when it satisfies a performance obligation by transferring control of the promised goods or services to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company excludes taxes assessed by government authorities, such as sales taxes, from revenue. Product sales consist of a single performance obligation that the Company satisfies at a point in time. The Company recognizes product revenue from distributors and direct end customers when the following events have occurred: (a) the Company has transferred physical possession of the products, (b) the Company has a present right to payment, (c) the customer has legal title to the products, and (d) the customer bears significant risks and rewards of ownership of the products. In accordance with the shipping terms specified in the contracts, these criteria are generally met when the products are shipped from the Company’s facilities (such as the “Ex Works” shipping term) or delivered to the customers’ locations (such as the “Delivered Duty Paid” shipping term). Under certain consignment agreements, revenue is not recognized when the products are shipped and delivered to be held at customers’ designated locations because the Company continues to control the products and retain ownership, and the customers do not have an unconditional obligation to pay. The Company recognizes revenue when the customers consume the products from the consigned inventory locations or at which time control transfers to the customers and the Company invoices them for payment. Variable Consideration The Company accounts for price adjustments and stock rotation rights as variable consideration that reduces the transaction price and recognizes that reduction in the same period the associated revenue is recognized. Certain U.S.-based distributors have price adjustment rights when they sell the Company’s products to their end customers at a price that is lower than the distribution price invoiced by the Company. When the Company receives claims from the distributors that products have been sold to the end customers at the lower prices, the Company issues the distributors credit memos for the price adjustments. The Company estimates the price adjustments using the expected value method based on an analysis of historical claims, at both the distributor and product level, as well as an assessment of any known trends of product sales mix. Other U.S. distributors and non-U.S. distributors do not have price adjustment rights. The Company records a credit against accounts receivable for the estimated price adjustments, with a corresponding reduction to revenue. Certain distributors have limited stock rotation rights that permit the return of a small percentage of the previous six months’ purchases in accordance with the contract terms. The Company estimates the stock rotation returns using the expected value method based on an analysis of historical returns, and the current level of inventory in the distribution channel. The Company records a liability for the stock rotation reserve, with a corresponding reduction to revenue. In addition, the Company recognizes an asset for product returns which represents the right to recover products from the customers related to stock rotations, with a corresponding reduction to cost of revenue. Contract Balances Accounts Receivable: The Company records a receivable when it has an unconditional right to receive consideration after the performance obligations are satisfied. As of December 31, 2023 and 2022 , accounts receivable totaled $ 179.9 million and $ 182.7 million, respectively. The Company’s accounts receivable are short-term, with standard payment terms generally ranging from 30 to 90 days. The Company did not recognize any write-offs of accounts receivable or record any allowance for credit losses for the periods presented. Contract Liabilities: For certain customers located in Asia, the Company requires cash payments two weeks before the products are scheduled to be shipped to the customers. The Company records these payments received in advance of performance as customer prepayments within current accrued liabilities. As of December 31, 2023 and 2022 , customer prepayments totaled $ 2.8 million and $ 3.6 million, respectively. The decrease in the customer prepayment balance for the year ended December 31, 2023 resulted from a decrease in unfulfilled customer orders for which the Company had received payments. For the year ended December 31, 2023 , the Company recognized substantially all of the revenue that was included in the customer prepayment balance as of December 31, 2022 . Practical Expedients The Company has elected the practical expedient to expense sales commissions as incurred because the amortization period would have been one year or less. The Company’s standard payment terms generally require customers to pay 30 to 90 days after the Company satisfies the performance obligations. For those customers who are required to pay in advance, the Company satisfies the performance obligations generally within a quarter. For these reasons, the Company has elected not to determine whether contracts with customers contain significant financing components. The Company’s unsatisfied performance obligations primarily include products held in consignment arrangements and customer purchase orders for products that the Company has not yet shipped. Because the Company expects to fulfill these performance obligations within one year, the Company has elected not to disclose the amount of these remaining performance obligations. 55 Table of Contents 3. CASH, CASH EQUIVALENTS, INVESTMENTS AND RESTRICTED CASH The following is a summary of the Company’s cash, cash equivalents and debt investments (in thousands): December 31, 2023 2022 Cash $ 392,329 $ 273,145 Money market funds 135,514 15,462 Certificates of deposit 127,123 130,467 Corporate debt securities 95,101 292,586 Commercial paper - 17,928 U.S. treasuries and government agency bonds 358,409 8,285 Auction-rate securities backed by student-loan notes 567 1,711 Total $ 1,109,043 $ 739,584 December 31, 2023 2022 Reported as: Cash and cash equivalents $ 527,843 $ 288,607 Short-term investments 580,633 449,266 Investment within other long-term assets 567 1,711 Total $ 1,109,043 $ 739,584 The following table summarizes the contractual maturities of the short-term and long-term available-for-sale investments as of December 31, 2023 (in thousands): Amortized Cost Fair Value Due in less than 1 year $ 398,670 $ 397,884 Due in 1 - 5 years 183,266 182,749 Due in greater than 5 years 574 567 Total $ 582,510 $ 581,200 Gross realized gains and losses were not material for the periods presented. The following tables summarize the unrealized gain and loss positions related to the available-for sale investments (in thousands): December 31, 2023 Amortized Cost Unrealized Gains Unrealized Losses Fair Value Money market funds $ 135,514 $ - $ - $ 135,514 Certificates of deposit 127,123 - - 127,123 Corporate debt securities 96,636 4 (1,539 ) 95,101 U.S. treasuries and government agency bonds 358,177 327 (95 ) 358,409 Auction-rate securities backed by student-loan notes 574 - (7 ) 567 Total $ 718,024 $ 331 $ (1,641 ) $ 716,714 December 31, 2022 Amortized Cost Unrealized Gains Unrealized Losses Fair Value Money market funds $ 15,462 $ - $ - $ 15,462 Certificates of deposit 130,467 - - 130,467 Corporate debt securities 300,529 18 ( 7,961 ) 292,586 Commercial paper 17,928 - - 17,928 U.S. treasuries and government agency bonds 8,487 - ( 202 ) 8,285 Auction-rate securities backed by student-loan notes 1,770 - ( 59 ) 1,711 Total $ 474,643 $ 18 $ ( 8,222 ) $ 466,439 56 Table of Contents The following tables present information about the available-for-sale investments that had been in a continuous unrealized loss position for less than 12 months and for greater than 12 months (in thousands): December 31, 2023 Less than 12 Months Greater than 12 Months Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Corporate debt securities $ 20,792 $ ( 19 ) $ 70,806 $ ( 1,520 ) $ 91,598 $ ( 1,539 ) U.S. treasuries and government agency bonds 97,599 ( 95 ) - - 97,599 ( 95 ) Auction-rate securities backed by student-loan notes - - 567 ( 7 ) 567 ( 7 ) Total $ 118,391 $ ( 114 ) $ 71,373 $ ( 1,527 ) $ 189,764 $ ( 1,641 ) December 31, 2022 Less than 12 Months Greater than 12 Months Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Corporate