Financial Data and Key Metrics - Q2 revenues were $106 million, up 16% sequentially, slightly above the midpoint of guidance [8] - Non-GAAP earnings were $0.28 per diluted share, above guidance due to better gross margin and operating expenses [8] - Non-GAAP gross margin was 54.1%, up more than 1 percentage point sequentially, driven by favorable yen exchange rates and higher manufacturing volumes [9] - Inventory days decreased to 312, down 37 days from the prior quarter [9] - Q3 revenue guidance is $115 million, plus or minus $5 million, representing an 8% sequential increase at the midpoint [10] - Non-GAAP gross margin for Q3 is expected to be between 54.5% and 55% [10] Business Line Performance - Consumer category, the largest segment, saw high-teens sequential growth, driven by strength in major and small appliances, as well as air conditioning [8] - Industrial category revenues grew mid-single digits sequentially, supported by improved inventories and design wins in metering applications [8] - Computer category revenues increased more than 40% sequentially, driven by tablets, aftermarket notebook chargers, and monitors [8] - Communication category revenues grew 10% sequentially, due to inventory clearance at a key handset customer [8] Market Performance - In China, appliance demand remains soft, with no significant pickup in demand despite inventory normalization [12] - The cell phone market in China has shifted towards low-end phones, with Huawei gaining share in the high-end segment, negatively impacting the company's performance [12][13] - Outside of China, the company is performing well, with overall growth (excluding cell phones) projected to exceed 15% for the year [13] - India's metering market shows strong interest in higher voltage GaN products, with plans to deploy 250 million new meters in the coming years [6] Strategic Direction and Industry Competition - The company expects 2025 to be an inflection point for GaN adoption, driven by product portfolio migration from silicon to GaN and broader customer awareness [6] - GaN revenue is projected to grow by 50% in 2025, with potential to reach $100 million by 2028 [18] - The acquisition of Odyssey Semiconductor adds expertise in vertical GaN technology, aiming to address high-power applications like EV drivetrain inverters [7] - The company continues to win market share in appliances, leveraging its leadership in energy-efficient power supplies and new product innovations like BridgeSwitch 2 and InnoMux-2 [4][5] Management Commentary on Operating Environment and Future Outlook - Near-term visibility remains limited, with customers ordering products only when needed due to cautious behavior and short lead times [3] - The recovery is being led by the consumer category, which has seen a 70% revenue increase over the past two quarters [3] - The company expects seasonally lower air conditioning sales in Q3 but remains optimistic about the fundamental strength of its consumer business [4] - Automotive is seen as a significant growth opportunity, with the company expected to be in production with 20 EV OEMs by year-end and 10 more in 2025 [7] Other Important Information - Distribution inventory ended the quarter at 7.8 weeks, down from 8.8 weeks in the prior quarter and well below the peak of 13.6 weeks in Q3 2022 [3][9] - The company repurchased 164,000 shares for $11 million during the quarter and paid $11 million in dividends [9] - Non-GAAP operating expenses for Q3 are expected to be between $44.5 million and $45 million, driven by the Odyssey acquisition [10] Q&A Session Question: Geographic performance, particularly in China - In China, appliance demand remains weak, with no significant pickup expected due to challenges in the real estate market [12] - The cell phone market in China has shifted towards low-end phones, with Huawei gaining share in the high-end segment, negatively impacting the company's performance [12][13] - Outside of China, the company is performing well, with overall growth (excluding cell phones) projected to exceed 15% for the year [13] Question: Second-half outlook and factors influencing growth - The inventory situation has normalized, but demand visibility remains poor, with customers ordering at the last minute [16] - Growth in the second half is expected to be slower than anticipated, with limited visibility into Q4 [16] Question: GaN adoption and future revenue potential - GaN adoption is expected to accelerate in 2025, driven by new product introductions and broader market awareness [18] - GaN revenue could grow by 50% in 2025, with potential to reach $100 million by 2028 [18] Question: Impact of yen fluctuations on financials - A 10% change in the yen typically affects gross margin by 120 basis points, with the impact flowing into the P&L over three to four quarters due to higher inventory levels [20] - Recent yen fluctuations are expected to impact the P&L in Q4 2025 or Q1 2026 [20]

