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 ...

Financial Performance - Net revenues for Q1 2024 were $91.688 million, a decrease of 13.8% compared to $106.297 million in Q1 2023[12] - Gross profit for Q1 2024 was $47.780 million, down from $53.957 million in Q1 2023, reflecting a gross margin of 52.1%[12] - Operating income decreased significantly to $470,000 in Q1 2024 from $5.757 million in Q1 2023[12] - Net income for Q1 2024 was $3.954 million, compared to $6.875 million in Q1 2023, representing a decline of 42.0%[12] - Earnings per share (EPS) for Q1 2024 were $0.07, down from $0.12 in Q1 2023[12] Assets and Liabilities - Total current assets decreased to $502.464 million as of March 31, 2024, from $511.600 million at the end of 2023[11] - Total liabilities remained relatively stable at $67.598 million as of March 31, 2024, compared to $67.627 million at the end of 2023[11] - Cash and cash equivalents decreased to $56.443 million at the end of Q1 2024 from $63.929 million at the end of 2023[20] - Total stockholders' equity decreased to $738.178 million as of March 31, 2024, from $752.241 million at the end of 2023[11] - The company's accounts receivable decreased from $53,147 thousand on December 31, 2023, to $42,325 thousand on March 31, 2024, reflecting a reduction of approximately 20.4%[28] Inventory and Credit Losses - The total inventory increased from $163,164 thousand on December 31, 2023, to $167,865 thousand on March 31, 2024, representing a growth of about 2.1%[30] - The allowance for credit losses increased from $681 thousand on December 31, 2023, to $844 thousand on March 31, 2024, indicating a rise of approximately 24%[29] - The provision for credit loss expense for the three months ended March 31, 2024, was $684 thousand, up from $439 thousand for the same period in 2023, representing a 55.7% increase[29] Marketable Securities - The company's total marketable securities amounted to $243,163 thousand as of March 31, 2024, down from $267,688 thousand on December 31, 2023, a decrease of about 9.1%[39] - The fair value of cash equivalents and marketable securities was $256,124 thousand as of March 31, 2024, compared to $267,688 thousand on December 31, 2023, reflecting a decline of approximately 4.3%[38] - Total marketable securities amounted to $247.640 million, with gross unrealized gains of $967, and losses of $711 as of December 31, 2023[41] Customer Concentration - The Company's top ten customers accounted for approximately 77% of net revenues for the three months ended March 31, 2024, compared to 78% in 2023[57] - As of March 31, 2024, 88% of accounts receivable were concentrated with the Company's top ten customers[61] - Sales to distributors were $66.4 million for the three months ended March 31, 2024, slightly down from $66.8 million in 2023[57] Dividends and Stock Repurchase - The company declared cash dividends of $0.20 per share for Q1 2024, an increase from $0.19 per share in Q1 2023, resulting in total dividends paid of $11.384 million compared to $10.868 million in the prior year[69] - As of March 31, 2024, the company had $11.3 million remaining under its stock-repurchase authorization after purchasing approximately 207,000 shares for $14.6 million during the quarter[67] - The company’s board of directors has authorized future stock repurchase programs at their discretion, depending on financial conditions and operational results[67] Tax and Legal Matters - The effective tax rate for Q1 2024 was 0.5%, significantly lower than the 8.0% effective tax rate in Q1 2023, due to geographic distribution of earnings in lower-tax jurisdictions[76] - The company maintained a valuation allowance on deferred tax assets in California and New Jersey, indicating ongoing tax strategy considerations[77] - The company has ongoing legal proceedings that may impact its financial condition, but it believes it has strong defenses against the claims[85] Product and Market Strategy - The company designs and markets integrated circuits primarily used in AC-DC power supplies, which are essential for various electronic devices, including mobile phones and electric vehicles[93] - The company’s products are also utilized in high-voltage applications, including industrial motors and renewable energy systems, indicating a focus on market expansion in these sectors[95] - The company plans to continue expanding its addressable market through advanced product offerings and entry into new applications, including automotive markets targeting electric vehicles[101][104] - The company’s EcoSmart™ technology significantly reduces energy consumption of electronic products in standby mode, contributing to improved energy efficiency and compliance with regulations[101] Operating Expenses - Total operating expenses decreased to $47.3 million for the three months ended March 31, 2024, from $48.2 million in the same period of 2023, mainly due to lower stock-based compensation and product-development expenses[110] - Research and development (R&D) expenses decreased to $23.2 million from $24.0 million, primarily due to reduced stock-based compensation and product development costs[122] - Sales and marketing (S&M) expenses remained stable at $15.7 million compared to $15.9 million in the prior year[123] - General and administrative (G&A) expenses increased slightly to $8.4 million from $8.3 million, influenced by prior year adjustments related to bad debt recovery[124] Revenue Breakdown - Geographic net revenues totaled $91.688 million for the three months ended March 31, 2024, a decrease from $106.297 million in 2023[64] - Total net revenues from the Americas were $5.005 million for the three months ended March 31, 2024, down from $6.483 million in 2023[64] - International sales represented 98% of net revenues for both the three months ended March 31, 2024, and 2023, with sales to the Asia region accounting for 81% and 80% of net revenues, respectively[108][118] - The revenue mix by end market for the three months ended March 31, 2024, showed 11% from communications, 11% from computer, 41% from consumer, and 37% from industrial[118] Other Income - Other income rose to $3.5 million from $1.7 million, driven by higher interest income due to increased interest rates[125] Cash Flow - Operating activities generated $15.9 million in cash for the three months ended March 31, 2024, with a net income of $4.0 million[130] - Financing activities resulted in a net use of cash of $23.3 million, including $14.6 million for stock repurchases and $11.4 million for dividends[136]

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 ...