debt securities $ 72,943 $ ( 973 ) $ 202,074 $ ( 6,988 ) $ 275,017 $ ( 7,961 ) U.S. treasuries and government agency bonds 987 ( 2 ) 7,298 ( 200 ) 8,285 ( 202 ) Auction-rate securities backed by student-loan notes - - 1,711 ( 59 ) 1,711 ( 59 ) Total $ 73,930 $ ( 975 ) $ 211,083 $ ( 7,247 ) $ 285,013 $ ( 8,222 ) An impairment exists when the fair value of an investment is less than its amortized cost basis. As of December 31, 2023 and 2022 , the Company did not consider the impairment of its investments to be a result of credit losses. The Company typically invests in highly rated securities, with the primary objective of minimizing the potential risk of principal loss. The Company’s investment policy generally requires securities to be investment grade and limits the amount of credit exposure to any one issuer. When evaluating a debt security for impairment, management reviews factors such as the Company’s intent to sell, or whether it will more likely than not be required to sell, the security before recovery of its amortized cost basis, the extent to which the fair value of the security is less than its cost, the financial condition of the issuer and the credit quality of the investment. Non-Marketable Equity Investment In November 2020, the Company made an equity investment in a privately held Swiss company (the “Investee”) that is accounted for under the measurement alternative. In April 2022, the Company made an additional investment in the form of a convertible loan. One member of the Board of Directors was an executive officer of a company that has a commercial relationship with the Investee. In addition, the Company’s Chief Executive Officer had a personal investment in the Investee and was on the Investee’s Board of Directors. As of December 31, 2022, the Company’s investment in the Investee, which is denominated in Swiss Franc, had a carrying value of $ 5.4 million. In May 2023, the Company sold all its investments in the Investee for $ 7.4 million and recorded a gain of $ 1.4 million, which was included as a component of other income (expense), net, in the Consolidated Statements of Operations for the year ended December 31, 2023 . Restricted Cash The following table provides a reconciliation of cash, cash equivalents and restricted cash reported on the Consolidated Balance Sheets to the amounts reported on the Consolidated Statements of Cash Flows (in thousands): December 31, 2023 2022 Cash and cash equivalents $ 527,843 $ 288,607 Restricted cash included in other current assets 33,204 - Restricted cash included in other long-term assets 134 122 Total cash, cash equivalents and restricted cash reported on the Consolidated Statements of Cash Flows $ 561,181 $ 288,729 As of December 31, 2023 , restricted cash included in other current assets was related to preliminary purchase consideration held in a trust account in connection with the Company’s recent acquisition. See Note 17 for additional information. As of December 31, 2023 and 2022 , restricted cash included in other long-term assets was related to a security deposit that is set aside in a bank account and cannot be withdrawn by the Company under the terms of a lease agreement. The restriction will end upon the expiration of the lease. 57 Table of Contents 4. FAIR VALUE MEASUREMENTS Fair Value Hierarchy The Company has estimated the fair value of its financial assets by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement: ● 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. Financial Assets Measured at Fair Value on a Recurring Basis The following table details the fair value of the financial assets measured on a recurring basis (in thousands): December 31, 2023 Total Level 1 Level 2 Level 3 Money market funds $ 135,514 $ 135,514 $ - $ - Certificates of deposit 127,123 - 127,123 - Corporate debt securities 95,101 - 95,101 - U.S. treasuries and government agency bonds 358,409 - 358,409 - Auction-rate securities backed by student-loan notes 567 - - 567 Mutual funds and money market funds under deferred compensation plan 54,836 54,836 - - Total $ 771,550 $ 190,350 $ 580,633 $ 567 December 31, 2022 Total Level 1 Level 2 Level 3 Money market funds $ 15,462 $ 15,462 $ - $ - Certificates of deposit 130,467 - 130,467 - Corporate debt securities 292,586 - 292,586 - Commercial paper 17,928 - 17,928 - U.S. treasuries and government agency bonds 8,285 - 8,285 - Auction-rate securities backed by student-loan notes 1,711 - - 1,711 Mutual funds and money market funds under deferred compensation plan 43,933 43,933 - - Total $ 510,372 $ 59,395 $ 449,266 $ 1,711 Redemptions and changes in the fair value of the auction-rate securities classified as Level 3 assets were not material for the periods presented. 58 Table of Contents 5. BALANCE SHEET COMPONENTS Inventories Inventories consist of the following (in thousands): December 31, 2023 2022 Raw materials $ 118,917 $ 126,760 Work in process 112,750 134,071 Finished goods 152,035 186,459 Total $ 383,702 $ 447,290 Other Current Assets Other current assets consist of the following (in thousands): December 31, 2023 2022 Other receivables $ 50,000 $ - RSU tax withholding proceeds receivable 20,141 14,480 Prepaid expenses 28,964 11,045 Restricted cash 33,204 - Other 15,154 17,217 Total $ 147,463 $ 42,742 Other receivables relate to a deposit made to a supplier under a long-term wafer supply agreement. See Note 12 for further details. Property and Equipment, Net Property and equipment, net, consist of the following (in thousands): December 31, 2023 2022 Land $ 48,490 $ 41,924 Production equipment and software 270,390 254,882 Buildings and improvements 205,132 195,205 Transportation equipment 28,641 28,612 Leasehold improvements 17,052 17,389 Furniture and fixtures 11,711 11,378 Construction in progress 16,980 1,908 Property and equipment, gross 598,396 551,298 Less: accumulated depreciation and amortization ( 229,444 ) ( 194,141 ) Total $ 368,952 $ 357,157 Depreciation and amortization expense on property and equipment was $ 40.0 million, $ 36.8 million and $ 28.4 million for the years ended December 31, 2023, 2022 and 2021 , respectively. Other Long-Term Assets Other long-term assets consist of the following (in thousands): December 31, 2023 2022 Deferred compensation plan assets $ 78,381 $ 63,022 Prepaid wafer purchases 120,000 170,000 Other 12,896 16,264 Total $ 211,277 $ 249,286 Prepaid wafer purchases relate to a deposit made to a supplier under a long-term wafer supply agreement. See Note 12 for further details. 59 Table of Contents Other Accrued Liabilities Other accrued liabilities consist of the following (in thousands): December 31, 2023 2022 Dividends and dividend equivalents $ 57,697 $ 42,170 Warranty 16,906 24,082 Stock rotation and sales returns 18,843 14,931 Income tax payable 8,063 15,595 Other 14,282 16,901 Total $ 115,791 $ 113,679 Other Long-Term Liabilities Other long-term liabilities consist of the following (in thousands): December 31, 2023 2022 Deferred compensation plan liabilities $ 80,903 $ 64,863 Dividend equivalents 2,187 6,847 Operating lease liabilities 5,565 1,664 Total $ 88,655 $ 73,374 6. LEASES Lessee The Company has operating leases primarily for administrative, sales and marketing offices, manufacturing operations and R&D facilities, employee housing units and certain equipment. These leases have remaining lease terms from less than one year to seven years. Some of these leases include options to renew the lease term for up to five years or on a month-to-month basis. The Company does not have finance lease arrangements. The following table summarizes the balances of operating lease ROU assets and liabilities (in thousands): December 31, Financial Statement Line Item 2023 2022 Operating lease ROU assets Other long-term assets $ 8,355 $ 4,288 Operating lease liabilities Other accrued liabilities $ 2,303 $ 2,133 Other long-term liabilities $ 5,565 $ 1,664 The following tables summarize certain information related to the leases (in thousands, except percentages and years): Year Ended December 31, 2023 2022 2021 Lease costs: Operating lease costs $ 3,113 $ 2,704 $ 2,454 Other 2,120 1,769 740 Total lease costs $ 5,233 $ 4,473 $ 3,194 60 Table of Contents Year Ended December 31, 2023 2022 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows for operating leases $ 2,954 $ 2,762 $ 2,315 ROU assets