POWER INTEGRATIONS INC 10-Q

ITEM 1. FINANCIAL STATEMENTS POWER INTEGRATIONS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ (In thousands) March 31, 2021 December 31, 2020 ​ ASSETS ​ ​ CURRENT ASSETS: ​ ​ Cash and cash equivalents ​ $ 343,272 ​ $ 258,874 ​ Short-term marketable securities ​ 148,067 ​ 190,318 ​ Accounts receivable, net ​ 42,257 ​ 35,910 ​ Inventories ​ 90,509 ​ 102,878 ​ Prepaid expenses and other current assets ​ 18,207 ​ 13,252 ​ Total current assets ​ 642,312 ​ 601,232 ​ PROPERTY AND EQUIPMENT, net ​ 168,712 ​ 166,188 ​ INTANGIBLE ASSETS, net ​ 11,474 ​ 12,506 ​ GOODWILL ​ 91,849 ​ 91,849 ​ DEFERRED TAX ASSETS ​ 1,892 ​ 3,339 ​ OTHER ASSETS ​ 28,480 ​ 28,225 ​ Total assets ​ $ 944,719 ​ $ 903,339 ​ LIABILITIES AND STOCKHOLDERS’ EQUITY ​ ​ ​ CURRENT LIABILITIES: ​ ​ ​ Accounts payable ​ $ 38,172 ​ $ 34,712 ​ Accrued payroll and related expenses ​ 13,339 ​ 14,806 ​ Taxes payable ​ 856 ​ 902 ​ Other accrued liabilities ​ 10,160 ​ 12,106 ​ Total current liabilities ​ 62,527 ​ 62,526 ​ LONG-TERM INCOME TAXES PAYABLE ​ 14,033 ​ 15,588 ​ OTHER LIABILITIES ​ 14,336 ​ 14,814 ​ Total liabilities ​ 90,896 ​ 92,928 ​ COMMITMENTS AND CONTINGENCIES (Notes 11, 12 and 13) ​ ​ ​ STOCKHOLDERS’ EQUITY: ​ ​ ​ Common stock ​ 29 ​ 28 ​ Additional paid-in capital ​ 203,051 ​ 190,920 ​ Accumulated other comprehensive loss ​ ( 2,836 ) ​ ( 2,163 ) ​ Retained earnings ​ 653,579 ​ 621,626 ​ Total stockholders’ equity ​ 853,823 ​ 810,411 ​ Total liabilities and stockholders’ equity ​ $ 944,719 ​ $ 903,339 ​ ​ ​ The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. ​ 4 Table of Contents POWER INTEGRATIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ ​ March 31, (In thousands, except per share amounts) 2021 2020 ​ NET REVENUES ​ $ 173,737 ​ $ 109,664 ​ COST OF REVENUES ​ 89,326 ​ 53,184 ​ GROSS PROFIT ​ 84,411 ​ 56,480 ​ ​ ​ ​ ​ ​ ​ ​ ​ OPERATING EXPENSES: ​ ​ ​ Research and development ​ 20,027 ​ 19,152 ​ Sales and marketing ​ 14,123 ​ 13,473 ​ General and administrative ​ 10,075 ​ 8,761 ​ Total operating expenses ​ 44,225 ​ 41,386 ​ INCOME FROM OPERATIONS ​ 40,186 ​ 15,094 ​ OTHER INCOME ​ 597 ​ 1,777 ​ INCOME BEFORE INCOME TAXES ​ 40,783 ​ 16,871 ​ PROVISION FOR INCOME TAXES ​ 985 ​ 985 ​ NET INCOME ​ $ 39,798 ​ $ 15,886 ​ ​ ​ ​ ​ ​ ​ ​ ​ EARNINGS PER SHARE: ​ ​ ​ Basic ​ $ 0.66 ​ $ 0.27 ​ Diluted ​ $ 0.65 ​ $ 0.26 ​ ​ ​ ​ ​ ​ ​ ​ ​ SHARES USED IN PER SHARE CALCULATION: ​ ​ ​ Basic ​ 60,184 ​ 59,204 ​ Diluted ​ 61,451 ​ 60,268 ​ ​ ​ The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. The Earnings Per Share and Shares Used in Per Share Calculation information presented above reflects the effect of the August 2020 two -for-one stock split. Refer to Note 9, Earnings Per Share , in this Form 10-Q for details. ​ 5 Table of Contents POWER INTEGRATIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ ​ March 31, ​ (In thousands) 2021 2020 Net income ​ $ 39,798 ​ $ 15,886 ​ Other comprehensive income (loss), net of tax: ​ ​ ​ Foreign currency translation adjustments, net of $ 0 tax in each of the three months ended March 31, 2021 and 2020 ​ ​ ( 18 ) ​ ​ ( 283 ) ​ Unrealized loss on marketable securities, net of $ 0 tax in each of the three months ended March 31, 2021 and 2020 ​ ​ ( 580 ) ​ ​ ( 952 ) ​ Amortization of defined benefit pension items, net of tax of $ 135 and $ 31 in the three months ended