Power Integrations : Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

About this update from Power Integrations, Inc.

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, 2025, filed with the SEC on February 6, 2026. 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" included in this report. See also "Cautionary Note Regarding Forward-Looking Statements" at the beginning of this report. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those indicated in the forward-looking statements. Factors that could cause actual results to differ materially from those predicted include, but are not limited to: ● The demand for our products declining in the major end markets we serve and the ability of our products to penetrate additional markets; which may occur due to competitive factors, supply-chain fluctuations, rising inflation or other changes in macroeconomic or geopolitical conditions; ● the volume and timing of orders received from customers; ● our ability to develop and bring to market new products and technologies, including on a timely basis; ● reliance on international sales activities for a substantial portion of our net revenue; ● the lengthy timing of our sales cycle; ● sales of our products through distributors, which limits our direct interaction with our end customers, reducing our ability to forecast sales and increasing the complexity of our business; ● the cyclical nature of the power supply industry and cyclical market patterns across different end markets for which our products are used; ● competitive pressures on selling prices; ● risks associated with our supply chain including, the volume, cost and timing of delivery of orders placed by us with our wafer foundries and assembly subcontractors, and their ability to procure materials; ● undetected defects, quality issues, warranty claims or product recalls related to our products; ● our ability to attract and retain qualified personnel; ● changes in global trade policy, including tariffs, could reduce demand for end products that incorporate our products, which could have a material adverse effect on our revenue and operating results; ● our ability to realize the expected benefits of restructuring initiatives designed to reduce costs and create a more efficient organization; ● debt obligations we incur in the future could adversely affect our financial condition; ● the inability to adequately protect or enforce our intellectual property rights; ● we have been and may be subject to or involved in litigation, threatened litigation or other disputes, the outcome of which may be difficult to predict, and which may be costly to defend, divert management attention, require us to pay damages or other payments, or restrict the operation of our business; ● expenses we are required to incur (or choose to incur) in connection with litigation; ​ ● changes in tax rules and regulations, changes in interpretation of tax rules and regulations, or unfavorable assessments from tax audits may increase the amount of taxes we are required to pay and require management time and attention; ● changes in environmental laws and regulations, including with respect to energy consumption and climate change; ● continued impact of changes in securities laws and regulations, including potential risks resulting from our evaluation of our internal controls over financial reporting; ● current or potential war, domestic or international conflict, political or social instability, or military actions, including the conflicts in Ukraine and the Middle East; ● failure, disruption, security breaches, or other incidents impacting our information technology infrastructure or information management systems; ● interruptions in our information technology systems; ● unfavorable or uncertain market conditions and risks relating to the adoption, use or application of emerging technologies, including AI, by our customers and in our business; ● fluctuations in exchange rates, particularly the exchange rate between the U.S. dollar and the Japanese yen, the Euro and the Swiss franc; ● earthquakes, fire, global health crises, or other disasters; ● risks associated with acquisitions and strategic investments; and ● our ability to successfully integrate, or realize the expected benefits from, our acquisitions. Overview Power Integrations is a leading innovator in semiconductor technologies for high-voltage power conversion. Our products are key building blocks in the clean-power ecosystem, enabling the generation of renewable energy as well as the efficient transmission and consumption of power in applications ranging from milliwatts to megawatts. Our net revenue was $108.3 million and $105.5 million in the three months ended March 31, 2026 and 2025, respectively. The increase in net revenue for the three-months period was primarily due to higher sales in the industrial end-market. Our top ten customers, including distributors that resell to OEMs and merchant power-supply manufacturers, accounted for approximately 80% of our net revenue for both of the three months ended March 31, 2026 and 2025. International sales accounted for approximately 98% and 99% of our net revenue for the three months ended March 31, 2026 and 2025, respectively. Our gross margin was 53% for the three months ended March 31, 2026 and 55% in the corresponding period in 2025. The decrease in gross margin was primarily due to the unfavorable impact of the dollar/yen exchange rate and restructuring related