Power Integrations, Inc. (NASDAQ:POWI) Q2 2023 Earnings Conference Call August 3, 2023 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 Ross Seymore - Deutsche Bank David Williams - The Benchmark Company Tore Svanberg - Stifel Operator Thank you for standing by. My name is Maria and I will be your conference operator today. ...

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=4&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) Presents unaudited condensed consolidated financial statements for Power Integrations, Inc. as of June 30, 2023, including Balance Sheets, Income, Comprehensive Income, Stockholders' Equity, and Cash Flows [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets increased to $859.5 million by June 30, 2023, driven by inventories and receivables, while cash decreased Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $84,096 | $105,372 | | Inventories | $149,741 | $135,420 | | Total current assets | $550,987 | $525,073 | | Total assets | $859,457 | $840,096 | | **Liabilities & Equity** | | | | Total current liabilities | $64,819 | $58,376 | | Total liabilities | $91,528 | $84,880 | | Total stockholders' equity | $767,929 | $755,216 | | Total liabilities and stockholders' equity | $859,457 | $840,096 | [Condensed Consolidated Statements of Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) Net revenues, gross profit, and net income significantly declined for Q2 and H1 2023, reflecting challenging market conditions Condensed Consolidated Statements of Income (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | **Net Revenues** | **$123,223** | **$183,986** | **$229,520** | **$366,135** | | Gross Profit | $62,846 | $106,843 | $116,803 | $207,518 | | Income from Operations | $12,641 | $60,102 | $18,398 | $111,149 | | **Net Income** | **$14,793** | **$55,824** | **$21,668** | **$102,072** | | Diluted EPS | $0.26 | $0.96 | $0.38 | $1.72 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow significantly decreased to $22.8 million in H1 2023, driven by lower net income and increased inventories Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $22,766 | $141,419 | | Net cash provided by (used in) investing activities | ($19,380) | $78,075 | | Net cash used in financing activities | ($24,662) | ($310,228) | | **Net Decrease in Cash and Cash Equivalents** | **($21,276)** | **($90,734)** | | Cash and cash equivalents at end of period | $84,096 | $67,383 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Provides detailed explanations of accounting policies, financial statement components, including revenue recognition, inventories, stock-based compensation, customer concentration, and legal contingencies - Inventories increased to **$149.7 million** as of June 30, 2023, from **$135.4 million** at the end of 2022, with notable increases in raw materials and work-in-process[29](index=29&type=chunk) - Total stock-based compensation expense was **$6.8 million** for Q2 2023 and **$14.1 million** for H1 2023, up from **$3.7 million** and **$12.7 million** in the respective prior-year periods[45](index=45&type=chunk) - The company is involved in ongoing patent litigation with CogniPower LLC and Waverly Licensing LLC, but is currently unable to estimate a potential loss or range of loss for these cases[82](index=82&type=chunk)[83](index=83&type=chunk)[87](index=87&type=chunk) Top Customer Revenue Concentration | Customer | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | Avnet | 25% | 30% | 25% | 31% | | Honestar Technologies Co., Ltd. | 15% | 11% | 14% | 13% | | Salcomp Group | 14% | * | 13% | * | | Flextronics Group | 12% | * | 11% | * | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=ITEM%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management discusses financial performance, attributing revenue decline to macroeconomic headwinds and semiconductor downturn, covering revenue mix, gross margin, operating expenses, liquidity, and capital resources [Overview and Strategy](index=29&type=section&id=Overview%20and%20Strategy) Power Integrations designs high-voltage power-conversion ICs, with a growth strategy focused on penetrating existing markets and expanding SAM through new technologies like GaN and electric vehicles - The company's products are used in AC-DC power supplies, high-voltage LED drivers, motor-driver ICs, and high-voltage gate drivers for industrial and automotive applications[93](index=93&type=chunk)[94](index=94&type=chunk) - Growth strategy is twofold: increase penetration in current markets and expand the Served Available Market (SAM) from its current **~$4 billion** by targeting higher-power applications, new technologies (like GaN), and emerging markets like electric