Power Integrations Inc 10-Q for FY2024 Q3
Power Integrations Inc (POWI)
About this 10-Q
Power Integrations Inc filed this 10-Q on November 6, 2024, covering the quarter ended September 30, 2024 (FY2024 Q3).
Headline figures
Quarter ended September 30, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $115.84M
- down 7.7% from $125.51M a year earlier
- Net income
- $14.29M
- down 27.8% from net income of $19.8M a year earlier
- Diluted EPS
- $0.25
- down 26.5% from $0.34 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
or
For the transition period from ______ to ______
Commission File Number
(Exact name of registrant as specified in its charter)
| | |
| ||
(State or Other Jurisdiction of Incorporation or Organization) |
| (I.R.S. Employer Identification No.) |
| | | | |
| | |||
|
| |||
(Address of Principal Executive Offices) |
| (Zip Code) | ||
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | |
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
| |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
☒ | Accelerated Filer | ☐ | |
Non-accelerated Filer | ☐ | Smaller Reporting Company | |
| | Emerging Growth Company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class | Shares Outstanding at November 4, 2024 |
Common Stock, $ |
POWER INTEGRATIONS, INC.
TABLE OF CONTENTS
| | Page |
| | |
| ||
| | |
| ||
| | |
| Condensed Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023 (Unaudited) | 4 |
| | |
| 5 | |
| | |
| 6 | |
| | |
| 7 | |
| | |
| 8 | |
| | |
| Notes to Unaudited Condensed Consolidated Financial Statements | 9 |
| | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 23 | |
| | |
31 | ||
| | |
31 | ||
| | |
32 | ||
| | |
32 | ||
| | |
32 | ||
| | |
32 | ||
| | |
32 | ||
| | |
33 | ||
| | |
35 | ||
2
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes a number of forward-looking statements that involve many risks and uncertainties. Forward-looking statements are identified by the use of the words “would,” “could,” “will,” “may,” “expect,” “believe,” “should,” “anticipate,” “if,” “future,” “intend,” “plan,” “estimate,” “potential,” “target,” “seek,” or “continue” and similar words and phrases, including the negatives of these terms, or other variations of these terms, that denote future events. These statements reflect our current views with respect to future events and our potential financial performance and are subject to risks and uncertainties that could cause our actual results and financial position to differ materially and/or adversely from what is projected or implied in any forward-looking statements included in this Quarterly Report on Form 10-Q. These factors include, but are not limited to: if demand for our products continues to decline in our major end markets, our net revenues will decline further; we do not have long-term contracts with any of our customers and if they fail to place, or if they cancel or reschedule orders for our products, our operating results and our business may suffer; our products are sold through distributors, which limits our direct interaction with our end customers, therefore reducing our ability to forecast sales and increasing the complexity of our business; if our products do not penetrate additional markets, our business will not grow as we expect; intense competition in the high-voltage power supply industry may lead to a decrease in our average selling price and reduced sales volume of our products; we depend on third-party suppliers to provide us with wafers for our products, and if they fail to provide us sufficient quantities of wafers, our business may suffer; if we are unable to adequately protect or enforce our intellectual property rights, we could lose market share, incur costly litigation expenses, suffer incremental price erosion or lose valuable assets, any of which could harm our operations and negatively impact our profitability; and the other risk factors described under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023, and in Part I, Item 2 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q. We make these forward-looking statements based upon information available on the date of this Quarterly Report on Form 10-Q, and we expressly disclaim any obligation to update or alter any forward-looking statements, whether as a result of new information or otherwise, except as required by laws.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
POWER INTEGRATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| | | | |||
(In thousands) | | September 30, 2024 | | December 31, 2023 | ||
ASSETS | | | | | | |
CURRENT ASSETS: | | | | | | |
Cash and cash equivalents | | $ | | | $ | |
Short-term marketable securities | |
| | |
| |
Accounts receivable, net | |
| | |
| |
Inventories | |
| | |
| |
Prepaid expenses and other current assets | |
| | |
| |
Total current assets | |
| | |
| |
PROPERTY AND EQUIPMENT, net | |
| | |
| |
INTANGIBLE ASSETS, net | |
| | |
| |
GOODWILL | |
| | |
| |
DEFERRED TAX ASSETS | |
| | |
| |
OTHER ASSETS | |
| | |
| |
Total assets | | $ | | | $ | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| | |
| |
CURRENT LIABILITIES: | |
| | |
| |
Accounts payable | | $ | | | $ | |
Accrued payroll and related expenses | |
| | |
| |
Taxes payable | |
| | |
| |
Other accrued liabilities | |
| | |
| |
Total current liabilities | |
| | |
| |
LONG-TERM INCOME TAXES PAYABLE | |
| | |
| |
OTHER LIABILITIES | |
| | |
| |
Total liabilities | |
| | |
| |
COMMITMENTS AND CONTINGENCIES (Notes 11, 12 and 13) | |
|
| |
|
|
STOCKHOLDERS’ EQUITY: | |
|
| |
|
|
Common stock | |
| | |
| |
Additional paid-in capital | |
| | |
| |
Accumulated other comprehensive income (loss) | |
| | |
| ( |
Retained earnings | |
| | |
| |
Total stockholders’ equity | |
| | |
| |
Total liabilities and stockholders’ equity | | $ | | | $ | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
POWER INTEGRATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
| | Three Months Ended | | Nine Months Ended | ||||||||
|
| September 30, | | September 30, | ||||||||
(In thousands, except per share amounts) | | 2024 |
| 2023 |
| 2024 |
| 2023 | ||||
NET REVENUES | | $ | | | $ | | | $ | | | $ | |
COST OF REVENUES | |
| | |
| | |
| | |
| |
GROSS PROFIT | |
| | |
| | |
| | |
| |
| | | | | | | | | | | | |
OPERATING EXPENSES: | |
| | |
| | |
| | |
|
|
Research and development | |
| | |
| | |
| | |
| |
Sales and marketing | |
| | |
| | |
| | |
| |
General and administrative | |
| | |
| | | | | |
| |
Total operating expenses | |
| | |
| | |
| | |
| |
INCOME FROM OPERATIONS | |
| | |
| | |
| | |
| |
OTHER INCOME | |
| | |
| | |
| | |
| |
INCOME BEFORE INCOME TAXES | |
| | |
| | |
| | |
| |
PROVISION FOR INCOME TAXES | |
| | |
| | |
| | |
| |
NET INCOME | | $ | | | $ | | | $ | | | $ | |
| | | | | | | | | | | | |
EARNINGS PER SHARE: | |
| | |
| | |
| | |
|
|
Basic | | $ | | | $ | | | $ | | | $ | |
Diluted | | $ | | | $ | | | $ | | | $ | |
| | | | | | | | | | | | |
SHARES USED IN PER SHARE CALCULATION: | |
| | |
| | |
|
| |
| |
Basic | |
| | | | | | | | | | |
Diluted | |
| | | | | | | | | | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
POWER INTEGRATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
(In thousands) |
| 2024 |
| 2023 |
| 2024 |
| 2023 | ||||
Net income | | $ | | | $ | | | $ | | | $ | |
Other comprehensive income, net of tax: | |
|
| |
|
| |
|
| |
|
|
Foreign currency translation adjustments, net of $ | | | | | | ( | | | | | | ( |
Unrealized gain on marketable securities, net of $ | | | | | | | | | | | | |
Amortization of defined benefit pension items, net of tax of ($ | | | ( | | | ( | | | ( | | | ( |
Total other comprehensive income | |
| | |
| | |
| | |
| |
TOTAL COMPREHENSIVE INCOME | | $ | | | $ | | | $ | | | $ | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
POWER INTEGRATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
(In thousands) |
| 2024 |
| 2023 |
| 2024 |
| 2023 | ||||
Common stock |
| | | | | | | | | | | |
Beginning balance |
| $ | | | $ | | | $ | | | $ | |
Repurchase of common stock |
| | | |
| | |
| ( | |
| ( |
Ending balance |
| | | |
| | |
| | |
| |
|
| | | |
| | |
| | |
| |
Additional paid-in capital |
| | | |
| | |
| | |
| |
Beginning balance |
| | | |
| | |
| | |
| |
Common stock issued under employee stock plans |
| | | |
| | |
| | |
| |
Repurchase of common stock |
| | | |
| ( | |
| ( | |
| ( |
Stock-based compensation |
| | | |
| | |
| | |
| |
Ending balance |
| | | |
| | |
| | |
| |
|
| | | |
| | |
| | |
| |
Accumulated other comprehensive income (loss) |
| | | |
| | |
| | |
| |
Beginning balance |
| | ( | |
| ( | |
| ( | |
| ( |
Other comprehensive income |
| | | |
| | |
| | |
| |
Ending balance |
| | | |
| ( | |
| | |
| ( |
|
| | | |
| | |
| | |
| |
Retained earnings |
| | | |
| | |
| | |
| |
Beginning balance |
| | | |
| | |
| | |
| |
Net income |
| | | |
| | |
| | |
| |
Repurchase of common stock | | | | | | | | | ( | | | |
Payment of dividends to stockholders | | | ( | | | ( | | | ( | | | ( |
Ending balance | | | | | | | | | | | | |
| | | | | | | | | | | | |
Total stockholders’ equity |
| $ | | | $ | | | $ | | | $ | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
POWER INTEGRATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | Nine Months Ended | ||||
| | September 30, | ||||
(In thousands) |
| 2024 |
| 2023 | ||
CASH FLOWS FROM OPERATING ACTIVITIES: |
| |
|
| |
|
Net income | | $ | | | $ | |
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | |
| |
Depreciation | |
| | |
| |
Amortization of intangibles | |
| | |
| |
Loss on disposal of property and equipment | |
| | |
| |
Stock-based compensation expense | |
| | |
| |
Amortization of premium (accretion of discount) on marketable securities | |
| ( | |
| |
Deferred income taxes | |
| ( | |
| ( |
Decrease in accounts receivable allowance for credit losses | |
| ( | |
| ( |
Change in operating assets and liabilities: | |
| | |
|
|
Accounts receivable | |
| ( | |
| ( |
Inventories | |
| ( | |
| ( |
Prepaid expenses and other assets | |
| | |
| ( |
Accounts payable | |
| | |
| ( |
Taxes payable and accrued liabilities | |
| ( | |
| ( |
Net cash provided by operating activities | |
| | |
| |
| | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | |
| |
Purchases of property and equipment | |
| ( | |
| ( |
Purchases of marketable securities | |
| ( | |
| ( |
Proceeds from sales and maturities of marketable securities | |
| | |
| |
Acquisition (Note 15) | | | ( | | | |
Net cash used in investing activities | |
| ( | |
| ( |
| | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | |
| |
Issuance of common stock under employee stock plans | |
| | |
| |
Repurchase of common stock | |
| ( | |
| ( |
Payments of dividends to stockholders | |
| ( | |
| ( |
Net cash used in financing activities | |
| ( | |
| ( |
| | | | | | |
NET DECREASE IN CASH AND CASH EQUIVALENTS | |
| ( | |
| ( |
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | |
| | |
| |
CASH AND CASH EQUIVALENTS AT END OF PERIOD | | $ | | | $ | |
| | | | | | |
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | |
|
| |
| |
Unpaid property and equipment | | $ | | | $ | |
| | | | | | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |
| | |
| |
Cash paid for income taxes, net | | $ | | | $ | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
8
POWER INTEGRATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The condensed consolidated financial statements include the accounts of Power Integrations, Inc., a Delaware corporation (the “Company”), and its wholly owned subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation.