Earnings Performance - Power Integrations reported quarterly earnings of $0 28 per share, beating the Zacks Consensus Estimate of $0 26 per share [1] - This represents a 7 69% earnings surprise compared to the consensus estimate [2] - The company has surpassed consensus EPS estimates three times over the last four quarters [2] Revenue Performance - Power Integrations posted revenues of $106 2 million for the quarter ended June 2024, surpassing the Zacks Consensus Estimate by 1 14% [3] - This compares to year-ago revenues of $123 22 million [3] - The company has topped consensus revenue estimates two times over the last four quarters [3] Stock Performance - Power Integrations shares have lost about 21 2% since the beginning of the year, compared to the S&P 500's gain of 8 7% [4] - The stock is currently rated Zacks Rank 4 (Sell), indicating expected underperformance in the near future [7] Earnings Outlook - The current consensus EPS estimate is $0 40 on $123 12 million in revenues for the coming quarter [8] - For the current fiscal year, the consensus EPS estimate is $1 33 on $452 92 million in revenues [8] Industry Context - Power Integrations belongs to the Zacks Semiconductors - Power industry, which is currently in the bottom 4% of the 250 plus Zacks industries [9] - The top 50% of Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1 [9] Peer Comparison - Analog Devices (ADI), another company in the Zacks Computer and Technology sector, is expected to report quarterly earnings of $1 50 per share, representing a year-over-year change of -39 8% [10] - Analog Devices' revenues are expected to be $2 27 billion, down 26 1% from the year-ago quarter [11]

Revenue and Profit Performance - Net revenues for Q2 2024 were $106.2 million, a decrease from $123.2 million in Q2 2023[6] - Gross profit for Q2 2024 was $56.5 million, down from $62.8 million in Q2 2023[6] - Net income for Q2 2024 was $4.8 million, compared to $14.8 million in Q2 2023[6] - Net income for the six months ended June 30, 2024, was $8.8 million, compared to $21.7 million in the same period in 2023[11] - Total comprehensive income for Q2 2024 was $4.2 million, down from $14.1 million in Q2 2023[7] - Net revenues for the three and six months ended June 30, 2024 were $106.2 million and $197.9 million, respectively, compared to $123.2 million and $229.5 million in the corresponding periods of 2023[69] - Gross margin increased to 53% and 52.7% for the three and six months ended June 30, 2024, respectively, up from 51% and 50.9% in the corresponding periods of 2023[69][75] Expenses and Operating Costs - Research and development expenses increased to $26.0 million in Q2 2024 from $24.5 million in Q2 2023[6] - Total operating expenses for Q2 2024 were $54.6 million, up from $50.2 million in Q2 2023[6] - Total operating expenses increased to $54.6 million and $101.9 million for the three and six months ended June 30, 2024, respectively, compared to $50.2 million and $98.4 million in the corresponding periods of 2023[69] - R&D expenses increased to $26.0 million and $49.3 million for the three and six months ended June 30, 2024, respectively, compared to $24.5 million and $48.5 million in the corresponding periods of 2023[77] - Sales and marketing expenses increased to $18.1 million and $33.8 million for the three and six months ended June 30, 2024, respectively, compared to $17.0 million and $32.9 million in the corresponding periods of 2023[78] - G&A expenses increased to $10.5 million and $18.8 million for the three and six months ended June 30, 2024, respectively, compared to $8.7 million and $17.0 million in the corresponding periods of 2023[79] Cash Flow and Liquidity - Cash and cash equivalents decreased to $50.5 million as of June 30, 2024, from $63.9 million as of December 31, 2023[5] - Net cash provided by operating activities for the six months ended June 30, 2024, was $33.5 million, compared to $22.8 million in 2023[11] - Net cash used in investing activities for the six months ended June 30, 2024, was $948 thousand, compared to $19.3 million in 2023[11] - Cash, cash equivalents, and short-term marketable securities decreased by $21.1 million to $290.5 million as of June 30, 2024, from $311.6 million as of December 31, 2023[82] - Operating activities generated $33.5 million of cash in the six months ended June 30, 2024, compared to $22.8 million in the same period of 2023[83][84] - Investing activities resulted in a $0.9 million net use