vehicles[96](index=96&type=chunk)[99](index=99&type=chunk)[100](index=100&type=chunk) [Results of Operations](index=33&type=section&id=Results%20of%20Operations) Q2 2023 net revenues decreased 33% to $123.2 million, with gross margin contracting to 51.0% due to unfavorable product mix and lower volumes Financial Performance Comparison (Q2 2023 vs Q2 2022) | Metric | Q2 2023 | Q2 2022 | | :--- | :--- | :--- | | Net Revenues | $123.2M | $184.0M | | Gross Profit | $62.8M | $106.8M | | Gross Margin | 51.0% | 58.1% | | R&D Expenses | $24.5M | $23.5M | | S&M Expenses | $17.0M | $16.0M | | G&A Expenses | $8.7M | $6.1M | - The revenue decrease was primarily driven by reduced demand and elevated inventories in the consumer and industrial end-markets, attributed to macroeconomic factors like inflation, higher interest rates, and a post-pandemic shift in consumer spending[112](index=112&type=chunk) Revenue Mix by End Market | End Market | Q2 2023 | Q2 2022 | | :--- | :--- | :--- | | Communications | 28% | 18% | | Computer | 14% | 9% | | Consumer | 29% | 38% | | Industrial | 29% | 35% | [Liquidity and Capital Resources](index=40&type=section&id=Liquidity%20and%20Capital%20Resources) As of June 30, 2023, the company held **$346.3 million** in cash and equivalents, with working capital at **$486.2 million**, and maintained an undrawn **$75.0 million** revolving credit line - The company has a **$75.0 million** revolving line of credit, amended in June 2023 to include SOFR as a benchmark rate and extending to June 7, 2026, with no advances outstanding as of June 30, 2023[129](index=129&type=chunk) - In H1 2023, the company paid **$21.8 million** in dividends and repurchased approximately **80,000 shares** of common stock for **$6.0 million**[134](index=134&type=chunk)[139](index=139&type=chunk) - The board declared a quarterly dividend of **$0.19 per share** for 2023, an increase from **$0.18 per share** in 2022[137](index=137&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=44&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) No material changes occurred in the company's interest rate or foreign currency exchange risk during the first six months of 2023 - There were no material changes to the company's market risk exposures, including interest rate and foreign currency exchange risk, in the first half of 2023[145](index=145&type=chunk) [Item 4. Controls and Procedures](index=44&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management concluded that disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal controls over financial reporting - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[147](index=147&type=chunk) - No changes in internal control over financial reporting occurred during the quarter ended June 30, 2023, that would have a material effect[148](index=148&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=44&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) Refers to Note 12 of the financial statements for details on legal proceedings, including patent infringement lawsuits - The company refers to Note 12 of the financial statements for details on its legal proceedings[149](index=149&type=chunk) [Item 1A. Risk Factors](index=44&type=section&id=ITEM%201A.%20RISK%20FACTORS) No substantive changes occurred to the risk factors disclosed in the 2022 Annual Report on Form 10-K - Risk factors have not changed substantively from those disclosed in the 2022 Annual Report on Form 10-K[150](index=150&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=45&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) During Q2 2023, the company repurchased approximately **57,000 shares** for **$4.3 million**, with **$75.3 million** remaining under the repurchase program Issuer Purchases of Equity Securities (Q2 2023) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Approximate Dollar Value Remaining (in millions) | | :--- | :--- | :--- | :--- | | April 2023 | 32,061 | $75.10 | $77.1 | | May 2023 | 25,153 | $75.71 | $75.3 | | June 2023 | — | — | $75.3 | | **Total** | **57,214** | | **$75.3** | [Item 5. Other Information](index=45&type=section&id=ITEM%205.%20OTHER%20INFORMATION) No directors or officers adopted or terminated Rule 10b5-1 trading plans or other trading arrangements during Q2 2023 - No directors or officers adopted or terminated any Rule 10b5-1 trading plans during the second quarter of 2023[152](index=152&type=chunk) [Item 6. Exhibits](index=46&type=section&id=ITEM%206.%20EXHIBITS) Lists exhibits filed with Form 10-Q, including the Third Amendment to the Credit Agreement and CEO/CFO certifications - Key exhibits filed include the Third Amendment to the Credit Agreement and CEO/CFO certifications under Sarbanes-Oxley Sections 302 and 906[154](index=154&type=chunk)