March 31, 2021, and 2020, respectively ​ ​ ( 75 ) ​ ​ 51 ​ Total other comprehensive loss ​ ( 673 ) ​ ( 1,184 ) ​ TOTAL COMPREHENSIVE INCOME ​ $ 39,125 ​ $ 14,702 ​ ​ ​ The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. ​ 6 Table of Contents POWER INTEGRATIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ March 31, (In thousands) 2021 2020 Common stock ​ ​ ​ ​ ​ ​ Beginning balance ​ $ 28 ​ $ 28 Common stock issued under employee stock plans ​ 1 ​ — Repurchase of common stock ​ — ​ — Ending balance ​ 29 ​ 28 ​ ​ ​ ​ ​ Additional paid-in capital ​ ​ ​ ​ Beginning balance ​ 190,920 ​ 152,117 Common stock issued under employee stock plans ​ 3,651 ​ 5,529 Repurchase of common stock ​ — ​ ( 2,013 ) Stock-based compensation ​ 8,480 ​ 6,710 Ending balance ​ 203,051 ​ 162,343 ​ ​ ​ ​ ​ Accumulated other comprehensive loss ​ ​ ​ ​ Beginning balance ​ ( 2,163 ) ​ ( 3,130 ) Other comprehensive loss ​ ( 673 ) ​ ( 1,184 ) Ending balance ​ ( 2,836 ) ​ ( 4,314 ) ​ ​ ​ ​ ​ Retained earnings ​ ​ ​ ​ Beginning balance ​ 621,626 ​ 575,531 Net income ​ 39,798 ​ 15,886 Payment of dividends to stockholders ​ ​ ( 7,845 ) ​ ​ ( 5,644 ) Ending balance ​ ​ 653,579 ​ ​ 585,773 ​ ​ ​ ​ ​ ​ ​ Total stockholders’ equity ​ $ 853,823 ​ $ 743,830 ​ ​ The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. ​ 7 Table of Contents POWER INTEGRATIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ ​ March 31, ​ (In thousands) 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: ​ ​ Net income ​ $ 39,798 ​ $ 15,886 ​ Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ Depreciation ​ 7,453 ​ 5,488 ​ Amortization of intangibles ​ 1,032 ​ 1,117 ​ Loss on disposal of property and equipment ​ 17 ​ 30 ​ Stock-based compensation expense ​ 8,480 ​ 6,710 ​ Amortization of premium on marketable securities ​ 176 ​ 154 ​ Deferred income taxes ​ 1,445 ​ 1,095 ​ Decrease in accounts receivable allowance for credit losses ​ ( 2 ) ​ ( 154 ) ​ Change in operating assets and liabilities: ​ ​ ​ Accounts receivable ​ ( 6,345 ) ​ 3,831 ​ Inventories ​ 12,369 ​ ( 6,253 ) ​ Prepaid expenses and other assets ​ ( 3,253 ) ​ ( 3,992 ) ​ Accounts payable ​ 3,281 ​ 8,828 ​ Taxes payable and accrued liabilities ​ ( 6,329 ) ​ ( 6,349 ) ​ Net cash provided by operating activities ​ 58,122 ​ 26,391 ​ ​ ​ ​ ​ ​ ​ ​ ​ CASH FLOWS FROM INVESTING ACTIVITIES: ​ ​ ​ ​ Purchases of property and equipment ​ ( 11,051 ) ​ ( 11,603 ) ​ Proceeds from sale of property and equipment ​ ​ 25 ​ ​ — ​ Purchases of marketable securities ​ ( 21,971 ) ​ ( 16,838 ) ​ Proceeds from sales and maturities of marketable securities ​ 63,466 ​ 15,947 ​ Net cash provided by (used in) investing activities ​ 30,469 ​ ( 12,494 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ CASH FLOWS FROM FINANCING ACTIVITIES: ​ ​ ​ Issuance of common stock under employee stock plans ​ 3,652 ​ 5,529 ​ Repurchase of common stock ​ — ​ ( 2,013 ) ​ Payments of dividends to stockholders ​ ( 7,845 ) ​ ( 5,644 ) ​ Net cash used in financing activities ​ ( 4,193 ) ​ ( 2,128 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ NET INCREASE IN CASH AND CASH EQUIVALENTS ​ 84,398 ​ 11,769 ​ CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ​ 258,874 ​ 178,690 ​ CASH AND CASH EQUIVALENTS AT END OF PERIOD ​ $ 343,272 ​ $ 190,459 ​ ​ ​ ​ ​ ​ ​ ​ ​ SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: ​ ​ ​ Unpaid