obtained in exchange for new operating lease liabilities $ 7,081 $ 1,175 $ 5,195 December 31, 2023 2022 Weighted-average remaining lease term (in years) 4.7 2.1 Weighted-average discount rate 4.3 % 2.1 % As of December 31, 2023 , the maturities of the lease liabilities were as follows (in thousands): 2024 $ 2,583 2025 1,909 2026 1,230 2027 1,238 Thereafter 1,653 Total remaining lease payments 8,613 Less: imputed interest ( 745 ) Total lease liabilities $ 7,868 As of December 31, 2023 , the operating lease that has not yet commenced is not material. Lessor The Company owns certain office buildings and leases a portion of these properties to third parties under arrangements that are classified as operating leases. These leases have remaining lease terms ranging from less than one year to three years. Some of these leases include options to renew the lease term for up to five years. Income related to lease payments was $ 1.5 million, $ 2.4 million and $ 2.2 million for the years ended December 31, 2023, 2022 and 2021 , respectively. As of December 31, 2023 , future income related to lease payments was as follows (in thousands): 2024 $ 760 2025 235 2026 41 Total $ 1,036 61 Table of Contents 7. STOCK-BASED COMPENSATION 2014 Equity Incentive Plan In April 2013 , the Board of Directors adopted the 2014 Equity Incentive Plan (the “2014 Plan”), which the Company’s stockholders approved in June 2013 . In October 2014 , the Board of Directors approved certain amendments to the 2014 Plan. The amended 2014 Plan became effective on November 13, 2014 and provided for the issuance of up to 5.5 million shares. In April 2020 , the Board of Directors further amended and restated the amended 2014 Plan (the “Amended and Restated 2014 Plan”), which the Company’s stockholders approved in June 2020 . The Amended and Restated 2014 Plan became effective on June 11, 2020 and provides for the issuance of up to 10.5 million shares. The Amended and Restated 2014 Plan will expire on June 11, 2030 . As of December 31, 2023 , 4.2 million shares remained available for future issuance under the Amended and Restated 2014 Plan. Stock-Based Compensation Expense The Company recognized stock-based compensation expense as follows (in thousands): Year Ended December 31, 2023 2022 2021 Cost of revenue $ 4,545 $ 4,721 $ 3,543 Research and development 36,611 35,355 26,030 Selling, general and administrative 108,555 120,916 93,906 Total stock-based compensation expense $ 149,711 $ 160,992 $ 123,479 Tax benefit related to stock-based compensation (1) $ 2,519 $ 2,498 $ 1,760 ( 1 ) Amount reflects the tax benefit related to stock-based compensation recorded for equity awards that are expected to generate tax deductions when they vest in future periods. Equity awards granted to the Company’s executive officers are subject to the tax deduction limitations set by Section 162 (m) of the IRC. RSUs The Company’s RSUs include time-based RSUs, PSUs, MSUs, and MPSUs. Vesting of awards with performance conditions or market conditions is subject to the achievement of pre-determined performance or market goals and the approval of such achievement by the Compensation Committee of the Board of Directors (the “Compensation Committee”). All awards include service conditions which require continued employment with the Company. A summary of RSU activity is presented in the table below (in thousands, except per share amounts): Time-Based RSUs PSUs and MPSUs MSUs Total Number of Shares Weighted-Average Grant Date Fair Value Per Share Number of Shares Weighted-Average Grant Date Fair Value Per Share Number of Shares Weighted-Average Grant Date Fair Value Per Share Number of Shares Weighted-Average Grant Date Fair Value Per Share Outstanding at January 1, 2021 161 $ 151.62 1,390 $ 132.60 1,554 $ 40.40 3,105 $ 87.42 Granted 46 $ 384.33 365 (1) $ 354.12 - $ - 411 $ 357.49 Vested ( 71 ) $ 144.46 ( 577 ) $ 91.50 ( 324 ) $ 23.57 ( 972 ) $ 72.69 Forfeited ( 11 ) $ 207.04 ( 12 ) $ 103.84 ( 12 ) $ 68.48 ( 35 ) $ 124.50 Outstanding at December 31, 2021 125 $ 235.82 1,166 $ 222.78 1,218 $ 44.59 2,509 $ 136.87 Granted 49 $ 390.89 35 (1)(2) $ 385.80 917 $ 199.63 1,001 $ 215.63 Vested ( 61 ) $ 193.18 ( 452 ) $ 147.78 ( 324 ) $ 23.57 ( 837 ) $ 103.02 Forfeited ( 7 ) $ 316.00 ( 1 ) $ 377.86 ( 6 ) $ 216.37 ( 14 ) $ 275.47 Outstanding at December 31, 2022 106 $ 327.13 748 $ 275.70 1,805 $ 126.57 2,659 $ 176.50 Granted 51 $ 472.38 281 (1) $ 449.38 31 $ 330.95 363 $ 444.86 Vested ( 49 ) $ 296.65 ( 543 ) $ 257.24 ( 319 ) $ 23.57 ( 911 ) $ 177.54 Forfeited ( 6 ) $ 387.61 ( 4 ) $ 315.19 ( 15 ) $ 110.65 ( 25 ) $ 209.23 Outstanding at December 31, 2023 102 $ 411.11 482 $ 397.77 1,502 $ 152.89 2,086 $ 222.04 ( 1 ) Amount reflects the number of awards that may ultimately be earned based on management’s probability assessment of the achievement of performance conditions at each reporting period. ( 2 ) Amount included grants and cancellations of the 2022 Executive PSUs as defined under the “2022 PSUs” section. 62 Table of Contents The intrinsic value related to vested RSUs was $ 461.3 million, $ 336.8 million and $ 381.2 million for the years ended December 31, 2023, 2022 and 2021 , respectively. As of December 31, 2023 , the total intrinsic value of all outstanding RSUs was $ 1.3 billion, based on the closing stock price of $ 630.78 . As of December 31, 2023 , unamortized compensation expense related to all outstanding RSUs was $ 232.6 million with a weighted-average remaining recognition period of approximately two years. Cash proceeds from vested PSUs with a purchase price totaled $ 1.1 million, $ 5.4 million and $ 17.3 million for the years ended December 31, 2023, 2022 and 2021, respectively. Time-Based RSUs For the years ended December 31, 2023, 2022 and 2021 , the Compensation Committee granted 51,000 , 49,000 and 46,000 RSUs, respectively, 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 service with the Company. PSUs and MPSUs 2023 PSUs: In February 2023, the Compensation Committee granted 69,000 PSUs to the executive officers, which represent a target number of shares that can be earned based on the degree of achievement of two sets of performance goals ( “2023 Executive PSUs”). For the first goal, the executive officers can earn up to 300 % of the target number of the 2023 Executive PSUs based on the achievement of the Company’s average three -year ( 2023 through 2025 ) revenue growth rate in excess of the analog industry’s average three -year revenue growth rate as published by the Semiconductor Industry Association (the “SIA”). For the second goal, the executive officers can earn up to an additional 200 % of the target number of the 2023 Executive PSUs if the Company secures additional manufacturing capacity outside China during a three -year performance period. For both goals, a percentage of the 2023 Executive PSUs will fully vest on December 31, 2025, depending on the degree to which the pre-determined goals are met during the performance periods. Assuming the achievement of the highest level of the performance goals, the total stock-based compensation cost for the 2023 Executive PSUs is $ 156.2 million. In February 2023, the Compensation Committee granted 13,000 PSUs to certain non-executive employees, which represent a target number of shares that can be earned based on the degree of achievement of the Company’s 2024 revenue goals for certain regions or product line divisions, or based on the degree of achievement of the Company’s average two -year ( 2023 and 2024 ) revenue growth rate compared against the analog industry’s average two -year revenue growth rate as published by the SIA ( “2023 Non-Executive PSUs”). The maximum number of shares that an employee can earn is either 200 % or 300 % of the target number of the 2023 Non-Executive PSUs, depending on the job classification of the employee. 