While the financial information furnished is unaudited, the condensed consolidated financial statements included in this report reflect all adjustments (consisting only of normal recurring adjustments) that the Company considers necessary for the fair presentation of the results of operations for the interim periods covered and the financial condition of the Company at the date of the interim balance sheet in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The results for interim periods are not necessarily indicative of the results for the entire year. The condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and the notes thereto for the year ended December 31, 2023, included in its Form 10-K filed on February 12, 2024, with the Securities and Exchange Commission.
2. SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS:
Significant Accounting Policies and Estimates
Except for the additional policy presented below, no material changes have been made to the Company’s significant accounting policies disclosed in Note 2, Significant Accounting Policies and Recent Accounting Pronouncements, of the Company’s financial statements set forth in Item 8 of the Company’s Annual Report on Form 10-K, filed on February 12, 2024, for the year ended December 31, 2023.
Business Combinations
The Company applies the provisions of ASC 805, Business Combinations (“ASC 805”), in accounting for acquisitions. ASC 805 requires that the Company evaluates whether a transaction pertains to an acquisition of assets, or to an acquisition of a business. A business is defined as an integrated set of assets and activities that is capable of being conducted and managed for the purpose of providing a return to investors. Asset acquisitions are accounted for by allocating the cost of the acquisition to the individual assets and liabilities assumed on a relative fair value basis; whereas the acquisition of a business requires the Company to recognize separately from goodwill the assets acquired and the liabilities assumed at the acquisition date fair values. Goodwill is measured as the excess of consideration transferred over the net acquisition date fair values of the assets acquired and the liabilities assumed. While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed as well as any contingent consideration, where applicable, the estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the business acquisition date, the Company may record certain adjustments to the assets acquired and liabilities assumed with the corresponding adjustment to goodwill. Upon the conclusion of a business acquisition’s measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations. All acquisition-related costs are accounted for as expenses in the period in which they are incurred.
Recent Accounting Pronouncements
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which is intended to improve reportable segment disclosure requirements and expand public entities’ segment disclosures in the annual and interim financial statements. The amendment will require disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and within each reported measure of segment profit or loss, an amount and description of its composition for other segment items and interim disclosures of a reportable segment’s profit or loss and assets. All disclosure requirements of ASU 2023-07 are required for entities with a single reportable segment. The Company is required to adopt the amendments in fiscal year 2024 for annual and retrospective reporting periods and in the first quarter of fiscal year 2025 for all interim and retrospective reporting periods; with early adoption permitted. The Company does not expect the amendment to have a material impact on its consolidated financial statements upon adoption.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), which modifies the rules on income tax disclosures to require entities to disclose
9
POWER INTEGRATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(1) specific categories in the rate reconciliation, (2) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and (3) income tax expense or benefit from continuing operations (separated by federal, state and foreign). ASU 2023-09 also requires entities to disclose their income tax payments to international, federal, state and local jurisdictions, among other changes. The guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted. The Company does not expect the amendment to have a material impact on its consolidated financial statements upon adoption.
3. COMPONENTS OF THE COMPANY’S CONDENSED CONSOLIDATED BALANCE SHEETS:
Accounts Receivable
|
| September 30, |
| December 31, | ||
(In thousands) | | 2024 | | 2023 | ||
Accounts receivable trade | | $ | | | $ | |
Allowance for ship and debit | |
| ( | |
| ( |
Allowance for stock rotation and rebate | |
| ( | |
| ( |
Allowance for credit losses | | | ( | | | ( |
Total | | $ | | | $ | |
The Company maintains an allowance for estimated credit losses resulting from the inability of customers to make required payments. This allowance is established using estimates formulated by the Company’s management based upon factors such as the composition of the accounts receivable aging, historical losses, changes in payment patterns, customer creditworthiness and current economic trends. Receivables determined to be uncollectible are written off and deducted from the allowance.
| | Allowance for Credit Losses | ||||||||||
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
(In thousands) | | 2024 |
| 2023 |
| 2024 |
| 2023 | ||||
Beginning balance | | $ | ( | | $ | ( | | $ | ( | | $ | ( |
Provision for credit loss expense | |
| ( | |
| ( | |
| ( | |
| ( |
Receivables written off | |
| | |
| | |
| | |
| |
Recoveries collected | |
| | |
| | |
| | |
| |
Ending balance | | $ | ( | | $ | ( | | $ | ( | | $ | ( |
Inventories
|
| September 30, |
| December 31, | ||
(In thousands) | | 2024 | | 2023 | ||
Raw materials | | $ | | | $ | |
Work-in-process | |
| | |
| |
Finished goods | |
| | |
| |
Total | | $ | | | $ | |
10
POWER INTEGRATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Accumulated Other Comprehensive Income (Loss)
Changes in accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2024 and 2023, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Unrealized Gains | | | | | | | | | | | | | ||||||||||
| and Losses on | | Defined Benefit | | Foreign Currency | | | | |||||||||||||||
| Marketable Securities | | Pension Items | | Items | | Total | ||||||||||||||||
| Three Months Ended | | Three Months Ended | | Three Months Ended | | Three Months Ended | ||||||||||||||||
| September 30, | | September 30, | | September 30, | | September 30, | ||||||||||||||||
(In thousands) | 2024 |
| 2023 |
| 2024 |
| 2023 |
| 2024 |
| 2023 |
| 2024 |
| 2023 | ||||||||
Beginning balance | $ | ( | | $ | ( | | $ | | | $ | | | $ | ( | | $ | ( | | $ | ( | | $ | ( |
Other comprehensive income (loss) before reclassifications |
| | |
| | |
| | |
| | |
| | |
| ( | |
| | |
| |
Amounts reclassified from accumulated other comprehensive income (loss) |
| | |
| | |
| ( | (1) |
| ( | (1) |
| | |
| | |
| ( | |
| ( |
Net-current period other comprehensive income (loss) |
| | |
| | |
| ( | |
| ( | |
| | |
| ( | |
| | |
| |
Ending balance | $ | | | $ | ( | | $ | | | $ | | | $ | ( | | $ | ( | | $ | | | $ | ( |
| (1) | This component of accumulated other comprehensive income (loss) is included in the computation of net periodic pension cost for the three months ended September 30, 2024 and 2023. |
| Unrealized Gains | | | | | | | | | | | | | ||||||||||
| and Losses on | | Defined Benefit | | Foreign Currency | | | | |||||||||||||||
| Marketable Securities | | Pension Items | | Items | | Total | ||||||||||||||||
| Nine Months Ended | | Nine Months Ended | | Nine Months Ended | | Nine Months Ended | ||||||||||||||||
| September 30, | | September 30, | | September 30, | | September 30, | ||||||||||||||||
(In thousands) | 2024 |
| 2023 |
| 2024 | | 2023 |
| 2024 |
| 2023 |
| 2024 |
| 2023 | ||||||||
Beginning balance | $ | | | $ | ( | | $ | | | $ | | | $ | ( | | $ | ( | | $ | ( | | $ | ( |
Other comprehensive income (loss) before reclassifications |
| | |
| | |
| | |
| | |
| | |
| ( | |
| | |
| |
Amounts reclassified from accumulated other comprehensive income (loss) |
| | |
| | |
| ( | (1) |
| ( | (1) |
| | |
| | |
| ( | |
| ( |
Net-current period other comprehensive income (loss) |
| | |
| | |
| ( | |
| ( | |
| | |
| ( | |
| | |
| |
Ending balance | $ | | | $ | ( | | $ | | | $ | | | $ | ( | | $ | ( | | $ | | | $ | ( |
| (1) | This component of accumulated other comprehensive income (loss) is included in the computation of net periodic pension cost for the nine months ended September 30, 2024 and 2023. |
4. FAIR VALUE MEASUREMENTS:
The FASB established a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices for identical assets in active markets; (Level 2) inputs other than the quoted prices in active markets that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which requires the Company to develop its own assumptions. This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.