of cash in the six months ended June 30, 2024, primarily due to $8.5 million used for purchases of property and equipment[85] - Financing activities resulted in a $46.0 million net use of cash in the six months ended June 30, 2024, including $26.0 million for stock repurchases and $22.7 million for dividend payments[86] - The company's working capital decreased by $13.1 million to $449.6 million as of June 30, 2024, from $462.7 million as of December 31, 2023[82] - The company believes existing liquidity and cash generated from operations will satisfy working capital and other cash requirements for at least the next 12 months[89] Stock Repurchases and Dividends - Repurchase of common stock for the six months ended June 30, 2024, was $25.9 million, significantly higher than $5.9 million in 2023[11] - Payments of dividends to stockholders for the six months ended June 30, 2024, were $22.7 million, slightly higher than $21.7 million in 2023[11] - The company repurchased 164,000 shares for $11.3 million in Q2 2024 and 371,000 shares for $26.0 million in the first half of 2024, exhausting its authorized stock repurchase program[49] - Cash dividends declared and paid in Q2 2024 were $11.4 million, or $0.20 per share, compared to $10.9 million, or $0.19 per share, in Q2 2023[50] - Dividend payouts of $11.4 million occurred on March 28, 2024, and June 28, 2024, with quarterly dividends raised to $0.20 per share in October 2023[86] Assets and Liabilities - Total current assets were $499.8 million as of June 30, 2024, down from $511.6 million as of December 31, 2023[5] - Total liabilities increased to $74.0 million as of June 30, 2024, from $67.6 million as of December 31, 2023[5] - Accounts receivable trade as of June 30, 2024, was $46.8 million, down from $53.1 million as of December 31, 2023[17] - Allowance for credit losses as of June 30, 2024, was $1.0 million, up from $681 thousand as of December 31, 2023[17] - Total inventories increased to $169,884 thousand as of June 30, 2024, compared to $163,164 thousand as of December 31, 2023[20] - Intangible assets decreased to $3,561 thousand as of June 30, 2024, from $4,424 thousand as of December 31, 2023[21] - Accumulated other comprehensive loss increased to $3,189 thousand as of June 30, 2024, compared to $5,757 thousand as of June 30, 2023[24] - Total fair value of marketable securities was $267,688 thousand as of June 30, 2024, with $267,197 thousand classified under Level 2 of the fair-value hierarchy[28] - Investments due in 3 months or less had an estimated fair market value of $3,975 thousand as of June 30, 2024[30] - Total marketable securities as of December 31, 2023, were valued at $247,640 thousand, with $247,384 thousand in amortized cost[31] - Total marketable securities as of June 30, 2024, had a fair market value of $190.3 million with gross unrealized losses of $869,000[32] Stock-Based Compensation - Stock-based compensation expense for the six months ended June 30, 2024, was $17.4 million, up from $14.1 million in 2023[11] - Stock-based compensation expense for the three months ended June 30, 2024, was $11.0 million, with $6.3 million related to RSU awards and $4.3 million related to PSU and PRSU awards[35] - Stock-based compensation expense for the six months ended June 30, 2024, was $17.4 million, with $12.4 million related to RSUs and $4.3 million related to PSUs and PRSUs[35] - Approximately 38,000 shares subject to PSUs granted in 2023 vested and were released to employees and executives in Q1 2024[37] - PRSUs outstanding as of June 30, 2024, had an aggregate intrinsic value of $30.7 million with a weighted-average remaining contractual term of 1.67 years[39] - RSUs outstanding as of June 30, 2024, had an aggregate intrinsic value of $72.1 million with a weighted-average remaining contractual term of 1.84 years[40] Sales and Customer Concentration - The top ten customers accounted for approximately 80% and 78% of net revenues for the three and six months ended June 30, 2024, respectively[42] - Sales to distributors were $73.5 million and $139.9 million for the three and six months ended June 30, 2024, respectively[42] - Avnet represented 28% and 29% of net revenues for the three and six months ended June 30, 2024, respectively[43] - Avnet accounted for 27% of accounts receivable as of June 30, 2024[46] - International sales accounted for $104.6 million and $194.6 million in the three and six months ended June 30, 2024, respectively, representing 85% and 83% of net revenues[72] - Sales to distributors accounted for 69% and 71% of net revenues in the three and six months ended June 30, 2024, respectively, up from 64% and 63% in the corresponding periods of 2023[72] Geographic