costs. Total operating expenses were $55.5 million and $51.5 million for the three months ended March 31, 2026 and 2025, respectively. The increase in operating expenses for the three-month period was primarily due to restructuring and related charges of $6.6 million for severance and benefit costs associated with the workforce reduction described in Note 4 of this report herein. These increases were offset in the three months ended March 31, 2026, by a $1.4 million credit in other operating expenses related to stock-based compensation expense associated with the changes in performance criteria measurement as described in Note 7 of this report herein. Our management team continuously evaluates operations to better align our organization with market opportunities, increase operational efficiency, decrease costs and increase profitability. In connection with this, a restructuring plan was undertaken in the first quarter of 2026, reducing the Company's workforce by approximately 7% to better align our expenses with revenue and create flexibility to invest in the products, people, and markets that are expected to drive long-term growth and profitability. As a result, we recognized restructuring charges of $6.6 million ​ during the first quarter of 2026, primarily composed of severance costs. The restructuring plan was substantially completed in the first quarter of 2026. Capital Return Program. We remain committed to delivering stockholder value through our stock repurchase and dividend programs. Under future programs authorized by our Board of Directors, we may repurchase shares of our common stock in the open-market or through privately negotiated transactions. The extent to which we repurchase our stock and the timing of such repurchases will depend upon market conditions, legal rules and regulations and other corporate considerations, as determined by our management team. During the three months ended March 31, 2026, we returned $12.0 million of capital to stockholders through the payment of cash dividends. We continue to monitor the environment for potential long-term impact on supply and demand from tariffs. 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 revenue 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, 2025, filed with the SEC on February 6, 2026. 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 revenue for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ March 31, ​ ​ ​ ​ 2026 ​ 2025 Net revenue ​ 100.0 % ​ 100.0 % Cost of revenue ​ 47.4 ​ ​ 44.8 ​ Gross profit 52.6 ​ 55.2 Operating expenses: ​ ​ ​ Research and development 24.3 ​ 22.8 Selling, general and administrative 22.6 ​ 26.0 Other operating expenses ​ (1.3) ​ ​ - ​ Restructuring and related charges ​ 5.7 ​ ​ - ​ Total operating expenses 51.3 ​ 48.8 Income from operations 1.3 ​ 6.4 Other income 2.2 ​ 3.0 Income before income taxes 3.5 ​ 9.4 Provision for income taxes 0.6 ​ 1.0 Net income 2.9 % ​ 8.4 % ​ Comparison of the three months ended March 31, 2026 and 2025 Net revenue. Net revenue consists of revenue from product sales, net of returns and allowances. Net revenue for the three months ended March 31, 2026 was $108.3 million compared to $105.5 million in the corresponding period of 2025. The increase was due primarily to higher sales in the industrial end-market. ​ Our revenue mix by end market for the three months ended March 31, 2026 and 2025 was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ March 31, End Market ​ ​ ​ 2026 ​ 2025 Communications ​ 10 % ​ 10 % Computer 11 % ​ 12 % Consumer 38 % ​ 44 % Industrial 41 % ​ 34 % International sales, consisting of sales outside of the United States based on "bill to" customer locations, were $106.5 million in the three months ended March 31, 2026, and $104.2 million in the corresponding period of 2025. 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 approximately 80% of our net revenue in the three months ended March 31, 2026, and 84% in the corresponding period of 2025. We expect international sales, and sales to the Asia region in particular, to continue to account for a large portion of our net revenue in the future. Sales to distributors accounted for approximately 71% of our net revenue in both of the three months ended March 31, 2026 and 2025. Direct sales to OEMs and merchant power-supply manufacturers accounted for the remainder. Gross profit. Gross profit is net revenue less cost of revenue. Our cost of revenue 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 and the amortization of acquired intangible assets. The following table compares gross profit and gross margin for the three months ended March 31, 2026 and 2025: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ March 31, (dollars in millions) ​ ​ ​ 2026 ​ 2025 Net revenue ​ $ 108.3 ​ ​ $ 105.5 ​ Gross profit $ 56.9 ​ $ 58.2 Gross margin ​ 52.6 % ​ 55.2 % ​ The decrease in gross margin was primarily due to the unfavorable impact of the dollar/yen exchange rate and restructuring related costs. Research and development expenses. Research and development ("R&D") expenses consist primarily of employee-related expenses including salaries and stock-based compensation, as well as expensed material and facility costs associated with the development of new processes and products. We also record R&D expenses for prototype wafers related to new products until the products are released to production. The following table compares R&D expenses for the three months ended March 31, 2026 and 2025: ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ March 31, (dollars in millions) ​ 2026 ​ 2025 Research and development expenses ​ $ 26.3 ​ $ 24.1 R&D expenses increased for the three months ended March 31, 2026 as compared to the corresponding period of 2025. As described in Note 4 Restructuring of this report herein, $3.0 million of application engineer project costs have been recognized in the three months ended March 31, 2026 related to customer product development projects. This increase was partially offset by lower stock-based compensation expense and by lower equipment-related expenses. Selling, General and Administrative. Selling, general and administrative ("SG&A") expenses consist primarily of employee-related expenses, including salaries, commissions and stock-based compensation for personnel across our sales representatives, administration, finance, human resources, and general management functions. SG&A expenses also include facilities-related costs associated with our regional sales and support offices, as well as consulting, professional ​ services, legal and auditing expenses. The following table below compares SG&A expenses for the three months ended March 31, 2026 and 2025: ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ March 31, (dollars in millions) ​ ​ ​ 2026 ​ 2025 Selling, general and administrative expenses ​ $ 24.4 ​ $ 27.4 ​ SG&A expenses decreased for the three months ended March 31, 2026 as compared to the corresponding period of 2025 primarily related to the restructuring actions taken in the three-months ended March 31, 2026 as described in Note 4 Restructuring of this report herein. Other operating expenses. Other operating expenses were a credit of $1.4 million in the three months ended March 31, 2026 related to the equity award modification associated with the retirement of our former chief executive officer (refer to Note 7, Stockholders' Equity , in our Notes to Unaudited Condensed Consolidated Financial Statements for details). Restructuring and related charges. Restructuring and related charges were $6.6 million in the three months ended March 31, 2026. The charges were primarily related to severance and benefit costs associated with the workforce reduction described in Note 4 Restructuring. Other income . Other income consists primarily of interest income earned on cash and cash equivalents, marketable securities and other short-term investments, and the impact of foreign exchange gains or losses. The table below compares other income for the three months ended March 31, 2026 and 2025: ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ March 31, (dollars in millions) ​ ​ ​ 2026 ​ 2025 Other income $ 2.5 $ 3.2 ​ Other income decreased for the three months ended March 31, 2026 as compared to the corresponding period of 2025 primarily due to lower 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 months ended March 31, 2026 and 2025: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ March 31, (dollars in millions) ​ ​ ​ 2026 ​ 2025 Provision for income taxes $ 0.6 ​ $ 1.1 ​ Effective tax rate ​ 15.8 % ​ 11.1 % 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 rate for the three months ended March 31, 2026, was 15.8%, and 11.1% in the corresponding period of 2025. 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 tax credits. In the three months ended March 31, 2026, our effective tax rate was affected by the recognition of a tax accounting shortfall associated with share-based payments. Additionally, i n the three months ended March 31, 2025, our effective tax rate was unfavorably impacted by the recognition of share-based payments and foreign income subject to U.S. tax. 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 March 31, 2026, we had $257.2 million in cash, cash equivalents and short-term investments, an increase of $7.7 million from $249.5 million as of December 31, 2025. As of March 31, 2026, we had working capital, defined as current assets less current liabilities, of $391.8 million, an increase of approximately $3.8 million from $388.0 million as of December 31, 2025. In 2016, we entered into the Prior Credit Agreement with Wells Fargo Bank, National Association, which provided us with a $75.0 million revolving line of credit to use for general corporate purposes and a $20.0 million sub-limit for the issuance of standby and trade letters of credit with an interest rate based on SOFR. The Prior Credit Agreement had a term which originally extended to June 7, 2026; the Prior Credit Agreement was terminated on April 10, 2026. We were compliant with all covenants and had no advances outstanding under the Prior Credit Agreement as of termination of the Prior Credit Agreement. On February 24, 2026, we entered into the PNC Loan Agreement to replace the Prior Credit Agreement, which became effective and available for use on April 10, 2026 when we terminated the Prior Credit Agreement. The PNC Loan Agreement provides us with a $100.0 million revolving line of credit with a $25.0 million sub-limit for the issuance of standby and trade letters of credit. The interest rate on outstanding borrowings under the PNC Loan Agreement is based on SOFR plus 1.60%. The Company's obligations under the PNC Loan Agreement are unsecured. The PNC Loan Agreement term extends through February 24, 2031; all advances under the revolving line of credit, together with all accrued and unpaid interest, fees and other obligations owing thereon, will become due