The Company’s cash equivalents and short-term marketable securities are classified within Level 1 or Level 2 of the fair-value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency.
11
POWER INTEGRATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The fair-value hierarchy of the Company’s cash equivalents and marketable securities at September 30, 2024 and December 31, 2023, was as follows:
| | Fair Value Measurement at | |||||||
| | September 30, 2024 | |||||||
| | | | | Quoted Prices in | | | | |
| | | | | Active Markets for | | Significant Other | ||
| | | | | Identical Assets | | Observable Inputs | ||
(In thousands) | | Total Fair Value | | (Level 1) | | (Level 2) | |||
Commercial paper | | $ | | | $ | | | $ | |
Corporate securities | | | | | | | | | |
Money market funds | |
| | |
| | |
| |
U.S. government securities | | | | | | | | | |
Total | | $ | | | $ | | | $ | |
| | Fair Value Measurement at | |||||||
| | December 31, 2023 | |||||||
| | | | | Quoted Prices in | | | | |
| | | | | Active Markets for | | Significant Other | ||
| | | | | Identical Assets | | Observable Inputs | ||
(In thousands) | | Total Fair Value | | (Level 1) | | (Level 2) | |||
Commercial paper | | $ | | | $ | | | $ | |
Corporate securities | | | | | | | | | |
Money market funds | |
| | |
| | |
| |
Total | | $ | | | $ | | | $ | |
The Company did not transfer any investments between Level 1 and Level 2 of the fair-value hierarchy in the nine months ended September 30, 2024 and the twelve months ended December 31, 2023.
5. MARKETABLE SECURITIES:
Amortized cost and estimated fair market value of marketable securities classified as available-for-sale (excluding cash equivalents) at September 30, 2024, were as follows:
| | Amortized | | Gross Unrealized | | Estimated Fair | ||||||
(In thousands) |
| Cost |
| Gains |
| Losses |
| Market Value | ||||
Investments due in 3 months or less: |
| |
|
| |
|
| |
|
| |
|
Commercial paper | | $ | | | $ | | | $ | | | $ | |
Total | |
| | |
| | |
| | |
| |
Investments due in 4-12 months: | |
|
| |
|
| |
|
| |
|
|
Corporate securities | | | | | | | | | ( | | | |
Total | |
| | |
| | |
| ( | |
| |
Investments due in 12 months or greater: | |
|
| |
|
| |
|
| |
|
|
Corporate securities | |
| | |
| | |
| ( | |
| |
Total | | | | |
| | | | ( | |
| |
Total marketable securities | | $ | | | $ | | | $ | ( | | $ | |
Accrued interest receivable was $
12
POWER INTEGRATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Amortized cost and estimated fair market value of marketable securities classified as available-for-sale (excluding cash equivalents) at December 31, 2023, were as follows:
| | Amortized | | Gross Unrealized | | Estimated Fair | ||||||
(In thousands) |
| Cost |
| Gains |
| Losses |
| Market Value | ||||
Investments due in 3 months or less: |
| |
|
| |
|
| |
|
| |
|
Corporate securities | | $ | | | $ | | | $ | ( | | $ | |
Total | |
| | |
| | |
| ( | |
| |
Investments due in 4-12 months: | |
|
| |
|
| |
|
| |
|
|
Commercial paper | | | | | | | | | | | | |
Corporate securities | |
| | |
| | |
| ( | |
| |
Total | |
| | |
| | |
| ( | |
| |
Investments due in 12 months or greater: | |
|
| |
|
| |
|
| |
|
|
Corporate securities | | | | |
| | |
| ( | |
| |
Total | |
| | |
| | |
| ( | |
| |
Total marketable securities | | $ | | | $ | | | $ | ( | | $ | |
Accrued interest receivable was $
The following table summarizes marketable securities classified as available-for-sale (excluding cash equivalents) in a continuous unrealized loss position for which an allowance for credit losses was not recorded at September 30, 2024:
| | Less Than 12 Months | | 12 Months or Longer | | Total | ||||||||||||
|
| Estimated |
| Gross |
| Estimated |
| Gross |
| Estimated |
| Gross | ||||||
| | Fair Market | | Unrealized | | Fair Market | | Unrealized | | Fair Market | | Unrealized | ||||||
(In thousands) | | Value | | Losses | | Value | | Losses | | Value | | Losses | ||||||
Corporate securities | | $ | | | $ | ( | | $ | | | $ | ( | | $ | | | $ | ( |
Total marketable securities | | $ | | | $ | ( | | $ | | | $ | ( | | $ | | | $ | ( |
In the three and nine months ended September 30, 2024 and 2023,
The Company does not intend to sell and it is unlikely that it will be required to sell the securities prior to their anticipated recovery. The issuers are high quality (investment grade) and the decline in fair value is largely due to changes in interest rates. Additionally, the issuers continue to make timely interest payments on the marketable securities with the fair value expected to recover as they reach maturity.
6. GOODWILL AND INTANGIBLE ASSETS:
Changes in the carrying amount of goodwill during the nine months ended September 30, 2024 are as follows:
(in thousands) | | Goodwill | |
Balance at December 31, 2023 | | $ | |
Goodwill acquired during the period | | | |
Ending balance at September 30, 2024 | | $ | |
The $
Intangible Assets
Intangible assets consist primarily of developed technology, in-process research and development, acquired licenses and domain name and are reported net of accumulated amortization. In July 2024, the Company acquired the
13
POWER INTEGRATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
assets of Odyssey, a U.S. company and developer of vertical gallium-nitride (“GaN”) transistor technology, resulting in the addition of in-process research and development of $
Amortization of the in-process research and development will commence once development is completed and products are available for sale; the Company does not expect the amortization of its in-process research and development to begin in 2024.
| | September 30, 2024 | | December 31, 2023 | ||||||||||||||
|
| | |
| Accumulated |
| | |
| | |
| Accumulated |
| | | ||
(In thousands) | | Gross | | Amortization | | Net | | Gross | | Amortization | | Net | ||||||
Domain name | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
In-process research and development | |
| | |
| | |
| | |
| | |
| | |
| |
Developed technology | |
| | |
| ( | |
| | |
| | |
| ( | |
| |
Technology licenses | |
| | |
| ( | |
| | |
| | |
| ( | |
| |
Total intangible assets | | $ | | | $ | ( | | $ | | | $ | | | $ | ( | | $ | |
The estimated future amortization expense related to finite-lived intangible assets at September 30, 2024, is as follows:
|
| Estimated | |
| Amortization | ||
Fiscal Year | | (In thousands) | |
2024 (remaining three months) | | $ | |
2025 | |
| |
2026 | |
| |
2027 | |
| |
Total* | | $ | |
* | Total excludes $ |
7. STOCK-BASED COMPENSATION:
The following table summarizes the stock-based compensation expense recognized in accordance with ASC 718-10 for the three and nine months ended September 30, 2024 and 2023:
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
(In thousands) |
| 2024 |
| 2023 |
| 2024 |
| 2023 | ||||
Cost of revenues | | $ | | | $ | | | $ | | | $ | |
Research and development | |
| | |
| | |
| | |
| |
Sales and marketing | |
| | |
| | |
| | |
| |
General and administrative | |
| | |
| | |
| | |
| |
Total stock-based compensation expense | | $ | | | $ | | | $ | | | $ | |
Stock-based compensation expense in the three months ended September 30, 2024, was approximately $
14
POWER INTEGRATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Stock-based compensation expense in the three months ended September 30, 2023, was approximately $
PSU Awards
Under the performance-based awards program, the Company grants awards in the performance year in an amount equal to twice the target number of shares to be issued if the maximum performance metrics are met. The number of shares that are released at the end of the performance year can range from
As the net revenue, non-GAAP operating income and strategic goals are considered performance conditions, expense associated with these awards, net of estimated forfeitures, is recognized over the service period based on an assessment of the expected achievement of the performance targets. The fair value of these PSUs is determined using the fair value of the Company’s common stock on the date of the grant, reduced by the discounted present value of dividends expected to be declared before the awards vest. If the performance conditions are not achieved, no compensation cost is recognized and any previously recognized compensation is reversed.