Revenue - Geographic net revenues for the three months ended June 30, 2024, were $106.2 million, a decrease from $123.2 million in the same period in 2023[47] - Hong Kong/China contributed $63.1 million to net revenues in Q2 2024, down from $76.5 million in Q2 2023[47] - Total net revenues for the six months ended June 30, 2024, were $197.9 million, compared to $229.5 million in the same period in 2023[47] Earnings Per Share and Tax Rates - Earnings per share (diluted) for Q2 2024 were $0.09, compared to $0.26 in Q2 2023[6] - Basic earnings per share for Q2 2024 were $0.09, down from $0.26 in Q2 2023[52] - The company's effective tax rate for Q2 2024 was 5.8%, compared to 3.7% in Q2 2023[53] - The effective tax rate was 5.8% and 3.5% for the three and six months ended June 30, 2024, respectively, compared to 3.7% and 5.1% in the corresponding periods of 2023[80] - Effective tax rates for the three and six months ended June 30, 2024 were 5.8% and 3.5%, respectively, compared to 3.7% and 5.1% in the corresponding periods of 2023[81] - The company's effective tax rate was favorably impacted by excess tax benefits related to share-based payments in both Q2 2024 and Q2 2023[53] - The company maintains a valuation allowance on its California and New Jersey deferred tax assets, as well as deferred tax assets related to tax credits in Canada[53] Legal and Regulatory Matters - The company is involved in ongoing legal proceedings, including a patent infringement case with CogniPower LLC, with a trial scheduled for August 2025[55] - The company has not incurred any material indemnification claims or reimbursements to distributors or customers as of June 30, 2024[58] Market and Product Strategy - The company's addressable market (SAM) has expanded from $1.5 billion pre-2010 to approximately $4 billion through product introductions and market expansions[65] - The company introduced BridgeSwitch-2 motor-driver ICs in 2024, expanding its addressable power range for motor-drive applications[65] - The company's products contribute to energy efficiency and renewable energy adoption, aligning with global carbon emission reduction goals[64] - The company's system-level power-conversion products offer benefits such as reduced design complexity, smaller size, and higher reliability compared to discrete designs[63] - The company expects automotive applications, particularly in the EV market, to become a significant portion of its SAM over time[65] Other Financial Metrics - Provision for credit loss expense for the six months ended June 30, 2024, was $847 thousand, compared to $827 thousand in 2023[18] - Purchases of marketable securities for the six months ended June 30, 2024, were $77.8 million, down from $110.8 million in 2023[11] - Estimated amortization for intangible assets is projected to be $2,300 thousand over the next four years[23] - Other income increased to $3.2 million and $6.7 million for the three and six months ended June 30, 2024, respectively, compared to $2.7 million and $4.4 million in the corresponding periods of 2023[79] - Unrecognized tax benefits and associated interest totaled approximately $16.4 million and $0.3 million, respectively, as of June 30, 2024[88] Acquisitions and Investments - The company acquired Odyssey Semiconductor Technologies for $9.52 million in cash consideration, expanding its vertical gallium-nitride (GaN) transistor technology capabilities[59]

Power Integrations, Inc. (NASDAQ:POWI) Q1 2024 Earnings Conference Call May 7, 2024 4:30 PM ET Company Participants Joe Shiffler - Director, Investor Relations Balu Balakrishnan - Chairman & Chief Executive Officer Sandeep Nayyar - Chief Financial Officer Conference Call Participants Christopher Rolland - Susquehanna International Group David Williams - Benchmark Company Matt Ramsay - TD Cowen Operator Thank you for standing by. My name is Meg, and I will be here conference operator today. At this time, I w ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2024 or ☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ______ to ______ Commission File Number 000-23441 POWER INTEGRATIONS, INC. (Exact name of registrant as specified in its charter) | Delaware ...

Exhibit 99.1 Power Integrations Reports First-Quarter Financial Results Quarterly revenues were $91.7 million; GAAP earnings were $0.07 per diluted share; non-GAAP earnings were $0.18 per diluted share SAN JOSE, CALIF. – May 7, 2024 – Power Integrations (NASDAQ: POWI) today announced financial results for the quarter ended March 31, 2024. Net revenues for the first quarter were $91.7 million, up two percent from the prior quarter and down 14 percent from the first quarter of 2023. GAAP net income for the fi ...