50 % of the 2023 Non-Executive PSUs will vest in the first quarter of 2025 depending on the degree to which the pre-determined goals are met during the performance period. The remaining 2023 Non-Executive PSUs will vest over the following two years on a quarterly basis. Assuming the achievement of the highest level of performance goals, the total stock-based compensation cost for the 2023 Non-Executive PSUs is $ 13.8 million. The 2023 Executive PSUs and the 2023 Non-Executive PSUs contain a purchase price feature, which requires the employees to pay the Company $ 30 per share upon vesting of the shares. The $30 purchase price requirement is deemed satisfied and waived if the Company’s stock price on the last trading day of the performance period is $30 higher than the grant date stock price of $ 467.62 . The Company determined the grant date fair value of the 2023 Executive PSUs and the 2023 Non-Executive PSUs using a Monte Carlo simulation model with the following assumptions: stock price of $ 467.62 , simulation term of four years, expected volatility of 51.0 %, risk-free interest rate of 3.9 %, and expected dividend yield of 0.9 %. There is no illiquidity discount because the awards do not contain any post-vesting sales restrictions. 2022 PSUs: In February 2022, the Compensation Committee granted 81,000 PSUs to the executive officers, which represented a target number of shares that could be earned subject to the achievement of two sets of performance goals ( “2022 Executive PSUs”). For the first goal, the executive officers could earn up to 300 % of the target number of the 2022 Executive PSUs based on the achievement of the Company’s average two -year ( 2022 and 2023 ) revenue growth rate compared against the analog industry’s average two -year revenue growth rate as published by the SIA. 50 % of the 2022 Executive PSUs would vest in the first quarter of 2024 if the pre-determined revenue goal was met during the performance period. The remaining 2022 Executive PSUs would vest over the following two years on a quarterly basis. For the second goal, the executive officers could earn up to an additional 200 % of the target number of the 2022 Executive PSUs if the Company secured additional wafer capacity during a three -year performance period. The 2022 Executive PSUs related to the second goal would fully vest in the first quarter of 2025 if the pre-determined goal was met during the performance period. In addition, all vested shares related to the second goal would be subject to a post-vesting sales restriction period of one year. Assuming the achievement of the highest level of the performance goals, the total stock-based compensation cost for the 2022 Executive PSUs would be $ 142.7 million. The 2022 Executive PSUs were subsequently cancelled by the Board of Directors in October 2022. See the “2022 MSUs” section for further details. In February 2022, the Compensation Committee granted 14,000 PSUs to certain non-executive employees, which represented a target number of shares that could be earned subject to the achievement of the Company’s 2023 revenue goals for certain regions or product line divisions, or based on the achievement of the Company’s average two -year ( 2022 and 2023 ) revenue growth rate compared against the analog industry’s average two -year revenue growth rate as published by the SIA ( “2022 Non-Executive PSUs”). The maximum number of shares that an employee could earn was either 200 % or 300 % of the target number of the 2022 Non-Executive PSUs, depending on the job classification of the employee. Based on the actual revenue achievement at the end of the performance period, a total of 29,000 shares were awarded to the non-executive employees. 50 % of the 2022 Non-Executive PSUs will vest in the first quarter of 2024. The remaining 2022 Non-Executive PSUs will vest over the following two years on an annual or quarterly basis. Based on the actual achievement of the performance goals, the total stock-based compensation cost for the 2022 Non-Executive PSUs is $ 11.1 million. 63 Table of Contents The 2022 Executive PSUs and the 2022 Non-Executive PSUs contained a purchase price feature, which required the employees to pay the Company $ 30 per share upon vesting of the shares. The $30 purchase price requirement was deemed satisfied and waived if the average stock price for 20 consecutive trading days at any time during 2022 and 2023 was $30 higher than the grant date stock price of $ 393.16 . This market condition was achieved in the first quarter of 2022. The Company determined the grant date fair value of the 2022 Executive PSUs for the first goal and the 2022 Non-Executive PSUs using a Monte Carlo simulation model with the following assumptions: stock price of $ 393.16 , simulation term of four years, expected volatility of 44.6 %, risk-free interest rate of 1.5 %, and expected dividend yield of 0.8 %. In addition, for the 2022 Executive PSUs related to the second goal, the fair value was determined based on the closing stock price at the end of each reporting period, adjusted for accrued dividends and an illiquidity discount of 10.3 % to account for the post-vesting sales restrictions. 2021 PSUs: In February 2021, the Compensation Committee granted 80,000 PSUs to the executive officers, which represented a target number of shares that could be earned subject to the achievement of two sets of performance goals ( “2021 Executive PSUs”). For the first goal, the executive officers could earn up to 300 % of the target number of the 2021 Executive PSUs based on the achievement of the Company’s average two -year ( 2021 and 2022 ) revenue growth rate compared against the analog industry’s average two -year revenue growth rate as published by the SIA. Based on the actual revenue achievement at the end of the performance period, a total of 240,000 shares were awarded to the executive officers. 50 % of the 2021 Executive PSUs vested in the first quarter of 2023. The remaining 2021 Executive PSUs vest over the following two years on a quarterly basis. For the second goal, the executive officers could earn an additional 100% of the target number of the 2021 Executive PSUs subject to the achievement of three environmental objectives under the Company’s ESG initiatives with a performance period through December 31, 2023. As of December 31, 2023, all three environmental objectives were achieved and a total of 80,000 shares were awarded to the executive officers. The 2021 Executive PSUs related to the ESG goal fully vested upon achievement of the objectives. All vested shares related to the ESG goal are subject to a post-vesting sales restriction period of one year. Based on the actual achievement of the performance goals, the total stock-based compensation cost for the 2021 Executive PSUs is $ 114.4 million. In February 2021, the Compensation Committee granted 14,000 PSUs to certain non-executive employees, which represented a target number of shares that could be earned subject to the achievement of the Company’s 2022 revenue goals for certain regions or product line divisions, or based on the achievement of the Company’s average two -year ( 2021 and 2022 ) revenue growth rate compared against the analog industry’s average two -year revenue growth rate as published by the SIA ( “2021 Non-Executive PSUs”). The maximum number of shares that an employee could earn was either 200 % or 300 % of the target number of the 2021 Non-Executive PSUs, depending on the job classification of the employee. Based on the actual revenue achievement at the end of the performance period, a total of 33,000 shares were awarded to the non-executive employees. 50 % of the 2021 Non-Executive PSUs vested in the first quarter of 2023. The remaining 2021 Non-Executive PSUs vest over the following two years on an annual or quarterly basis. Based on the actual achievement of the performance goals, the total stock-based compensation cost for the 2021 Non-Executive PSUs is $ 11.9 million. The 2021 Executive PSUs and the 2021 Non-Executive PSUs contained a purchase price feature, which required the employees to pay the Company $ 30 per share upon vesting of the shares. The $30 purchase price requirement was deemed satisfied and waived if the average stock price for 20 consecutive trading days at any time between the grant date and December 31, 2022 was $30 higher than the grant date stock price of $ 374.57 . This market condition was achieved in the third quarter of 2021. The Company determined the grant date fair value of the 2021 Executive PSUs and the 2021 Non-Executive PSUs using a Monte Carlo simulation model with the following assumptions: stock price of $ 374.57 , simulation term of 4.0 years, expected volatility of 41.4 %, risk-free interest rate of 0.3 %, and expected dividend yield of 0.6 %. In addition, the grant date fair value for the 2021 Executive PSUs subject to the ESG goal included an illiquidity discount of 9.8 % to account for the post-vesting sales restrictions. 