In February 2024, it was determined that approximately
A summary of PSUs outstanding as of September 30, 2024 and activity during the nine months ended, is presented below:
| | | | | | Weighted-Average | | | | |
| | | | Weighted-Average | | Remaining | | Aggregate | ||
| | Shares | | Grant Date Fair | | Contractual Term | | Intrinsic Value | ||
|
| (In thousands) |
| Value Per Share |
| (In years) |
| (In thousands) | ||
Outstanding at January 1, 2024 |
| | | $ | |
| |
| | |
Granted |
| | | $ | |
| |
| |
|
Vested |
| ( | | $ | |
|
|
| |
|
Forfeited |
| ( | | $ | |
|
|
| |
|
Outstanding at September 30, 2024 |
| | | $ | |
| | $ | | |
Outstanding and expected to vest at September 30, 2024 |
| | |
| | | | $ | | |
PRSU Awards
The Company’s PRSU program provides for the issuance of PRSUs which will vest based on the Company’s performance measured against the PRSU program’s established performance targets. PRSUs are granted in an amount equal to twice the target number of shares to be issued if the maximum performance metrics are met. The actual number of shares the recipient receives is determined at the end of a
In February 2024, it was determined that
15
POWER INTEGRATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A summary of PRSUs outstanding as of September 30, 2024 and activity during the nine months ended, is presented below:
| | | | | | | Weighted-Average | | Aggregate | |
| | | | Weighted-Average | | Remaining | | Intrinsic | ||
| | Shares | | Grant Date Fair | | Contractual Term | | Value | ||
|
| (In thousands) |
| Value Per Share |
| (In years) |
| (In thousands) | ||
Outstanding at January 1, 2024 |
| | | $ | |
| |
| | |
Granted |
| | | $ | |
|
|
| |
|
Vested |
| | | | |
|
|
| |
|
Forfeited |
| ( | | $ | |
|
|
| |
|
Outstanding at September 30, 2024 |
| | | $ | |
| | $ | | |
Outstanding and expected to vest at September 30, 2024 |
| | | | | | | $ | | |
RSU Awards
A summary of RSUs outstanding as of September 30, 2024 and activity during the nine months ended, is presented below:
| | | | | | | Weighted-Average | | Aggregate | |
| | | | Weighted-Average | | Remaining | | Intrinsic | ||
| | Shares | | Grant Date Fair | | Contractual Term | | Value | ||
|
| (In thousands) |
| Value Per Share |
| (In years) |
| (In thousands) | ||
Outstanding at January 1, 2024 |
| | | $ | | | | | | |
Granted |
| | | $ | | |
| | | |
Vested |
| ( | | $ | | |
| | | |
Forfeited |
| ( | | $ | | |
| | | |
Outstanding at September 30, 2024 |
| | | $ | | | | $ | | |
Outstanding and expected to vest at September 30, 2024 |
| | |
| | | | $ | | |
8. SIGNIFICANT CUSTOMERS AND GEOGRAPHIC NET REVENUES:
Segment Reporting
The Company is organized and operates as
Customer Concentration
The Company’s top
16
POWER INTEGRATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
$
The following customers represented 10% or more of the Company’s net revenues for the respective periods:
|
| Three Months Ended |
| Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
Customer | | 2024 | | 2023 | | 2024 | | 2023 | ||||
Avnet |
| | % | | | % |
| | % | | | % |
Honestar Technologies Co., Ltd. | | | % | | | % | | | % | | | % |
Salcomp Group | | * | | | * | | | * | | | | % |
* Total customer revenue was less than 10% of net revenues.
No other customers accounted for 10% or more of the Company’s net revenues in the periods presented.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash investments and trade receivables. The Company does not have any off-balance-sheet credit exposure related to its customers.
As of September 30, 2024 and December 31, 2023,
The following customers represented 10% or more of accounts receivable at September 30, 2024 and December 31, 2023:
| | September 30, | | December 31, | ||
Customer |
| 2024 | | 2023 | ||
Avnet | | | % | | | % |
Salcomp Group | | | % | | | % |
Flextronics Group | | | % | | * | |
Honestar Technologies Co., Ltd. | | * | | | | % |
* Total customer accounts receivable was less than 10% of accounts receivable.
No other customers accounted for 10% or more of the Company’s accounts receivable in the periods presented.
Geographic Net Revenues
The Company markets its products globally through its sales personnel and a worldwide network of independent sales representatives and distributors. Geographic net revenues by region and country with 5% or more of the Company’s revenue during any of the periods presented, based on “bill to” customer locations were as follows:
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
(In thousands) |
| 2024 |
| 2023 |
| 2024 |
| 2023 | ||||
Americas: | | $ | | | $ | | | $ | | | $ | |
EMEA: | |
| | |
| | |
| | |
| |
Germany | | | | |
| | |
| | |
| |
Other EMEA | |
| | |
| | |
| | |
| |
APAC: | |
| | |
| | |
| | |
| |
Hong Kong/China | |
| | |
| | |
| | |
| |
India | |
| | |
| | |
| | |
| |
Korea | | | | | | | | | | | | |
Taiwan | | | | | | | | | | | | |
Other APAC | |
| | |
| | |
| | |
| |
Total net revenues | | $ | | | $ | | | $ | | | $ | |
17
POWER INTEGRATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. STOCKHOLDERS’ EQUITY:
Common Stock Shares Outstanding
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
(In thousands) |
| 2024 |
| 2023 |
| 2024 |
| 2023 | ||||
Beginning balance | | | | | | | | | | | | |
Common stock issued under employee stock plans | |
| | |
| | |
| | |
| |
Repurchased | |
| | |
| ( | |
| ( | |
| ( |
Ending balance | | | | | | | | | | | | |
Common Stock Repurchases
As of December 31, 2023, the Company had $
Cash Dividends
In February 2023, the Company’s board of directors declared dividends of $
In October 2023, the Company’s board of directors raised the quarterly cash dividend with the declaration of
In October 2024, the Company’s board of directors raised the quarterly cash dividend again with the declaration of
For the three and nine months ended September 30, 2024 and 2023, cash dividends declared and paid were as follows:
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
(In thousands, except per share amounts) |
| 2024 |
| 2023 |
| 2024 |
| 2023 | ||||
Dividends declared and paid | | $ | | | $ | | | $ | | | $ | |
Dividends declared per common share | | $ | | | $ | | | $ | | | $ | |
10. EARNINGS PER SHARE:
Basic earnings per share are calculated by dividing net income by the weighted-average shares of common stock outstanding during the period. Diluted earnings per share are calculated by dividing net income by the weighted-average shares of common stock and dilutive common equivalent shares outstanding during the period. Dilutive common equivalent shares included in this calculation consist of dilutive shares issuable upon the assumed exercise of outstanding common stock options, the assumed vesting of outstanding restricted stock units, the assumed issuance of awards under the stock purchase plan and contingently issuable performance-based awards, as computed using the treasury stock method.
18
POWER INTEGRATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A summary of the earnings per share calculation is as follows:
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
(In thousands, except per share amounts) |
| 2024 |
| 2023 |
| 2024 |
| 2023 | ||||
Basic earnings per share: |
| |
|
| |
|
| |
|
| |
|
Net income | | $ | | | $ | | | $ | | | $ | |
Weighted-average common shares | |
| | |
| | |
| | |
| |
Basic earnings per share | | $ | | | $ | | | $ | | | $ | |
Diluted earnings per share: (1) | |
|
| |
|
| |
|
| |
|
|
Net income | | $ | | | $ | | | $ | | | $ | |
Weighted-average common shares | |
| | |
| | |
| | |
| |
Effect of dilutive awards: | |
|
| |
|
| |
|
| |
|
|
Employee stock plans | |
| | |
| | |
| | |
| |
Diluted weighted-average common shares | |
| | |
| | |
| | |
| |
Diluted earnings per share | | $ | | | $ | | | $ | | | $ | |
| (1) | The Company includes the shares underlying performance-based awards in the calculation of diluted earnings per share if the performance conditions have been satisfied as of the end of the reporting period and excludes such shares when the necessary conditions have not been met. The Company has excluded the shares underlying the outstanding performance-based awards in the 2024 and 2023 calculations as the shares were not contingently issuable as of the end of the reporting periods. |
In the three and nine months ended September 30, 2024 and 2023,
11. PROVISION FOR INCOME TAXES:
Income-tax expense includes a provision for federal, state and foreign taxes based on the annual estimated effective tax rate applicable to the Company and its subsidiaries, adjusted for certain discrete items which are fully recognized in the period they occur. Accordingly, the interim effective tax rate may not be reflective of the annual estimated effective tax rate.
The Company’s effective tax rate for the three and nine months ended September 30, 2024 was
As of September 30, 2024, the Company maintained a valuation allowance on its California deferred tax assets, New Jersey deferred tax assets and a valuation allowance with respect to its deferred tax assets relating to tax credits in Canada.
Determining the consolidated provision for income-tax expense, income-tax liabilities and deferred tax assets and liabilities involves judgment. The Company calculates and provides for income taxes in each of the tax jurisdictions in which it operates, which involves estimating current tax exposures as well as making judgments regarding the recoverability of deferred tax assets in each jurisdiction. The estimates used could differ from actual results, which may have a significant impact on operating results in future periods.
19
POWER INTEGRATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. COMMITMENTS:
Supplier Agreements
Under the terms of the Company’s wafer-supply agreements with Seiko Epson Corporation ("Epson") and ROHM Lapis Semiconductor Co., Ltd. ("Lapis"), the wafers purchased from these suppliers are priced in U.S. dollars, with mutual sharing of the impact of fluctuations in the exchange rate between the Japanese yen and the U.S. dollar on future purchases. Each year, the Company’s management and these two suppliers review and negotiate future pricing; the negotiated pricing is denominated in U.S. dollars but is subject to contractual exchange-rate provisions. The fluctuation in the exchange rate is shared equally between the Company and each of these suppliers on future purchases.
13. LEGAL PROCEEDINGS AND CONTINGENCIES:
From time to time in the ordinary course of business, the Company becomes involved in lawsuits, or customers and distributors may make claims against the Company. In accordance with ASC 450-10, Contingencies, the Company makes a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated.