Financial Performance - Net revenues for 2023 were $444.5 million, a decrease of 31.8% compared to $651.1 million in 2022[252]. - Gross profit for 2023 was $229.0 million, down from $366.9 million in 2022, reflecting a gross margin of 51.6%[252]. - Operating expenses increased to $193.9 million in 2023, compared to $186.5 million in 2022, with R&D expenses at $96.1 million[252]. - Net income for 2023 was $55.7 million, a significant decrease from $170.9 million in 2022[254]. - Basic earnings per share for 2023 were $0.97, down from $2.96 in 2022[252]. - The company reported a total comprehensive income of $61.6 million for 2023, compared to $167.2 million in 2022[254]. - Net income for 2023 decreased to $55.735 million from $170.851 million in 2022, representing a decline of approximately 67.4%[258]. - Total assets decreased to $819.9 million in 2023 from $840.1 million in 2022[249]. - Total liabilities reduced to $67.6 million in 2023, down from $84.9 million in 2022[249]. - Retained earnings as of December 31, 2023, were $753.7 million, a decrease from $762.5 million in 2022[249]. - Cash and cash equivalents decreased to $63.9 million in 2023 from $105.4 million in 2022[249]. Cash Flow and Investments - Net cash provided by operating activities fell to $65.759 million in 2023, down from $215.343 million in 2022, a decrease of about 69.5%[258]. - Cash and cash equivalents at the end of 2023 were $63.929 million, compared to $105.372 million at the end of 2022, reflecting a decrease of 39.3%[258]. - Purchases of marketable securities surged to $191.211 million in 2023, compared to $55.820 million in 2022, indicating a significant increase of 242.5%[258]. - The company experienced a net cash outflow from financing activities of $93.049 million in 2023, down from $346.424 million in 2022, a decrease of 73.1%[258]. - Cash paid for income taxes decreased to $13.769 million in 2023 from $17.880 million in 2022, a decline of 23.5%[258]. - As of December 31, 2023, the total fair value of the Company's cash equivalents and marketable securities was $267.688 million, a decrease from $307.487 million in 2022, representing a decline of approximately 12.9%[305]. - The Company held $20.275 million in commercial paper and $246.922 million in corporate securities as of December 31, 2023, with no instruments classified within Level 3 of the fair-value hierarchy[305]. Inventory and Assets - The company routinely evaluates inventory and records provisions for excess and obsolete inventories, which is critical for maintaining accurate financial reporting[243]. - The company's total inventory increased to $163.2 million in 2023, up from $135.4 million in 2022, with raw materials accounting for $96.5 million[300]. - Property and equipment net value as of December 31, 2023, was $164.2 million, compared to $176.7 million in 2022, with total depreciation expense for 2023 being approximately $35.2 million[301]. - The carrying amount of goodwill remained unchanged at $91.8 million for both 2023 and 2022, indicating stability in this asset category[309]. Foreign Exchange and Risk Management - A 10% change in the value of the U.S. dollar compared to the Japanese yen would result in a corresponding change in gross margin of approximately 1.5%[235]. - The potential impact on pretax income from a 5% and 10% change in the value of the U.S. dollar against the Swiss franc and euro is estimated at $125,000 and $250,000 respectively[232]. - The company does not hold any instruments for trading purposes, emphasizing a conservative investment strategy[228]. - The company has wafer supply agreements with major suppliers that are denominated in U.S. dollars, which helps mitigate foreign exchange risks[234]. - The company did not have an open foreign currency hedge program as of December 31, 2023, indicating a straightforward approach to currency risk management[233]. - The company recognized a foreign exchange loss of $0.4 million in 2023, compared to an immaterial loss in 2022 and a loss of $0.6 million in 2021[286]. Employee Compensation and Stock Plans - The Company had approximately 4.4 million shares of common stock reserved for future grant under all stock plans, indicating ongoing commitment to employee compensation[319]. - Stock-based compensation expense for the year ended December 31, 2023, was approximately $28.5 million, an increase of 27% from $22.4 million in 2022[321][322]. - Total unrecognized compensation expense related to unvested awards as of December 31, 2023, was $47.0 million, with 46,856 thousand related to restricted stock units and 155 thousand related to the purchase plan[321]. - The intrinsic value of PRSU awards outstanding as of December 31, 2023, was $20.99 million[331]. - The weighted average remaining recognition period for unrecognized compensation expense related to