2020 PSUs: In February 2020 , the Compensation Committee granted 100,000 PSUs to the executive officers, which represented a target number of shares that could be earned based on the Company’s average two -year ( 2020 and 2021 ) revenue growth rate compared against the analog industry’s average two -year revenue growth rate as published by the SIA ( “2020 Executive PSUs”). The maximum number of shares that an executive officer could earn was 300 % of the target number of the 2020 Executive PSUs. Based on the actual revenue achievement at the end of the performance period, a total of 300,000 shares were awarded to the executive officers. 50 % of the 2020 Executive PSUs vested in the first quarter of 2022. The remaining 2020 Executive PSUs vest over the following two years on a quarterly basis. Based on the actual achievement of the performance goals, the total stock-based compensation cost for the 2020 Executive PSUs is $ 51.1 million. In February 2020 , the Compensation Committee granted 30,000 PSUs to certain non-executive employees, which represented a target number of shares that could be earned based on the Company’s 2021 revenue goals for certain regions or product line divisions, or based on the Company’s average two -year ( 2020 and 2021 ) revenue growth rate compared against the analog industry’s average two -year revenue growth rate as published by the SIA ( “2020 Non-Executive PSUs”). The maximum number of shares that an employee could earn was either 200 % or 300 % of the target number of the 2020 Non-Executive PSUs, depending on the job classification of the employee. Based on the actual revenue achievement at the end of the performance period, a total of 71,000 shares were awarded to the non-executive employees. 50 % of the 2020 Non-Executive PSUs vested in the first quarter of 2022. The remaining 2020 Non-Executive PSUs vest over the following two years on an annual or quarterly basis. Based on the actual achievement of the performance goals, the total stock-based compensation cost for the 2020 Non-Executive PSUs is $ 11.8 million. The 2020 Executive PSUs and the 2020 Non-Executive PSUs contained a purchase price feature, which required the employees to pay the Company $ 30 per share upon vesting of the shares. The $30 purchase price requirement was deemed satisfied and waived if the average stock price for 20 consecutive trading days at any time during the performance period was $30 higher than the grant date stock price of $ 182.62 . This market condition was achieved in the second quarter of 2020. The Company determined the grant date fair value of the 2020 Executive PSUs and the 2020 Non-Executive PSUs using a Monte Carlo simulation model with the following assumptions: stock price of $ 182.62 , simulation term of 2.0 years, expected volatility of 33.6 %, risk-free interest rate of 1.4 %, and expected dividend yield of 1.1 %. 64 Table of Contents 2020 MPSUs: In July 2020 , the Compensation Committee granted 43,000 MPSUs to the executive officers and 2,000 MPSUs to certain key employees, which represented a target number of shares that could be earned based on the achievement of both market and performance conditions ( “2020 MPSUs”). The maximum number of shares that an employee could earn was 500 % of the target number of the 2020 MPSUs. The market conditions consisted of five stock price targets ranging from $ 260 to $ 300 with a performance period through July 20, 2023 , and the performance condition consisted of one business operating goal related to a revenue target for certain customers with a performance period through December 31, 2021 . As of December 31, 2020, the Company had achieved all five price targets and the operating goal, and a total of 221,000 shares were awarded to the employees. 75 % of the 2020 MPSUs vested on July 20, 2023, and 25 % of the 2020 MPSUs will vest on July 20, 2024 . All vested shares are subject to a post-vesting sales restriction period of one year. Based on the actual achievement of the market and performance goals, the total stock-based compensation cost for the 2020 MPSUs is $ 42.1 million. The Company determined the grant date fair value of the 2020 MPSUs using a Monte Carlo simulation model with the following assumptions: stock price of $ 248.71 , simulation term of 4.0 years, expected volatility of 38.8 %, risk-free interest rate of 0.2 %, and expected dividend yield of 0.8 %. In addition, the grant date fair value included an illiquidity discount of 8.9 % to account for the post-vesting sales restrictions. MSUs 2022 MSUs: In October 2022, the Compensation Committee cancelled the 2022 Executive PSUs and granted 159,000 MSUs to the executive officers as replacement awards, which represented a target number of shares that could be earned subject to the achievement of both stock price targets and stock performance compared to the companies comprising the Philadelphia Semiconductor Sector Index (“Peer Group”) over a three -year performance period from October 25, 2022 to October 25, 2025 ( “2022 Executive MSUs”). The maximum number of shares that an executive officer could earn was 500 % of the target number of the 2022 Executive MSUs if: ( 1 ) the Company achieved five stock price targets ranging from $ 455 to $ 591 at any time during the performance period, and ( 2 ) the Company’s total stockholder return ranked in the 50 th percentile or above relative to the Peer Group at the end of the performance period. As of December 31, 2023, price targets one and two have been achieved. Upon achievement of the performance conditions, the 2022 Executive MSUs will fully vest on October 25, 2025. Under modification accounting, the total stock-based compensation cost was $ 119.2 million, which was subsequently updated to $ 124.3 million due to a change of application of accounting methodology. The total stock-based compensation cost of $ 124.3 million included the unamortized expense of $ 102.8 million related to 2022 Executive PSUs on the modification date and the incremental cost of $ 21.5 million related to the 2022 Executive MSUs as a result of the modification. The Company determined the grant date fair value of the 2022 Executive MSUs using a Monte Carlo simulation model with the following assumptions: stock price of $ 342.16 , simulation term of three years, expected volatility of 54.0 %, risk-free interest rate of 4.4 %, and an expected dividend yield of 0.9 %. There was no illiquidity discount because the awards did not contain any post-vesting sales restrictions. In February 2022, the Compensation Committee granted 24,000 MSUs to certain non-executive employees, which represented a target number of shares that could be earned upon achievement of stock price targets ( “2022 Non-Executive MSUs”). The maximum number of shares that an employee could earn was 500 % of the target number of the 2022 Non-Executive MSUs if the Company achieved five stock price targets ranging from $ 472 to $ 590 during a performance period from February 3, 2022 to February 3, 2025. As of December 31, 2023, the Company has achieved all stock price targets. The 2022 Non-Executive MSUs will vest in equal amounts on each of the first, second and third anniversaries of February 3, 2025. The total stock-based compensation cost for the 2022 Non-Executive MSUs is $ 30.1 million. The Company determined the grant date fair value of the 2022 Non-Executive MSUs using a Monte Carlo simulation model with the following assumptions: stock price of $ 393.16 , simulation term of six years, expected volatility of 39.0 %, risk-free interest rate of 1.7 %, and expected dividend yield of 0.8 %. 2018 MSUs: In October 2018, the Compensation Committee granted 60,000 MSUs to the executive officers and 60,000 MSUs to certain non-executive employees, which represented a target number of shares that could be earned upon achievement of stock price targets ( “2018 MSUs”). The maximum number of shares that an employee could earn was 500 % of the target number of the 2018 MSUs if the Company achieved five stock price targets ranging from $ 140 to $ 172 during a performance period from October 26, 2018 to December 31, 2023. As of December 31, 2019, all stock price targets had been achieved and the employees were awarded a total of 600,000 shares. The 2018 MSUs vested on January 1, 2024, with post-vesting sales restrictions on the vested shares for up to an additional two years. The total stock-based compensation cost for the 2018 MSUs is $ 38.5 million. The Company determined the grant date fair value of the 2018 MSUs using a Monte Carlo simulation model with the following assumptions: stock price of $ 108.43 , expected volatility of 31.6 %, a risk-free interest rate of 3.0 %, and an illiquidity discount of 8.7 % to account for the post-vesting sales restrictions. 