On December 18, 2019, CogniPower LLC filed a complaint against a customer of the Company in the United States District Court for the District of Delaware for infringement of
On October 31, 2022, Waverly Licensing LLC filed a complaint against the Company in the United States District Court for the Western District of Texas. In its complaint, Waverly alleged that the Company was infringing
The Company is unable to predict the outcome of legal proceedings with certainty, and there can be no assurance that the Company will prevail in the above-mentioned unsettled litigations. These litigations, whether or not determined in the Company’s favor or settled, will be costly and will divert the efforts and attention of the Company’s management and technical personnel from normal business operations, potentially causing a material adverse effect on the business, financial condition and operating results. Currently, the Company is not able to estimate a loss or a range of loss for the ongoing litigations disclosed above, however adverse determinations in litigation could result in monetary losses, the loss of proprietary rights, subject the Company to significant liabilities, require the Company to seek licenses from third parties or prevent the Company from licensing the technology, any of which could have a material adverse effect on the Company’s business, financial condition and operating results.
20
POWER INTEGRATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. INDEMNIFICATIONS:
The Company sells products to its distributors under contracts, collectively referred to as Distributor Sales Agreements (“DSA”). Each DSA contains the relevant terms of the contractual arrangement with the distributor, and generally includes certain provisions for indemnifying the distributor against losses, expenses, and liabilities from damages that may be awarded against the distributor in the event the Company’s products are found to infringe upon a patent, copyright, trademark, or other proprietary right of a third party (“Customer Indemnification”). The DSA generally limits the scope of and remedies for the Customer Indemnification obligations in a variety of industry-standard respects, including, but not limited to, limitations based on time and geography, and a right to replace an infringing product. The Company also, from time to time, has granted a specific indemnification right to individual customers.
The Company believes its internal development processes and other policies and practices limit its exposure related to such indemnifications. In addition, the Company requires its employees to sign a proprietary information and inventions agreement, which assigns the rights to its employees’ development work to the Company. To date, the Company has not had to reimburse any of its distributors or customers for any losses related to these indemnifications and no material claims were outstanding as of September 30, 2024. For several reasons, including the lack of prior indemnification claims and the lack of a monetary liability limit for certain infringement cases, the Company cannot determine the maximum amount of potential future payments, if any, related to such indemnifications.
15. ACQUISITION:
Odyssey Semiconductor Technologies
On March 12, 2024, the Company agreed to acquire the assets of Odyssey, a U.S. company and a developer of vertical gallium-nitride (“GaN”) transistor technology. The transaction closed on July 1, 2024, at which time all key Odyssey employees joined the Company. Pursuant to the asset purchase agreement, Odyssey sold, transferred and assigned substantially all of its assets to the Company for $
The acquisition has been accounted for using the acquisition method of accounting in accordance with ASC 805 - Business Combinations. Under the acquisition method of accounting, the total purchase consideration of the acquisition is allocated to the tangible assets and identifiable intangible assets acquired based on their relative fair values. The excess of the purchase consideration over the net tangible and identifiable intangible assets is recorded as goodwill, the amount of which represents the expected benefits to the Company of future technology and the knowledgeable and experienced employees who joined the Company. Goodwill is expected to be deductible over 15 years for tax purposes.
The following table summarizes the purchase price and estimated fair values of the assets acquired as of July 1, 2024, the completion of the Odyssey acquisition:
(In thousands) | | Total Amount | |
Assets Acquired | | | |
Property and equipment, net | | $ | |
In-process research and development | | | |
Goodwill | | | |
Total purchase price | | $ | |
The fair value of in-process research and development was determined based on the cost approach using the Company’s estimate of the costs that would be incurred if a market participant were to create the acquired technology from scratch. The Company considered the number of engineers required, salaries and related benefits, allocated overhead and the development time required to recreate the technology. The Company will record the in-process research and development as an intangible asset with an indefinite life until completion or abandonment of the associated research and development efforts, and will begin amortizing the value over the estimated life of the technology upon completion of development. Consistent with the treatment of other intangible assets with indefinite lives, the Company will test the in-process research and development for impairment on an annual basis or when impairment indicators are present.
21
POWER INTEGRATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Pro forma results of operations for this acquisition have not been presented because they are not material to the Company’s consolidated financial statements.
22
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis has been prepared as an aid to understanding our financial condition and results of operations. It should be read in conjunction with the condensed consolidated financial statements and the notes to those statements included elsewhere in this Quarterly Report on Form 10-Q, and with the consolidated financial statements and management’s discussion and analysis of our financial condition and results of operations in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 12, 2024. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023, and in Part II, Item 1A - “Risk Factors” and elsewhere in this report. See also “Cautionary Note Regarding Forward-Looking Statements” at the beginning of this report.
Overview
We design, develop and market analog and mixed-signal integrated circuits (“ICs”) and other electronic components and circuitry used in high-voltage power conversion. Our products are used in power converters that convert electricity from a high-voltage source to the type of power required for a specified downstream use. In most cases, this conversion entails, among other functions, converting alternating current (“AC”) to direct current (“DC”) or vice versa, reducing or increasing the voltage, and regulating the output voltage and/or current according to the customer’s specifications.
A large percentage of our products are ICs used in AC-DC power supplies, which convert the high-voltage AC from a wall outlet to the low-voltage DC required by most electronic devices. Power supplies incorporating our products are used with all manner of electronic products including appliances, computing and networking equipment, mobile phones, electronic utility meters, battery-powered tools, industrial controls, and “home-automation,” or “internet of things” applications such as networked thermostats, power strips and security devices. Variations of our power-supply ICs are used for high-voltage power conversion in electric vehicles (“EVs”). We also supply high-voltage LED drivers, which are AC-DC ICs specifically designed for lighting applications that utilize light-emitting diodes, and motor-driver ICs for brushless DC (“BLDC”) motors used in consumer appliances, HVAC systems, ceiling fans and a variety of industrial applications.
We also offer high-voltage gate drivers—either standalone ICs or circuit boards containing ICs, electrical isolation components and other circuitry—used to operate high-voltage switches such as insulated-gate bipolar transistors (“IGBTs”) and silicon-carbide (“SiC”) MOSFETs. These combinations of switches and drivers are used for power conversion in high-power applications (i.e., power levels ranging from approximately 100 kilowatts up to gigawatts) such as industrial motors, solar- and wind-power systems, locomotives, EVs and high-voltage DC transmission systems.
Our power-conversion products are distinguished by their “system-level” nature; that is, they incorporate into a single product numerous elements of a power-conversion system including a high-voltage transistor, drivers, advanced control circuitry and, in some cases, a communication link connecting the primary (i.e., input) and secondary (i.e., output) sides of the power converter while maintaining safety isolation to protect the end user from exposure to high voltage. Alternatively, a power converter can be designed and assembled using discrete components purchased from a variety of suppliers.
Our system-level products offer a number of important benefits compared with discrete designs, including: reduced design complexity; smaller size; lower component count, which in turn results in higher reliability and easier sourcing of components; reduced time-to-market; and more efficient use of engineering resources. Our products also reduce the energy consumption of power converters during normal use and in “standby” operation, when the end product is not in use. In addition to the environmental and economic benefits of reduced energy usage, our energy-saving technologies provide a number of benefits to our customers; these include helping them meet the increasingly stringent efficiency standards now in effect for many electronic products, and enabling the elimination of bulky, costly heatsinks used to dissipate the heat produced by wasted electricity. By reducing component count, circuit-board size and the need for heatsinks, our products also contribute to a reduction in materials usage and electronic waste.
23
While the size of our addressable market fluctuates with changes in macroeconomic and industry conditions, the market has generally exhibited a modest growth rate over time as growth in the unit volume of power converters has been offset to a large degree by reductions in the average selling price of components in this market. Therefore, the growth of our business depends largely on increasing our penetration of the markets that we serve and on further expanding our addressable market. Our growth strategy includes the following elements:
| ● | Increase our penetration of the markets we serve. We currently address AC-DC applications with power outputs up to approximately 500 watts, gate-driver applications ranging from approximately 100 kilowatts up to gigawatts, and motor-drive applications up to approximately one horsepower. Through our research and development efforts, we seek to introduce more advanced products for these markets offering higher levels of integration and performance compared to earlier products. We also continue to expand our sales and application-engineering staff and our network of distributors, as well as our offerings of technical documentation and design-support tools and services to help customers use our products. These tools and services include our PI Expert™ design software, which we offer free of charge, and our transformer-sample service. In 2022 we launched PowerPros℠, a live online video support service that enables power-supply designers to talk directly with members of our applications engineering team 24 hours a day, six days a week, anywhere in the world. |
| ● | Capitalize on efforts to reduce carbon emissions by providing products that contribute to improved energy efficiency and increased use of renewable energy. In its 2019 World Energy Outlook, the International Energy Agency estimated that more than two-thirds of the reduction in carbon-dioxide (“CO2”) emissions needed to achieve the “Sustainable Development Scenario” of the United Nations Sustainable Development Agenda is to come from improved energy efficiency and increased use of renewable energy. Energy savings enabled by our products help our customers comply with regulations that seek to curb energy consumption in support of reducing CO2 emissions. For example: our EcoSmart™ technology drastically reduces the amount of energy consumed by electronic products when they are plugged in but not in use; our PowiGaN™ gallium-nitride (“GaN”) transistors reduce energy consumption compared to silicon transistors; and our BridgeSwitch™ motor-driver ICs provide highly efficient power conversion for BLDC motors in appliances and industrial applications. Also, our gate-driver products are critical components in energy-efficient DC motor drives, solar- and wind-power systems, efficient high-voltage DC transmission systems (including transmission of energy from renewable energy installations to the power grid), and low-emissions transportation applications such as electric locomotives. |
| ● | Increase the size of our addressable market. Prior to 2010 our addressable market consisted of AC-DC applications with up to about 50 watts of output, a served available market (“SAM”) opportunity of approximately $1.5 billion. Since then we have expanded our SAM to approximately $4 billion through a variety of means. These include the introduction of products that enable us to address higher-power AC-DC applications (such as our Hiper™ product families), the introduction of LED-driver products, and our entry into the gate-driver market through the acquisition of CT-Concept Technologie AG in 2012. In 2016 we introduced the SCALE-iDriverTM family of ICs, broadening the range of gate-driver applications we can address. In 2018 we introduced our BridgeSwitch™ motor-driver ICs for BLDC motors; in 2024 we introduced BridgeSwitch-2, which expands our addressable power range of motor-drive applications. We have introduced a range of automotive-qualified products to address the EV market; we expect to introduce more such products in the future, and expect automotive applications to become a significant portion of our SAM over time. |
Also contributing to our SAM expansion has been the emergence of new applications within the power ranges that our products can address. For example, applications such as “smart” utility meters, battery-powered lawn equipment and bicycles, and USB power receptacles (often installed alongside traditional AC wall outlets) can incorporate our products. The increased use of connectivity, LED lighting and other power-consuming electronic features in consumer appliances has also enhanced our SAM.