property and equipment ​ $ 6,116 ​ $ 5,250 ​ ​ ​ ​ ​ ​ ​ ​ ​ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: ​ ​ ​ Cash paid for income taxes, net ​ $ 1,512 ​ $ 305 ​ ​ ​ 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, 2020, included in its Form 10-K filed on February 5, 2021, with the Securities and Exchange Commission. The share and per share information for all periods presented in this Form 10-Q reflects the effect of the August 2020 two -for-one stock split. Refer to Note 8, Stockholders’ Equity , in this Form 10-Q for details. Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations. ​ 2. SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS: Significant Accounting Policies and Estimates No material changes have been made to the Company’s significant accounting policies disclosed in Note 2, Significant Accounting Policies and Recent Accounting Pronouncements , in its Annual Report on Form 10-K, filed on February 5, 2021, for the year ended December 31, 2020. Recent Accounting Pronouncements The Company has considered all recent accounting pronouncements issued, but not yet effective, and does not expect any to have a material effect on the Company’s condensed consolidated financial statements. ​ 3. COMPONENTS OF THE COMPANY’S CONDENSED CONSOLIDATED BALANCE SHEETS: Accounts Receivable ​ ​ ​ ​ ​ ​ ​ ​ March 31, December 31, (In thousands) ​ 2021 ​ 2020 Accounts receivable trade ​ $ 73,382 ​ $ 66,703 Allowance for ship and debit ​ ( 25,814 ) ​ ( 26,435 ) Allowance for stock rotation and rebate ​ ( 4,886 ) ​ ( 3,931 ) Allowance for credit losses ​ ​ ( 425 ) ​ ​ ( 427 ) Total ​ $ 42,257 ​ $ 35,910 ​ ​ 9 ​ Table of Contents POWER INTEGRATIONS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) ​ 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 payments 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 ​ March 31, (In thousands) 2021 2020 Beginning balance $ ( 427 ) ​ $ ( 763 ) Provision for credit loss expense ( 217 ) ​ — Receivables written off — ​ 154 Recoveries collected 219 ​ — Ending balance $ ( 425 ) ​ $ ( 609 ) ​ Inventories ​ ​ ​ ​ ​ ​ ​ ​ March 31, December 31, (In thousands) ​ 2021 ​ 2020 Raw materials ​ $ 27,042 ​ $ 32,131 Work-in-process ​ 37,319 ​ 39,469 Finished goods ​ 26,148 ​ 31,278 Total ​ $ 90,509 ​ $ 102,878 ​ ​ Intangible Assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2021 ​ December 31, 2020 ​ ​ ​ Accumulated ​ ​ ​ ​ Accumulated ​ ​ (In thousands) ​ Gross ​ Amortization ​ Net ​ Gross ​ Amortization ​ Net Domain name ​ $ 1,261 ​ $ — ​ $ 1,261 ​ $ 1,261 ​ $ — ​ $ 1,261 Developed technology ​ 37,960 ​ ( 29,882 ) ​ 8,078 ​ 37,960 ​ ( 29,126 ) ​ 8,834 Customer relationships ​ 16,700 ​ ( 15,901 ) ​ 799 ​ 16,700 ​ ( 15,687 ) ​ 1,013 Technology licenses ​ 1,926 ​ ( 590 ) ​ 1,336 ​ 1,926 ​ ( 528 ) ​ 1,398 Total intangible assets ​ $ 57,847 ​ $ ( 46,373 ) ​ $ 11,474 ​ $ 57,847 ​ $ ( 45,341 ) ​ $ 12,506 ​ ​ The estimated future amortization expense related to finite-lived intangible assets at March 31, 2021, is as follows: ​ ​ ​ ​ ​ Estimated ​ ​ Amortization Fiscal Year ​ (In thousands) 2021 (remaining nine months) ​ $ 2,462 2022 ​ 2,415 2023 ​ 2,173 2024 ​ 1,279 2025 ​ 832 Thereafter ​ 1,052 Total ​ $ 10,213 ​ 10 Table of Contents POWER INTEGRATIONS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) ​ Accumulated Other Comprehensive Loss Changes in accumulated