2013 MSUs: In December 2013, the Compensation Committee granted 276,000 MSUs to the executive officers and 84,000 MSUs to certain non-executive employees, which represented a target number of shares that could be earned upon achievement of stock price targets ( “2013 MSUs”). The maximum number of shares that an employee could earn was 500 % of the target number of the 2013 MSUs if the Company achieved five price targets ranging from $ 40 to $ 56 during a performance period from January 1, 2014 to December 31, 2018. As of December 31, 2015, all stock price targets had been achieved and the employees were awarded a total of 1.8 million shares. The 2013 MSUs vested quarterly from January 1, 2019 to December 31, 2023. The total stock-based compensation cost for the 2013 MSUs is $ 38.1 million. The Company determined the grant date fair value of the 2013 MSUs using a Monte Carlo simulation model with the following assumptions: stock price of $ 31.73 , expected volatility of 38.7 % and a risk-free interest rate of 1.6 %. There was no illiquidity discount because the awards did not contain any post-vesting sales restrictions. 65 Table of Contents ESPP In April 2023, the Board of Directors approved, subject to stockholder approval, the amendment and restatement of the Monolithic Power Systems, Inc. 2004 Employee Stock Purchase Plan (the “Amended 2004 ESPP”). The Amended 2004 ESPP, which was subsequently approved by the Company’s stockholders on June 15, 2023, became effective on August 16, 2023, after the final purchase period of the Monolithic Power Systems, Inc. 2004 Employee Stock Purchase Plan (the “2004 ESPP”). The 2004 ESPP provided for an annual increase by an amount equal to the least of one million shares, 2 % of the outstanding shares of common stock on the first day of the year, or a number of shares as determined by the Board of Directors. This evergreen provision was removed in the Amended 2004 ESPP. The Amended 2004 ESPP further provides for the issuance of up to 4.4 million shares of the Company’s common stock and will expire on August 16, 2038. Under both ESPPs, eligible employees may purchase common stock through payroll deductions. Participants may not purchase more than 2,000 shares in a six -month offering period, or purchase shares having a value greater than $ 25,000 in any calendar year as measured at the beginning of the offering period in accordance with the IRC and applicable treasury regulations. As of December 31, 2023, 4.4 million shares were available for future issuance under the Amended 2004 ESPP. For the years ended December 31, 2023, 2022 and 2021 , 17,000 , 14,000 and 17,000 shares, respectively, were issued under the 2004 ESPP and the Amended 2004 ESPP. The intrinsic value of the shares issued was $ 1.4 million, $ 1.6 million and $ 2.4 million for the years ended December 31, 2023, 2022 and 2021 , respectively. As of December 31, 2023 , the unamortized expense was $ 0.4 million, which will be recognized through the first quarter of 2024. The Black-Scholes model was used to value the employee stock purchase rights with the following weighted-average assumptions: Year Ended December 31, 2023 2022 2021 Expected term (in years) 0.5 0.5 0.5 Expected volatility 53.3 % 50.6 % 43.2 % Risk-free interest rate 5.3 % 1.9 % 0.1 % Dividend yield 0.8 % 0.6 % 0.6 % Cash proceeds from the shares issued under the 2004 ESPP and the Amended 2004 ESPP were $ 7.6 million, $ 5.9 million and $ 4.7 million for the years ended December 31, 2023, 2022 and 2021 , respectively. 8. STOCKHOLDER’ EQUITY Cash Dividend Program The Company has a dividend program approved by the Board of Directors, 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 the Board of Directors, which are payable to the stockholders in the following month. The Board of Directors declared the following cash dividends (in thousands, except per share amounts): Year Ended December 31, 2023 2022 2021 Dividend declared per share $ 4.00 $ 3.00 $ 2.40 Total amount $ 190,642 $ 140,337 $ 110,206 As of December 31, 2023 and 2022 , accrued dividends totaled $ 47.9 million and $ 35.3 million, respectively. 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, 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 Company’s stockholders. The Company anticipates that cash used for future dividend payments will come from its domestic cash, cash generated from ongoing U.S. operations, and cash repatriated from its Bermuda subsidiary. The Company also anticipates that earnings from other foreign subsidiaries will continue to be indefinitely reinvested. Cash Dividend Equivalent Rights The Company’s 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 the requisite service requirement and, as a result, the awards do not vest. As of December 31, 2023 and 2022 , accrued dividend equivalents totaled $ 11.9 million and $ 13.8 million, respectively. 66 Table of Contents Stock Repurchase Program In October 2023, the Board of Directors approved a new stock repurchase program authorizing the Company to repurchase up to $ 640.0 million in the aggregate of its common stock through October 29, 2026. Shares are retired upon repurchase. The Company repurchased approximately 7,000 shares of its common stock for an aggregate purchase price of $ 3.7 million during the year ended December 31, 2023. Stock repurchased under the program may be made through open market repurchases, privately negotiated transactions or other structures in accordance with applicable state and federal securities laws, at times and in amounts as management deems appropriate. The timing and the number of any repurchased common stock will be determined by the Company’s management based on its evaluation of market conditions, legal requirements, share price, and other factors. The repurchase program does not obligate the Company to purchase any particular number of shares and may be suspended, modified, or discontinued at any time without prior notice. The U.S. IRA requires a 1% excise tax of the value of certain stock repurchases in excess of stock issued for employee compensation made after December 31, 2022. This provision did not have an impact on the Company’s consolidated financial statements. 9. OTHER INCOME (EXPENSE), NET The components of other income (expense), net, are as follows (in thousands): Year Ended December 31, 2023 2022 2021 Interest income $ 23,363 $ 14,369 $ 11,637 Amortization of discount (premium) on available-for-sale securities, net 5,277 ( 4,375 ) ( 4,674 ) Gain (loss) on deferred compensation plan investments 8,505 ( 6,600 ) 4,563 Charitable contributions ( 14,850 ) ( 5,900 ) ( 1,500 ) Gain on sale of equity investment 1,424 - - Other 386 658 ( 224 ) Total $ 24,105 $ ( 1,848 ) $ 9,802 10. NET INCOME PER SHARE The following table sets forth the computation of basic and diluted net income per share (in thousands, except per share amounts): Year Ended December 31, 2023 2022 2021 Numerator: Net income $ 427,374 $ 437,672 $ 242,023 Denominator: Weighted-average outstanding shares - basic 47,610 46,727 45,851 Effect of dilutive securities 1,161 1,631 2,038 Weighted-average outstanding shares - diluted 48,771 48,358 47,889 Net income per share: Basic $ 8.98 $ 9.37 $ 5.28 Diluted $ 8.76 $ 9.05 $ 5.05 Anti-dilutive common stock equivalents were not material for the periods presented. 