We have also expanded our SAM through the development of technologies and architectures that increase the value (and therefore the average selling prices) of our products. For example, our InnoSwitch™ ICs integrate circuitry from the secondary, or low-voltage, side of AC-DC power supplies,
24
whereas earlier product families integrated circuitry only on the primary, or high-voltage side. Our InnoMux™ IC families provide up to three DC outputs, eliminating the need for additional power-management circuitry in certain end products requiring multiple voltages while significantly increasing efficiency. In 2019 we began incorporating our proprietary GaN transistors in some of our products, enabling a higher level of energy efficiency than ICs with silicon transistors. Since then, we have introduced a variety of new products utilizing GaN technology, as well as new generations of our GaN technology capable of supporting higher voltages (as high as 1700 volts). We are currently developing new products incorporating these technologies, which we believe will enable us to address higher-power applications than we address with our current range of products and therefore further expand our SAM.
We intend to continue expanding our SAM in the years ahead through all of the means described above.
Our quarterly operating results are difficult to predict and subject to significant fluctuations. We plan our production and inventory levels based on internal forecasts of projected customer demand, which are highly unpredictable and can fluctuate substantially. Customers typically may cancel or reschedule orders on short notice without significant penalty and, conversely, often place orders with very short lead times to delivery. Also, external factors such as supply-chain dynamics, widespread health emergencies like the COVID-19 pandemic, and macroeconomic conditions including inflation, fluctuations in interest and exchange rates and bank failures, have caused and can continue to cause our operating results to be volatile. Furthermore, because our industry is intensely price-sensitive, our gross margin (gross profit divided by net revenues) is subject to change based on the relative pricing of solutions that compete with ours. Variations in product mix, end-market mix and customer mix can also cause our gross margin to fluctuate. Because we purchase a large percentage of our silicon wafers from foundries located in Japan, our gross margin is influenced by fluctuations in the exchange rate between the U.S. dollar and the Japanese yen. Changes in the prices of raw materials used in our products, such as copper and gold, can also affect our gross margin. Although our wafer fabrication and assembly operations are outsourced, as are most of our test operations, a portion of our production costs are fixed in nature. As a result, our unit costs and gross margin are impacted by the volume of units we produce.
Recent Results
Our net revenues were $115.8 million and $125.5 million in the three months ended September 30, 2024 and 2023, respectively, and $313.7 million and $355.0 million in the nine months ended September 30, 2024 and 2023, respectively. The decrease in net revenues for the three-month period was driven primarily by lower sales of our products for use in smartphone chargers, reflecting greater use of Chinese-made components in chargers manufactured for Chinese smartphone vendors, as well as increased decoupling of handsets and chargers. These decreases were partially offset by higher sales into the consumer and computer end-markets reflecting, respectively, the depletion of excess inventories related to the appliance market and the increased use of our products in chargers for notebook computers and other mobile devices. For the nine-month period ended September 30, 2024, revenues for all but the consumer end-market category decreased compared to the corresponding prior-year period.
In general, we believe that demand for our products has been negatively affected in recent periods by macroeconomic and geopolitical factors including reduced consumer spending and a reduction in home sales in response to inflation and higher interest rates, general economic weakness in China, weaker industrial activity and the conflicts in Ukraine and the Middle East. We believe these factors have exacerbated the effects of a cyclical downturn in the semiconductor industry; such downturns are commonly experienced following periods of strong growth during which supply-chain participants tend to accumulate excess inventories.
Our top ten customers, including distributors that resell to OEMs and merchant power supply manufacturers, accounted for 78% of net revenues for both the three and nine months ended September 30, 2024, and 83% and 81% in the corresponding periods of 2023. International sales accounted for 98% of our net revenues for both the three and nine months ended September 30, 2024, and 98% in both the corresponding periods of 2023.
Our gross margin was 55% and 53% for the three months ended September 30, 2024 and 2023, respectively, and 53% and 52% for the corresponding nine-month periods. The increase in gross margin was primarily due to favorable end-market mix, with a greater percentage of revenues coming from the higher-margin industrial and consumer end-markets, and the favorable impact of the dollar/yen exchange rate on our wafer costs.
Total operating expenses were $51.6 million and $48.2 million for the three months ended September 30, 2024 and 2023, respectively, and $153.5 million and $146.6 million for the nine months ended September 30, 2024 and 2023,
25
respectively. The increase in operating expenses for the three- and nine-month periods was primarily due to higher stock-based compensation expense related to performance-based awards, and higher salaries and related expenses driven by higher headcount and annual salary increases. Partially offsetting these increases for the nine-month period were decreased product-development expenses. In addition, we recognized a credit in the three months ended September 30, 2024 related to the recovery of bad debt.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate our estimates, including those listed below. We base our estimates on historical facts and various other assumptions that we believe to be reasonable at the time the estimates are made. Actual results could differ from those estimates.
Critical accounting policies are important to the portrayal of our financial condition and results of operations and require us to make judgments and estimates about matters that are inherently uncertain. There have been no material changes to our critical accounting policies and estimates disclosed in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” and Note 2, Significant Accounting Policies and Recent Accounting Pronouncements, in each case in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 12, 2024. Currently, our only critical accounting policies relate to revenue recognition and estimating write-downs for excess and obsolete inventory.
Results of Operations
The following table sets forth certain operating data as a percentage of net revenues for the periods indicated:
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
|
| 2024 | | 2023 | | 2024 | | 2023 | ||||
Net revenues | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
Cost of revenues |
| 45.5 |
| | 47.5 |
| | 46.6 |
| | 48.5 |
|
Gross profit |
| 54.5 |
| | 52.5 |
| | 53.4 |
| | 51.5 |
|
Operating expenses: |
|
|
| |
|
| | |
| | |
|
Research and development |
| 22.3 |
| | 19.2 |
| | 23.9 |
| | 20.4 |
|
Sales and marketing |
| 14.8 |
| | 12.9 |
| | 16.2 |
| | 13.8 |
|
General and administrative |
| 7.5 |
| | 6.3 |
| | 8.8 |
| | 7.0 |
|
Total operating expenses |
| 44.6 |
| | 38.4 |
| | 48.9 |
| | 41.2 |
|
Income from operations |
| 9.9 |
| | 14.1 |
| | 4.5 |
| | 10.3 |
|
Other income |
| 2.4 |
| | 2.5 |
| | 3.0 |
| | 2.1 |
|
Income before income taxes |
| 12.3 |
| | 16.6 |
| | 7.5 |
| | 12.4 |
|
Provision for income taxes |
| — |
| | 0.8 |
| | 0.1 |
| | 0.6 |
|
Net income |
| 12.3 | % | | 15.8 | % | | 7.4 | % | | 11.8 | % |
Comparison of the three and nine months ended September 30, 2024 and 2023
Net revenues. Net revenues consist of revenues from product sales, which are calculated net of returns and allowances. Net revenues for the three and nine months ended September 30, 2024 were $115.8 million and $313.7 million, respectively, and $125.5 million and $355.0 million, in the corresponding periods of 2023. The decrease in net revenues for the three-month period was driven primarily by lower sales of our products for use in smartphone chargers, reflecting greater use of Chinese-made components in chargers manufactured for Chinese smartphone vendors, as well as increased decoupling of handsets and chargers. These decreases were partially offset by higher sales into the consumer and computer end-markets reflecting, respectively, the depletion of excess inventories related to the appliance market and increased use of our products in chargers for notebook computers and other mobile devices. For the nine-month period ended September 30, 2024, revenues for all but the consumer end-market category decreased compared to the corresponding prior-year period.