other comprehensive loss for three months ended March 31, 2021 and 2020, 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 ​ March 31, ​ March 31, ​ March 31, ​ March 31, (In thousands) 2021 2020 2021 2020 2021 2020 2021 2020 Beginning balance $ 890 ​ $ 583 ​ $ ( 1,641 ) ​ $ ( 2,484 ) ​ $ ( 1,412 ) ​ $ ( 1,229 ) ​ $ ( 2,163 ) ​ $ ( 3,130 ) Other comprehensive income (loss) before reclassifications ( 580 ) ​ ( 952 ) ​ — ​ — ​ ( 18 ) ​ ( 283 ) ​ ( 598 ) ​ ( 1,235 ) Amounts reclassified from accumulated other comprehensive loss — ​ — ​ ( 75 ) (1) 51 (1) — ​ — ​ ( 75 ) ​ 51 Net-current period other comprehensive income (loss) ( 580 ) ​ ( 952 ) ​ ( 75 ) ​ 51 ​ ( 18 ) ​ ( 283 ) ​ ( 673 ) ​ ( 1,184 ) Ending balance $ 310 ​ $ ( 369 ) ​ $ ( 1,716 ) ​ $ ( 2,433 ) ​ $ ( 1,430 ) ​ $ ( 1,512 ) ​ $ ( 2,836 ) ​ $ ( 4,314 ) ​ (1) This component of accumulated other comprehensive income (loss) is included in the computation of net periodic pension cost for the three months ended March 31, 2021 and 2020. ​ 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. The fair-value hierarchy of the Company’s cash equivalents and marketable securities at March 31, 2021, and December 31, 2020, was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurement at ​ ​ March 31, 2021 ​ ​ ​ Quoted Prices in ​ ​ ​ ​ ​ ​ ​ Active Markets for ​ Significant Other ​ ​ ​ ​ ​ Identical Assets ​ Observable Inputs (In thousands) ​ Total Fair Value ​ (Level 1) ​ (Level 2) Corporate securities ​ $ 126,085 ​ $ — ​ $ 126,085 Commercial paper ​ 297,727 ​ — ​ 297,727 Money market funds ​ 13,170 ​ 13,170 ​ — Total ​ $ 436,982 ​ $ 13,170 ​ $ 423,812 11 Table of Contents POWER INTEGRATIONS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurement at ​ ​ December 31, 2020 ​ ​ ​ Quoted Prices in ​ ​ ​ ​ ​ ​ ​ Active Markets for ​ Significant Other ​ ​ ​ ​ ​ Identical Assets ​ Observable Inputs (In thousands) ​ Total Fair Value ​ (Level 1) ​ (Level 2) Corporate securities ​ $ 146,658 ​ $ — ​ $ 146,658 Commercial paper ​ 253,855 ​ — ​ 253,855 Money market funds ​ 1,634 ​ 1,634 ​ — Total ​ $ 402,147 ​ $ 1,634 ​ $ 400,513 ​ The Company did not transfer any investments between Level 1 and Level 2 of the fair-value hierarchy in the three months ended March 31, 2021, and the twelve months ended December 31, 2020. ​ 5. MARKETABLE SECURITIES: Amortized cost and estimated fair market value of marketable securities classified as available-for-sale (excluding cash equivalents) at March 31, 2021, were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortized ​ Gross Unrealized ​ Estimated Fair (In thousands) Cost Gains Losses Market Value Investments due in 3 months or less: ​ ​ ​ ​ Commercial paper ​ $ 1,999 ​ $ — ​ $ — ​ $ 1,999 Corporate securities ​ ​ 94,676 ​ ​ 107 ​ ​ — ​ ​ 94,783 Total ​ 96,675 ​ 107 ​ — ​ 96,782 Investments due in 4-12 months: ​ ​ ​ ​ Commercial paper ​ ​ 19,983 ​ ​ — ​ ​ — ​ ​ 19,983 Corporate securities ​ 31,099 ​ 203 ​ — ​ 31,302 Total ​ 51,082 ​ 203 ​ — ​ 51,285 Total marketable securities ​ $ 147,757 ​ $ 310 ​ $ — ​ $ 148,067 ​ Accrued interest receivable was $ 1.2 million at March 31, 2021 and was recorded within prepaid expenses and other current assets on the condensed consolidated balance sheet. Amortized cost and estimated fair market value of marketable securities classified as available-for-sale (excluding cash equivalents) at