67 Table of Contents 11. INCOME TAXES The components of income before income taxes are as follows (in thousands): Year Ended December 31, 2023 2022 2021 United States $ ( 15,066 ) $ ( 30,190 ) $ ( 15,542 ) Foreign 520,907 555,127 287,761 Income before income taxes $ 505,841 $ 524,937 $ 272,219 The components of the income tax expense are as follows (in thousands): Year Ended December 31, 2023 2022 2021 Current: Federal $ 61,064 $ 95,176 $ 24,955 State 4,257 12 35 Foreign 5,702 5,019 3,801 Deferred: Federal ( 1,705 ) ( 8,523 ) 4,929 State ( 744 ) - - Foreign 9,893 ( 4,419 ) ( 3,524 ) Income tax expense $ 78,467 $ 87,265 $ 30,196 The effective tax rate differs from the applicable U.S. statutory federal income tax rate as follows: Year Ended December 31, 2023 2022 2021 U.S. statutory federal tax rate 21.0 % 21.0 % 21.0 % Foreign income at lower rates ( 21.9 ) ( 22.8 ) ( 23.2 ) GILTI 13.5 16.0 11.4 Changes in valuation allowance 2.9 0.2 0.5 Stock-based compensation 2.2 2.8 1.6 Return to provision true-up adjustment ( 2.0 ) - ( 1.1 ) Tax credits, net of reserves ( 1.1 ) ( 1.2 ) ( 0.5 ) State income taxes - ( 0.2 ) 1.6 Other adjustments 0.9 0.8 ( 0.2 ) Effective tax rate 15.5 % 16.6 % 11.1 % The prior years’ return to provision true-up adjustment has been disaggregated to conform with the current-year presentation. The components of net deferred tax assets consist of the following (in thousands): December 31, 2023 2022 Deferred tax assets: Tax credits $ 37,518 $ 32,037 Stock-based compensation 3,404 2,900 Deferred compensation 11,126 9,844 Net operating losses 12,115 9,000 Other expenses not currently deductible 7,755 8,891 Deferred tax assets, gross 71,918 62,672 Valuation allowance ( 35,008 ) ( 20,321 ) Deferred tax assets, net of valuation allowance 36,910 42,351 Deferred tax liabilities: Depreciation and amortization ( 6,420 ) ( 5,927 ) Undistributed foreign earnings ( 817 ) ( 358 ) Other expenses currently deductible ( 1,619 ) ( 814 ) Deferred tax liabilities ( 8,856 ) ( 7,099 ) Net deferred tax assets $ 28,054 $ 35,252 68 Table of Contents GILTI: The Company accounts for GILTI as a period cost. Valuation Allowance: The Company periodically evaluates its deferred tax assets, including a determination of whether a valuation allowance is necessary, based upon its ability to utilize the assets using a more likely than not analysis. The realizability of the Company’s net deferred tax assets is dependent on its ability to generate sufficient future taxable income during periods prior to the expiration of tax attributes to fully utilize these assets. As of December 31, 2023 and 2022 , the Company has evaluated the realization of its deferred tax assets and recorded a valuation allowance for assets that do not meet the more-likely-than- not recognition threshold. A reconciliation of the beginning and ending balance of valuation allowances is as follows (in thousands): Period Balance at Beginning of Period Additions Reductions Balance at End of Period Year ended December 31, 2021 $ 18,190 $ 1,560 $ ( 230 ) $ 19,520 Year ended December 31, 2022 $ 19,520 $ 1,743 $ ( 942 ) $ 20,321 Year ended December 31, 2023 $ 20,321 $ 15,405 $ ( 718 ) $ 35,008 The additions in 2023 were primarily the result of a change in foreign tax law in 2023 that negatively impacted the realizability of foreign deferred tax assets. Undistributed Earnings of Subsidiaries: The Company has analyzed its global working capital and cash requirements, and has determined that it plans to repatriate cash from its Bermuda subsidiary on an ongoing basis to fund its future U.S.-based expenditures and dividends. For the years ended December 31, 2023 and 2021, the Company repatriated $ 140.0 million and $ 70.0 million from its Bermuda subsidiary, respectively. No cash was repatriated from the subsidiary during the year ended December 31, 2022. For all other foreign subsidiaries, the Company expects to indefinitely reinvest undistributed earnings to fund their operations and R&D. As of December 31, 2023 and 2022 , the undistributed earnings were approximately $ 85.0 million and $ 67.4 million, respectively. An actual repatriation of the undistributed earnings could be subject to additional foreign withholding taxes and U.S. state taxes. The Company expects to be able to take a dividend received deduction to offset any U.S. federal income tax liability on the undistributed earnings. Determination of the unrecognized state and withholding deferred tax liability is not practicable at this time due to the complexities associated with the hypothetical calculation. Other Income Tax Provision Matters As of December 31, 2023 , the Company did not have federal net operating loss carryforwards. As of December 31, 2023 , the state net operating loss carryforwards for income tax purposes were $ 3.6 million, which will expire beginning in 2029. As of December 31, 2023 , the Company has foreign net operating loss carryforwards for income tax purposes of $ 92.7 million, which will expire beginning in 2029. As of December 31, 2023 , the Company had no R&D tax credit carryforwards for federal income tax purposes, and $ 40.6 million for state income tax purposes, which can be carried forward indefinitely. In the event of a change in ownership, as defined under federal and state tax laws, the Company’s net operating loss and tax credit carryforwards could be subject to annual limitations. The annual limitations could result in the expiration of the net operating loss and tax credit carryforwards prior to utilization.   As of December 31, 2023 , the Company had $ 62.7 million of unrecognized tax benefits, $ 48.9 million of which would affect its effective tax rate if recognized after considering the valuation allowance. As of December 31, 2022 , the Company had $ 49.3 million of unrecognized tax benefits, $ 38.3 million of which would affect its effective tax rate if recognized after considering the valuation allowance. A reconciliation of the gross unrecognized tax benefits is as follows (in thousands): Balance as of January 1, 2021 $ 33,499 Increase for tax position of current year 9,191 Decrease for tax position of prior year ( 657 ) Decrease due to settlement with tax authorities ( 54 ) Decrease due to lapse of statute of limitation ( 458 ) Balance as of December 31, 2021 41,521 Increase for tax position of current year 10,965 Increase for tax position of prior year 247 Decrease due to settlement with tax authorities ( 970 ) Decrease due to lapse of statute of limitation ( 2,486 ) Balance as of December 31, 2022 49,277 Increase for tax position of current year 14,108 Increase for tax position of prior year 2,209 Decrease due to lapse of statute of limitation ( 1,926 ) Decrease for tax positions of prior year ( 1,008 ) Balance as of December 31, 2023 $ 62,660 The Company recognizes interest and penalties, if any, related to uncertain tax positions in its income tax provision. As of December 31, 2023 and 2022 , the Company has $ 5.7 million and $ 4.3 million, respectively, of accrued interest related to uncertain tax positions, which were recorded in income tax liabilities on the Consolidated Balance Sheets.   Uncertain tax positions relate to the allocation of income and deductions among the Company’s global entities and to the determination of the R&D tax credit. It is reasonably possible that the balance of gross unrecognized tax benefits could significantly change in the next 12 months. However, it is not possible to determine either the magnitude or the range of increases or decreases at this time.   69 Table of Contents The Company currently has reduced tax rates in its subsidiaries in Chengdu and Hangzhou, China through 2026 and 2024, respectively, for performing R&D activities. On December 27, 2023, the Bermuda CIT Act was enacted and signed into law. It includes a 15% CIT applicable to Bermuda businesses that are MNE with annual revenue of €750M or more beginning in 2025. The Bermuda CIT Act also includes an ETA that requires MNE’s to revalue their assets and liabilities, excluding goodwill, at their fair value as of September 30, 2023. There is an election to opt out of the ETA. As the Bermuda CIT Act is not effective until January 1, 2025, the Company is evaluating whether or not to adopt this ETA. Based on the information available, the Company has not recorded any changes to income tax expense related to the Bermuda CIT Act as of December 31, 2023 . On August 9, 2022, the U.S. government enacted the CHIPS Act to provide certain financial and tax incentives to the semiconductor industry, primarily for manufacturing activities within the United States. On August 16, 2022, the IRA was enacted and signed into law. The IRA, among other things, introduces a new 15% corporate minimum tax, based on adjusted financial statement income of certain large corporations, and imposes a 1% excise tax on certain stock repurchases. This excise tax is effective January 1, 2023. The CHIPS Act and the IRA had no material impact on the income tax provisions, results of operations or financial condition of the Company for the year ended December 31, 2023 and 2022. Income Tax Examination The Company is subject to examination of its income tax returns by the IRS and other tax authorities. In general, the tax years for 2007 and forward are open for examination for U.S. federal and state income tax purposes. 