26
Our revenue mix by end market for the three and nine months ended September 30, 2024 and 2023 was as follows:
|
| Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
End Market |
| 2024 | | 2023 | | 2024 | | 2023 | ||||
Communications | | 12 | % | | 32 | % | | 11 | % | | 30 | % |
Computer |
| 14 | % | | 10 | % |
| 14 | % | | 12 | % |
Consumer |
| 38 | % | | 26 | % |
| 40 | % | | 26 | % |
Industrial |
| 36 | % | | 32 | % |
| 35 | % | | 32 | % |
International sales, consisting of sales outside of the United States of America based on “bill to” customer locations, were $114.1 million and $308.7 million in the three and nine months ended September 30, 2024, respectively, and $123.3 million and $348.1 million in the corresponding periods of 2023. Although power converters using our products are distributed to end markets worldwide, most are manufactured in Asia. As a result, sales to this region represented 85% and 84% of our net revenues in the three and nine months ended September 30, 2024, respectively, and 84% in both the corresponding periods of 2023. We expect international sales, and sales to the Asia region in particular, to continue to account for a large portion of our net revenues in the future.
Sales to distributors accounted for 70% of our net revenues in both the three and nine months ended September 30, 2024 and 74% and 67% in the corresponding periods of 2023. Direct sales to OEMs and power-supply manufacturers accounted for the remainder.
The following customers represented 10% or more of our net revenues for the respective periods:
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
Customer |
| 2024 | | 2023 | | 2024 | | 2023 | ||||
Avnet |
| 31 | % | | 28 | % |
| 30 | % | | 26 | % |
Honestar Technologies Co., Ltd. | | 10 | % | | 23 | % | | 11 | % | | 17 | % |
Salcomp Group | | * | | | * | | | * | | | 11 | % |
*Total customer revenue was less than 10% of net revenues.
No other customers accounted for 10% or more of our net revenues in these periods.
Gross profit. Gross profit is net revenues less cost of revenues. Our cost of revenues consists primarily of the purchase of wafers from our contracted foundries, the assembly, packaging and testing of our products by sub-contractors, product testing performed in our own facility, overhead associated with the management of our supply chain. Gross margin is gross profit divided by net revenues. The following table compares gross profit and gross margin for the three and nine months ended September 30, 2024 and 2023:
| | Three Months Ended | | Nine Months Ended | ||||||||||||
| | September 30, | | September 30, | ||||||||||||
(dollars in millions) |
| 2024 |
| 2023 |
| 2024 |
| 2023 | ||||||||
Net revenues | | $ | 115.8 | | | $ | 125.5 | | | $ | 313.7 | | | $ | 355.0 | |
Gross profit |
| $ | 63.2 |
| | $ | 65.9 |
|
| $ | 167.5 |
| | $ | 182.7 |
|
Gross margin | |
| 54.5 | % | |
| 52.5 | % | |
| 53.4 | % | |
| 51.5 | % |
The increase in gross margin was primarily due to favorable end-market mix, with a greater percentage of revenues coming from the higher-margin industrial and consumer end-markets, and the favorable impact of the dollar/yen exchange rate on our wafer costs.
27
Research and development expenses. Research and development (“R&D”) expenses consist primarily of employee-related expenses, including stock-based compensation, and expensed material and facility costs associated with the development of new technologies and products. We also record R&D expenses for prototype wafers related to new products until such products are released to production. The table below compares R&D expenses for the three and nine months ended September 30, 2024 and 2023:
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
(dollars in millions) | | 2024 |
| 2023 | | 2024 | | 2023 | ||||
R&D expenses | | $ | 25.8 | | $ | 24.1 | | $ | 75.1 | | $ | 72.6 |
Headcount (at period end) | | | 319 | | | 290 | | | 319 | | | 290 |
R&D expenses increased for the three and nine months ended September 30, 2024 compared to the corresponding periods of 2023. The increase for the three-month period was primarily due to higher salaries and related expenses driven by higher headcount and annual salary increases, as well as increased product-development expenses. The increase for the nine-month period was primarily due to higher stock-based compensation expense related to performance-based awards, as well as higher salaries and related expenses driven by higher headcount and annual salary increases. These increases were partially offset by decreased product-development expenses.
Sales and marketing expenses. Sales and marketing (“S&M”) expenses consist primarily of employee-related expenses, including stock-based compensation, commissions to sales representatives, amortization of intangible assets and facilities expenses, including expenses associated with our regional sales and support offices. The table below compares S&M expenses for the three and nine months ended September 30, 2024 and 2023:
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
(dollars in millions) |
| 2024 |
| 2023 | | 2024 | | 2023 | ||||
Sales and marketing expenses | | $ | 17.1 | | $ | 16.2 | | $ | 50.9 | | $ | 49.1 |
Headcount (at period end) | |
| 325 | | | 320 | |
| 325 | | | 320 |
S&M expenses increased for the three and nine months ended September 30, 2024 compared to the corresponding periods of 2023, primarily due to higher stock-based compensation expense related to performance-based awards, as well as higher salaries and related expenses driven by higher headcount and annual salary increases.
General and administrative expenses. General and administrative (“G&A”) expenses consist primarily of employee-related expenses, including stock-based compensation expense, for administration, finance, human resources and general management, as well as consulting, professional services, legal and audit expenses. The table below compares G&A expenses for the three and nine months ended September 30, 2024 and 2023:
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
(dollars in millions) |
| 2024 |
| 2023 | | 2024 | | 2023 | ||||
G&A expenses |
| $ | 8.6 |
| $ | 7.9 | | $ | 27.5 | | $ | 25.0 |
Headcount (at period end) | |
| 78 | | | 73 | |
| 78 | | | 73 |
G&A expenses increased for the three and nine months ended September 30, 2024 compared to the corresponding periods of 2023, primarily due to higher stock-based compensation expense related to performance-based awards, as well as higher salaries and related expenses due to annual salary increases. The increase was partially offset for the three months due to a credit related to the recovery of bad debt.
28
Other income. Other income consists primarily of interest income earned on cash and cash equivalents, marketable securities and other investments, and the impact of foreign exchange gains or losses. The table below compares other income for the three and nine months ended September 30, 2024 and 2023:
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
(dollars in millions) |
| 2024 |
| 2023 | | 2024 | | 2023 | ||||
Other income |
| $ | 2.8 |
| $ | 3.1 | | $ | 9.4 | | $ | 7.6 |
Other income decreased for the three months ended September 30, 2024 compared to the corresponding period of 2023, as higher interest income driven by higher rates on investments was offset by the unfavorable impact of foreign exchange rates during the period. Other income increased for the nine months ended September 30, 2024 compared to the corresponding period of 2023, primarily due to higher interest income.
Provision for income taxes. Provision for income taxes represents federal, state and foreign taxes. The table below compares income-tax expense for the three and nine months ended September 30, 2024 and 2023:
| | Three Months Ended | | Nine Months Ended | ||||||||||||
| | September 30, | | September 30, | ||||||||||||
(dollars in millions) |
| 2024 |
| 2023 |
| 2024 |
| 2023 | ||||||||
Provision for income taxes |
| $ | — |
|
| $ | 1.1 |
|
| $ | 0.4 |
|
| $ | 2.2 |
|
Effective tax rate | |
| 0.3 | % | |
| 5.1 | % | |
| 1.5 | % | |
| 5.1 | % |
Income-tax expense includes a provision for federal, state and foreign taxes based on the annual estimated effective tax rate applicable to us and our subsidiaries, adjusted for certain discrete items which are fully recognized in the period in which they occur. Accordingly, the interim effective tax rate may not be reflective of the annual estimated effective tax rate.
Our effective tax rates for the three and nine months ended September 30, 2024 were 0.3% and 1.5%, respectively, as compared to 5.1% in both the corresponding periods of 2023. The effective tax rate in these periods was lower than the statutory federal income-tax rate of 21% due to the geographic distribution of our world-wide earnings in lower-tax jurisdictions and the impact of federal research tax credits. Additionally, in the nine months ended September 30, 2024, our effective tax rate was also favorably impacted by the recognition of excess tax benefits related to share-based payments and by discrete items associated with the release of unrecognized tax benefits. In the three and nine months ended September 30, 2023, our effective tax rate was favorably impacted by a discrete item associated with recognition of excess tax benefits related to share-based payments. In the nine months ended September 30, 2023, our effective tax rate was also favorably impacted by discrete items associated with the release of unrecognized tax benefits. These benefits were partially offset by U.S. tax on foreign income, known as global intangible low-taxed income. The primary jurisdiction from which our foreign earnings are derived is the Cayman Islands, which is a non-taxing jurisdiction. Income earned in other foreign jurisdictions was not material. We have not been granted any incentivized tax rates and do not operate under any tax holidays in any jurisdiction.
Liquidity and Capital Resources
As of September 30, 2024, we had $303.8 million in cash, cash equivalents and short-term marketable securities, a decrease of $7.8 million from $311.6 million as of December 31, 2023. As of September 30, 2024, we had working capital, defined as current assets less current liabilities, of $457.1 million, a decrease of approximately $5.6 million from $462.7 million as of December 31, 2023.
We have a credit agreement with Wells Fargo Bank, National Association (the "Credit Agreement") that provides us with a $75.0 million revolving line of credit to use for general corporate purposes with a $20.0 million sub-limit for the issuance of standby and trade letters of credit. The Credit Agreement was amended on June 7, 2021, to provide an alternate borrowing rate as a replacement for LIBOR and extend the termination date from April 30, 2022, to June 7, 2026, with all other terms remaining the same. The Credit Agreement was amended with an effective date of June 28, 2023 to include the Secured Overnight Financing Rates (“SOFR”) as interest rate benchmark rates, with all other terms remaining the same. Our ability to borrow under the revolving line of credit is conditioned upon our compliance with specified covenants, including reporting and financial covenants, primarily a minimum liquidity measure and a debt to earnings ratio, with which we are currently in compliance. The Credit Agreement terminates on June 7, 2026; any advances under the
29
revolving line of credit would become due on such date, or earlier in the event of a default. No advances were outstanding under the agreement as of September 30, 2024.