on such date, or earlier upon the occurrence of an Event of Default. The PNC Loan Agreement requires us to maintain a Minimum Liquidity of at least $50.0 million as of the last day of each fiscal quarter and a ratio of Funded Indebtedness to Adjusted EBITDA of less than 2.00 to 1.00 as of the last day of each fiscal quarter and determined on a rolling four-quarter basis. The PNC Loan Agreement contains representations and warranties, affirmative covenants and conditions precedent to borrowing usual and customary for credit agreements of this type. The PNC Loan Agreement contains negative covenants, including negative covenants that restrict, subject to certain exceptions, our ability to: ● use the proceeds of any credit extended under the PNC Loan Agreement except to refinance all indebtedness outstanding under the Prior Credit Agreement and for working capital or other general business purposes; ● create, incur, assume or permit to exist any indebtedness or liabilities resulting from borrowings, loans or advances; ● mortgage, pledge, grant or permit to exist a security interest in, or lien upon, all or any portion of our assets; ● guarantee or become liable for any obligations or liabilities of any other person or entity; ● purchase or hold beneficially any stock, or other securities or evidence of indebtedness of, or make or have outstanding, any loans or advances to, or otherwise extend credit to, or make any investment or acquire any interest whatsoever in, any other person, firm, corporation or other entity; and ● liquidate, dissolve, merge or consolidate with or into any person, firm, corporation or other entity, or make acquisitions of all or substantially all of the property or assets of any person, firm, corporation or other entity, or sell, lease, transfer or otherwise dispose of all or a substantial part of our property, assets, operations or business. We were compliant with all covenants and had no advances outstanding under the PNC Loan Agreement as of April 10, 2026. Cash from Operating Activities Our operating activities generated $20.0 million of cash in the three months ended March 31, 2026. Net income for this period was $3.3 million; we also incurred non-cash depreciation, stock-based compensation expense, amortization of intangibles and accretion of discount on investments of $6.4 million, $6.3 million, $0.2 million and $0.2 million, respectively. Sources of cash included a $3.9 million decrease in inventories, a $3.8 million decrease in accounts receivable due to timing of receipts and $3.4 million decrease in prepaid expenses and other assets. These sources of cash were ​ partially offset by a $4.1 million decrease in accounts payable (excluding payables related to property and equipment) due to timing of payments and a $3.1 million decrease in other accrued liabilities. Our operating activities generated $26.4 million of cash in the three months ended March 31, 2025. Net income for this period was $8.8 million; we also incurred non-cash stock-based compensation expense and depreciation of $8.7 million and $7.2 million, respectively. Sources of cash included a $4.7 million decrease in accounts receivable due to timing of receipts, an increase of $4.0 million in accounts payable (excluding payables related to property and equipment) due to timing of payments and a $3.4 million decrease in prepaid expenses and other assets. These sources of cash were partially offset by a $3.9 million decrease in other accrued liabilities and a $3.5 million increase in inventories. Cash from Investing Activities Our investing activities in the three months ended March 31, 2026, resulted in a $6.2 million net use of cash, primarily consisting of $4.2 million for purchases of investments, net of sales and maturities and $2.0 million for purchases of property and equipment (primarily production-related machinery and equipment). Our investing activities in the three months ended March 31, 2025, generated $4.5 million of cash, primarily consisting of $10.3 million from sales and maturities of investments, net of purchases, offset by $5.7 million for purchases of property and equipment (primarily production-related machinery and equipment). Cash from Financing Activities Our financing activities in the three months ended March 31, 2026 resulted in a $9.3 million net use of cash, consisting of $12.0 million for the payment of dividends to stockholders, partially offset by proceeds of $2.7 million from the issuance of shares through our employee stock purchase plan. Our financing activities in the three months ended March 31, 2025 resulted in a $32.3 million net use of cash, consisting of $23.1 million for the repurchase of our common stock and $12.0 million for the payment of dividends to stockholders, partially offset by proceeds of $2.8 million from the issuance of shares through our employee stock purchase plan. 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 March 31, 2026, our worldwide cash and short-term investments are available to fund capital allocation needs, including capital and internal investments, acquisitions, stock repurchases and/or dividends without incurring significant 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 uncertain factors, including the general economic environment in which we operate and our ability to generate cash flow from operations, but include funding our operations and additional capital expenditures.

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