12. COMMITMENTS AND CONTINGENCIES Warranty and Indemnification Provisions The changes in warranty reserves are as follows (in thousands): Year Ended December 31, 2023 2022 2021 Balance at beginning of period $ 24,082 $ 20,989 $ 6,895 Warranties issued 2,929 3,092 10,558 Repairs, replacement and refund ( 2,708 ) ( 2,357 ) ( 1,770 ) Changes in liability for pre-existing warranties ( 7,397 ) 2,358 5,306 Balance at end of period $ 16,906 $ 24,082 $ 20,989 Changes in liability for pre-existing warranties result from changes in estimates for warranties issued in prior periods. The Company provides indemnification agreements to certain direct or indirect customers. The Company agrees to reimburse these parties for any damages, costs and expenses incurred by them as a result of legal actions taken against them by third parties for infringing upon their intellectual property rights as a result of using the Company’s products and technologies. These indemnification provisions are varied in scope and are subject to certain terms, conditions, limitations and exclusions. In addition, the Company has entered into indemnification agreements with its directors and officers. It is not possible to predict the maximum potential amount of future payments under these agreements due to the limited history of indemnification claims and the unique facts and circumstances involved in each particular agreement. There were no indemnification liabilities incurred for the periods presented. However, there can be no assurances that the Company will not incur any financial liabilities in the future as a result of these obligations. Purchase Commitments The Company has outstanding purchase obligations with its suppliers and other parties that require the purchases of goods or services. The purchase obligations primarily consist of wafer and other inventory purchases, assembly and other manufacturing services, construction of manufacturing and R&D facilities, purchases of production and other equipment, and license arrangements. In May 2022, the Company entered into a long-term supply agreement in order to secure manufacturing production capacity for silicon wafers over a four -year period. As of December 31, 2023 , the Company had remaining prepayments under this agreement of $ 120.0 million reported in other long-term assets on the Consolidated Balance Sheet. Total estimated future unconditional purchase commitments to all suppliers and other parties, net of the $120.0 million prepayment, as of December 31, 2023 were as follows (in thousands): 2024 $ 367,842 2025 298,958 2026 1,668 2027 31,266 Total $ 699,734 Litigation The Company is a party to actions and proceedings in the ordinary course of business, including 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. The Company may also be subject to litigation initiated by its stockholders. 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. As of December 31, 2023 , there were no material pending legal proceedings to which the Company was a party. 70 Table of Contents 13. EMPLOYEE 401 (k) PLAN The Company sponsors a 401 (k) retirement savings plan for all employees in the U.S. who meet certain eligibility requirements. Participants may contribute up to the amount allowable as a deduction for federal income tax purposes. The Company is not required to contribute and did not contribute to the plan for the years ended December 31, 2023, 2022 and 2021 . 14. SIGNIFICANT CUSTOMERS The Company sells its products primarily through third -party distributors and value-added resellers, and directly to OEMs, ODMs and EMS providers. The following table summarizes those customers with sales equal to 10% or more of the Company’s total revenue: Year Ended December 31, Customer 2023 2022 2021 Distributor A 26 % 24 % 26 % Distributor B 19 % 19 % 15 % Distributor C 10 % * 10 % * Represents less than 10%. The Company’s agreements with these third -party customers were made in the ordinary course of business and may be terminated with or without cause by these customers 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 any of the distributors were 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 short period following any termination of the agreement with a distributor. The following table summarizes those customers with accounts receivable equal to 10% or more of the Company’s total accounts receivable: December 31, Customer 2023 2022 Distributor A 42 % 29 % Distributor B 13 % 23 % Distributor C 10 % * * Represents less than 10%. 71 Table of Contents 15. SEGMENT AND GEOGRAPHIC INFORMATION The Company operates in one reportable segment that includes the design, development, marketing and sale of high-performance, semiconductor-based power electronic solutions for the storage and computing, enterprise data, automotive, industrial, communications and consumer markets. The Company’s chief operating decision maker is its Chief Executive Officer, who reviews financial information presented on a consolidated basis for the 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 following is a summary of revenue by geographic region (in thousands): Year Ended December 31, Country or Region 2023 2022 2021 China $ 934,768 $ 938,946 $ 700,985 Taiwan 307,499 233,040 169,130 South Korea 169,867 189,478 93,027 Europe 132,620 145,584 85,201 United States 97,294 99,804 35,770 Japan 93,340 91,048 68,720 Southeast Asia 85,150 95,739 54,611 Other 534 509 354 Total $ 1,821,072 $ 1,794,148 $ 1,207,798 The following is a summary of revenue by major product family (in thousands): Year Ended December 31, Product Family 2023 2022 2021 DC to DC $ 1,718,623 $ 1,696,594 $ 1,147,329 Lighting Control 102,449 97,554 60,469 Total $ 1,821,072 $ 1,794,148 $ 1,207,798 The following is a summary of long-lived assets by geographic region (in thousands): December 31, Country 2023 2022 2021 China $ 184,685 $ 200,508 $ 211,973 United States 119,430 113,996 113,805 Taiwan 39,419 20,074 19,607 Other 25,418 22,579 17,577 Total $ 368,952 $ 357,157 $ 362,962 16. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) The following table summarizes the changes in accumulated other comprehensive income (loss) (in thousands): Unrealized Losses on Available-for-Sale Securities Foreign Currency Translation Adjustments Total Balance as of January 1, 2022 $ ( 1,063 ) $ 16,943 $ 15,880 Other comprehensive loss before reclassifications ( 6,944 ) ( 32,293 ) ( 39,237 ) Amounts reclassified from accumulated other comprehensive loss 96 - 96 Tax effect 184 - 184 Net current period other comprehensive loss ( 6,664 ) ( 32,293 ) ( 38,957 ) Balance as of December 31, 2022 ( 7,727 ) ( 15,350 ) ( 23,077 ) Other comprehensive income (loss) before reclassifications 6,896 ( 9,528 ) ( 2,632 ) Amounts reclassified from accumulated other comprehensive income ( 1 ) - ( 1 ) Tax effect ( 1,352 ) - ( 1,352 ) Net current period other comprehensive income (loss) 5,543 ( 9,528 ) ( 3,985 ) Balance as of December 31, 2023 $ ( 2,184 ) $ ( 24,878 ) $ ( 27,062 ) The amounts reclassified from accumulated other comprehensive income (loss) were recorded in other income (expense), net, on the Consolidated Statements of Operations. 72 Table of Contents 17. SUBSEQUENT EVENTS Acquisition In January 2024, the Company completed the acquisition of Axign in a cash transaction in exchange for all outstanding Axign shares. Axign is a Dutch company that designs and develops class-D audio ICs, targeting applications ranging from portable consumer speakers to automotive and professional-grade multi-speaker systems. The preliminary total purchase consideration was approximately $ 33.8 million. The initial accounting for the acquisition, including the valuation of assets acquired and liabilities assumed, is still ongoing as of the date this Annual Report on Form 10 -K is issued. Cash Dividend Increase In February 2024 , the Board of Directors approved an increase in quarterly cash dividends from $ 1.00 per share to $ 1.25 per share. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.