Cash from Operating Activities
Operating activities generated $66.5 million of cash in the nine months ended September 30, 2024. Net income for this period was $23.1 million; we also incurred non-cash stock-based compensation expense, depreciation, increase in deferred tax assets, accretion of discount on marketable securities, and amortization of intangibles of $25.8 million, $25.6 million, $8.7 million, $1.3 million and $1.1 million, respectively. Sources of cash included a $5.6 million decrease in prepaid expenses and other assets and an increase of $1.9 million in accounts payable. These sources of cash were partially offset by a $4.5 million increase in inventories and a $1.5 million increase in accounts receivable due to timing of customer payments.
Operating activities generated $49.5 million of cash in the nine months ended September 30, 2023. Net income for this period was $41.5 million; we also incurred depreciation, non-cash stock-based compensation expense, increase in deferred tax assets and amortization of intangibles of $26.3 million, $21.0 million, $10.0 million and $1.6 million, respectively. Sources of cash were partially offset by a $14.8 million increase in inventories reflecting a slowdown in sales driven by factors described above, a $7.2 million increase in accounts receivable, a $5.0 million decrease in taxes payable and accrued liabilities primarily due to timing of customer rebate payments, a $2.9 million decrease in accounts payable (excluding payables related to property and equipment) due to timing of payments and a $0.8 million increase in prepaid expenses and other assets primarily due to federal income tax prepayments.
Cash from Investing Activities
Our investing activities in the nine months ended September 30, 2024 resulted in a $17.5 million net use of cash, primarily consisting of $14.2 million used for purchases of property and equipment (primarily production-related machinery and equipment) and $9.5 million for the Odyssey acquisition, partially offset by $6.2 million of proceeds from sales and maturities of marketable securities, net of purchases.
Our investing activities in the nine months ended September 30, 2023 resulted in $25.9 million net use of cash, primarily consisting of $11.1 million used for purchases of marketable securities net of proceeds from sales and maturities, and $14.7 million used for purchases of property and equipment, primarily production-related machinery and equipment.
Cash from Financing Activities
Our financing activities in the nine months ended September 30, 2024 resulted in a $54.4 million net use of cash, consisting of $34.1 million for the payment of dividends to stockholders and $26.0 million for the repurchase of our common stock, partially offset by proceeds of $5.7 million from the issuance of shares through our employee stock purchase plan.
Our financing activities in the nine months ended September 30, 2023 resulted in a $34.3 million net use of cash, consisting of $32.7 million for the payment of dividends to stockholders and $7.8 million for the repurchase of our common stock, partially offset by $6.2 million from the issuance of shares through our employee stock purchase plan.
Dividends
In February 2023, our board of directors declared dividends of $0.19 per share to be paid to stockholders of record at the end of each quarter in 2023. In October 2023, our board of directors raised the quarterly cash dividend with the declaration of five cash dividends of $0.20 per share to be paid at the end of the fourth quarter of 2023 (in lieu of the previously declared dividend of $0.19 per share) and at the end of each quarter in 2024. In October 2024, our board of directors raised the quarterly cash dividend again with the declaration of five cash dividends of $0.21 per share to be paid at the end of the fourth quarter of 2024 (in lieu of the previously declared dividend of $0.20 per share) and at the end of each quarter in 2025.
Dividend payouts of $11.4 million occurred on March 28, 2024, June 28, 2024 and September 30, 2024. The declaration of any future cash dividend is at the discretion of the board of directors and will depend on our financial condition, results of operations, capital requirements, business conditions and other factors, as well as a determination that cash dividends are in the best interests of our stockholders.
30
Stock Repurchases
As of December 31, 2023, we had $26.0 million remaining under our stock-repurchase program. We exhausted this authorization in the nine months ended September 30, 2024, purchasing approximately 371,000 shares of our common stock for $26.0 million. In October 2024, our board of directors authorized the use of $50.0 million for the repurchase of our common stock, with repurchases to be executed according to pre-defined price/volume guidelines. The program has no expiration date. Authorization of future repurchase programs is at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, business conditions and other factors.
Contractual Commitments
As of September 30, 2024, there were no material changes in our contractual commitments from those reported in our Annual Report on Form 10-K for the year ended December 31, 2023.
Other Information
Our cash, cash equivalents and investment balances may change in future periods due to changes in our planned cash outlays, including changes in incremental costs such as direct and integration costs related to future acquisitions. Current U.S. tax laws generally allow companies to repatriate accumulated foreign earnings without incurring additional U.S. federal taxes. Accordingly, as of September 30, 2024, our worldwide cash and marketable securities are available to fund capital allocation needs, including capital and internal investments, acquisitions, stock repurchases and/or dividends without incurring additional U.S. federal income taxes.
If our operating results deteriorate in future periods, either as a result of a decrease in customer demand or pricing pressures from our customers or our competitors, or for other reasons, our ability to generate positive cash flow from operations may be jeopardized. In that case, we may be forced to use our cash, cash equivalents and short-term investments, use our current financing or seek additional financing from third parties to fund our operations. We believe that cash generated from operations, together with existing sources of liquidity, will satisfy our projected working capital and other cash requirements for at least the next 12 months. Our uses of cash beyond the next 12 months will depend on many factors, including the general economic environment in which we operate and our ability to generate cash flow from operations, which are uncertain but include funding our operations and additional capital expenditures.
Recent Accounting Pronouncements
Information with respect to this item may be found in Note 2, Significant Accounting Policies and Recent Accounting Pronouncements, in our Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1, of this Quarterly Report on Form 10-Q, which information is incorporated herein by reference.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to our interest rate risk and foreign currency exchange risk during the first nine months of 2024. For a discussion of our exposure to interest rate risk and foreign currency exchange risk, refer to our market risk disclosures set forth in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of the 2023 Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
Limitation on Effectiveness of Controls
Any control system, no matter how well designed and operated, can provide only reasonable assurance as to the tested objectives. The design of any control system is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. The inherent limitations in any control system include the realities that judgments related to decision-making can be faulty, and that reduced effectiveness in controls can occur because of simple errors or mistakes. Due to the inherent limitations in a cost-effective control system, misstatements due to error may occur and may not be detected.
31
Evaluation of Disclosure Controls and Procedures
Management is required to evaluate our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”). Disclosure controls and procedures are controls and other procedures designed to provide reasonable assurance that information required to be disclosed in our reports filed under the Exchange Act, such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include controls and procedures designed to provide reasonable assurance that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer as appropriate to allow timely decisions regarding required disclosure. Based on our management’s evaluation (with the participation of our principal executive officer and principal financial officer), our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective as of the end of the period covered by this report.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended September 30, 2024, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Information with respect to this item may be found in Note 12, Legal Proceedings and Contingencies, in our Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1, of this Quarterly Report on Form 10-Q, which information is incorporated herein by reference.
ITEM 1A. RISK FACTORS
As of the date of this filing, the risk factors have not changed materially from those disclosed in Part I Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2023, which risk factors are incorporated herein by reference in this report from Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 12, 2024.
ITEM 5. OTHER INFORMATION
Rule 10b5-1 Trading Plans
During the three months ended September 30, 2024,
32
ITEM 6. EXHIBITS
| | | | Incorporation by Reference | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
EXHIBIT |
| Exhibit Description | | Form |
| File | | Exhibit/Other Reference | | Filing | | Filed |
| | | | | | | | | | | | |
3.1 | | | 10-K | | 000-23441 | | 3.1 | | 2/29/2012 | | | |
3.2 | | | 8-K | | 000-23441 | | 3.1 | | 4/26/2013 | | | |
31.1 | | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | | | | | | | | | X |
31.2 | | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | | | | | | | | | X |
32.1** | | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | | | | | | | | | X |
32.2** | | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | | | | | | | | | X |
101.INS | | XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | | | | | | | | | | X |
101.SCH | | Inline XBRL Taxonomy Extension Schema Document | | | | | | | | | | X |
101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | | | | | | | | | X |
101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document | | | | | | | | | | X |
101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document | | | | | | | | | | X |
101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | | | | | | | | | X |
104 | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) | | | | | | | | | | |
33
All references in the table above to previously filed documents or descriptions are incorporating those documents and descriptions by reference thereto.
** | The certifications attached as Exhibits 32.1 and 32.2 accompanying this Quarterly Report on Form 10-Q, are not deemed filed with the SEC, and are not to be incorporated by reference into any filing of Power Integrations, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing. |
34
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | POWER INTEGRATIONS, INC. | |
| | | |
Dated: | November 6, 2024 | By: | /s/ SANDEEP NAYYAR |
| | | Sandeep Nayyar |
| | | Chief Financial Officer |
| | | (Duly Authorized Officer, Principal Financial Officer and Principal Accounting Officer) |
35
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Balu Balakrishnan certify that:
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Sandeep Nayyar, certify that:
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Power Integrations, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Balu Balakrishnan, Chief Executive Officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (“Section 906”), certify to the best of my knowledge that:
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Power Integrations, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Sandeep Nayyar, Chief Financial Officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (“Section 906”), certify to the best of my knowledge that:
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission or its staff upon request.