restricted stock units is 2.66 years[321]. - The Company’s performance-based awards program allows for shares to be released at the end of the performance year based on performance metrics, with a range from zero to 200% of the target number[325]. Customer Concentration and Sales - The Company's top ten customers accounted for approximately 80% of revenues in 2023, up from 76% in 2022[337]. - Sales to distributors in 2023 were $307.4 million, a decrease of 33% from $457.7 million in 2022[337]. - As of December 31, 2023, 86% of accounts receivable were concentrated with the Company's top ten customers[339]. - The company's accounts receivable from Avnet represented 39% of total customer accounts in 2023, down from 42% in 2022[340]. - Geographic net revenues from Hong Kong/China were $265.9 million in 2023, a decrease of 25.5% from $356.9 million in 2022[341]. - The company's foreign operations generated income before income taxes of $42.9 million in 2023, down from $166.2 million in 2022[355]. Tax and Compliance - Deferred tax assets increased to $33.4 million in 2023 from $24.7 million in 2022, primarily due to capitalized R&D costs[356]. - The effective tax rate for 2023 was -21.4%, significantly impacted by the geographic distribution of earnings and the release of reserves related to uncertain tax positions[355]. - The Company's total unrecognized tax benefits as of December 31, 2023, were $16.4 million, down from $23.4 million in 2022 and $21.4 million in 2021[361]. - An income tax benefit of $4.5 million would be recorded if the fiscal year 2023 unrecognized tax benefits are recognized[361]. Lease and Pension Obligations - Total lease expense for the year ended December 31, 2023, was $3.6 million, compared to $3.3 million in both 2022 and 2021[364]. - The projected benefit obligation for the Company's pension plan was $11.4 million as of December 31, 2023, with plan assets of $7.9 million, resulting in a net pension liability of $3.5 million[376]. - The Company expects to make contributions of approximately $0.4 million to the Pension Plan during 2024[376]. - Cash paid for operating leases was $3.6 million in 2023, an increase from $3.2 million in 2022[368]. - The weighted average remaining lease term decreased to 3.8 years in 2023 from 4.0 years in 2022[368]. - Future minimum lease payments total $11.2 million as of December 31, 2023[368].

Financial Data and Key Metrics Changes - Fourth quarter revenues were just under $90 million, down 29% from the prior quarter, with all four end market categories sequentially low [72] - Non-GAAP earnings were $0.22 per diluted share, above the level implied in guidance, thanks to lower operating expenses and a $0.04 tax benefit [52][57] - Non-GAAP gross margin for the fourth quarter was 52.7%, down 60 basis points from the prior quarter, driven mainly by lower manufacturing volumes [74] Business Line Data and Key Metrics Changes - The consumer segment saw revenues below pre-COVID levels, suggesting potential for recovery in 2024 as channel inventories normalize [47][66] - The industrial market, which has been soft, is expected to recover, contributing to growth in Q2 [10][100] - The communications segment experienced the largest decline, down about 40% from the prior quarter [72] Market Data and Key Metrics Changes - Channel inventory ended the quarter at 10.5 weeks, down more than a week from the prior quarter, indicating improved sell-through [55][33] - End customer inventories have improved considerably, with an uptick in bookings from previously dormant customers [34][33] - The company noted that the consumer and computer segments have returned to normal inventory levels, while industrial remains elevated [82][83] Company Strategy and Development Direction - The company is focused on a four-pronged capital allocation strategy, including internal investments, M&A opportunities, share buybacks, and dividends [2][5] - There is a strong emphasis on expanding the design pipeline in electric transportation and automotive applications, with significant design wins expected to convert into revenue in the next one to three years [37][13] - The company aims to double its Serviceable Available Market (SAM) to $8 billion by 2027, with a significant portion coming from GaN technology [92] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about Q2 being a growth quarter, driven by improved order trends and reduced inventory headwinds [11][8] - The company anticipates a rebound in gross margin in the June quarter, supported by favorable currency exchange rates and higher manufacturing utilization [61][20] - While the demand situation remains weak, management expects a gradual recovery, particularly in the second half of the year [70][99] Other Important Information - The company repurchased 680,000 shares during the quarter, returning $99 million to stockholders through buybacks and dividends [59][60] - Non-GAAP operating expenses for the first quarter are expected to be around $42.5 million, reflecting headcount increases and higher employee benefit costs [79] Q&A Session Summary Question: What is the normalized level of demand for the company? - Management indicated that if everything returned to normal, the company could run at $150 million a quarter, but this is unlikely in the near term due to weak demand [16][17] Question: How do you see the dynamics of inventory per end market playing out? - Management noted that consumer and computer segments are at normal levels, while industrial inventory remains elevated [83][82] Question: What is the outlook for the automotive market? - Management expressed excitement about the automotive sector, noting a significant increase in design opportunities and a strong pipeline for electric vehicle applications [97][87]

Financial Data and Key Metrics Changes - Third quarter revenues were $125 million, up 2% from the prior quarter but down 22% year-over-year [3][45] - For the fourth quarter, the company expects a sequential decrease to $90 million at the midpoint of the range [3] - Non-GAAP gross margin for Q3 was 53.3%, modestly below expectations but increased by 150 basis points from the prior quarter [95] - Non-GAAP operating expenses for the quarter were $41.8 million, down more than $2 million sequentially [26] Business Line Data and Key Metrics Changes - The communication category saw a mid-teens percentage increase sequentially, driven by design wins and channel restocking in the China handset market [45] - Computer revenues were down more than 30% sequentially, primarily due to tablets and notebooks [46] - Consumer revenues decreased in the mid-single digits, affected by seasonality and ongoing softness in the appliance market [46] - The industrial category was up mid-teens sequentially, driven by high power applications, particularly in utility-scale solar [103] Market Data and Key Metrics Changes - Distribution inventory ended at 11.6 weeks, up 1.5 weeks from the prior quarter, primarily due to channel restocking for China handset customers [47] - The appliance market, accounting for about 25% of revenues, has been impacted by a slowdown in home sales and residual pandemic effects [16] Company Strategy and Development Direction - The company aims to double its addressable market by 2027, focusing on electric vehicles, motor drives, renewable energy, and proprietary GaN technology [4] - GaN technology is positioned to overtake silicon in high-voltage applications and is seen as a more cost-effective and sustainable alternative to silicon carbide [5][6] - The company is focused on maintaining foundry capacity and inventory levels to respond to future demand upturns [10][44] Management Comments on Operating Environment and Future Outlook - Management acknowledged a broad-based weakness in demand, similar to trends observed by peers, but remains optimistic about long-term growth prospects [15] - The company expects a recovery in demand starting in Q1, with a focus on managing expenses while investing in growth opportunities [58][88] - Management noted that customer interest in products has never been stronger, with record design wins in Q3 [22] Other Important Information - The company introduced the LinkSwitch-XT2 SR product, which offers low no-load consumption, and won a design at a top European customer for a refrigerator compressor [8] - The board has increased the quarterly dividend to $0.20 per share starting with the fourth quarter payout [27] Q&A Session Summary Question: What is the outlook for channel inventory? - Management indicated that channel inventory is expected to decline, with hopes of reaching normal levels by Q4 [49] Question: What is the impact of OEM cancellations on revenue? - Management noted that cancellations affected both Q3 revenues and Q4 backlog, particularly in the computer and communications categories [101] Question: When can the new 1,250 Volt GaN switch be expected in production? - The 1,250 Volt GaN switch could be in production sometime next year, primarily targeting the industrial market [52] Question: What is the expected revenue for Q4? - Management guided for Q4 revenues to be around $90 million, with declines expected across all segments [84] Question: How does the company view the long-term demand outlook? - Management expressed optimism for a rebound in demand, particularly in Q1, and noted that many designs are expected to go into production in 2024 [58][59]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2023 or ☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ______ to ______ Commission File Number 000-23441 POWER INTEGRATIONS, INC. (Exact name of registrant as specified in its charter) | Dela ...