December 31, 2020, were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortized ​ Gross Unrealized ​ Estimated Fair (In thousands) Cost Gains Losses Market Value Investments due in 3 months or less: ​ ​ ​ ​ Commercial paper ​ $ 43,660 ​ $ — ​ $ — ​ $ 43,660 Corporate securities ​ ​ 19,846 ​ ​ 44 ​ ​ — ​ ​ 19,890 Total ​ 63,506 ​ 44 ​ — ​ 63,550 Investments due in 4-12 months: ​ ​ ​ ​ Corporate securities ​ 125,922 ​ 846 ​ — ​ 126,768 Total ​ 125,922 ​ 846 ​ — ​ 126,768 Total marketable securities ​ $ 189,428 ​ $ 890 ​ $ — ​ $ 190,318 ​ Accrued interest receivable was $ 0.8 million at December 31, 2020 and was recorded within prepaid expenses and other current assets on the condensed consolidated balance sheet. ​ 12 Table of Contents POWER INTEGRATIONS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) ​ 6. STOCK-BASED COMPENSATION: The following table summarizes the stock-based compensation expense recognized in accordance with ASC 718-10 for the three months ended March 31, 2021, and March 31, 2020: ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ March 31, ​ (In thousands) 2021 2020 Cost of revenues $ 631 ​ $ 396 ​ Research and development 2,391 ​ 2,109 ​ Sales and marketing 1,614 ​ 1,392 ​ General and administrative 3,844 ​ 2,813 ​ Total stock-based compensation expense $ 8,480 ​ $ 6,710 ​ ​ ​ Stock-based compensation expense in the three months ended March 31, 2021, was approximately $ 8.5 million, comprising approximately $ 5.3 million related to restricted stock unit (RSU) awards, $ 2.7 million related to performance-based (PSU) awards and long-term performance-based (PRSU) awards and $ 0.5 million related to the Company’s employee stock purchase plan. In the three months ended March 31, 2020, stock-based compensation expense was approximately $ 6.7 million, comprising approximately $ 5.0 million related to RSUs, $ 1.3 million related to PSUs and PRSUs and $ 0.4 million related to the Company’s employee stock purchase plan. Stock Options A summary of stock options outstanding as of March 31, 2021, and activity during the three months then ended, is presented below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted- ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Average ​ ​ ​ ​ ​ ​ ​ Weighted- ​ Remaining ​ ​ ​ ​ ​ ​ ​ Average ​ Contractual ​ Aggregate ​ ​ Shares ​ Exercise ​ Term ​ Intrinsic Value ​ (In thousands) Price (In years) (In thousands) Outstanding at January 1, 2021 92 ​ $ 20.63 ​ ​ ​ Granted — ​ — ​ Exercised ( 33 ) ​ $ 19.15 ​ Forfeited or expired — ​ — ​ Outstanding at March 31, 2021 59 ​ $ 21.44 1.1 ​ $ 3,568 Vested and exercisable at March 31, 2021 59 ​ ​ ​ 1.1 ​ $ 3,568 ​ 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 zero to 200 % of the target number depending on the Company’s performance. The performance metrics of this program are annual targets consisting of a combination of net revenue, non-GAAP operating income and strategic goals. 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 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 January 2021, it was determined that approximately 150,000 shares subject to the PSUs granted in 2020 vested in aggregate; the shares were released to the Company’s employees and executives in the first quarter of 2021. 13 Table of Contents POWER INTEGRATIONS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) ​ A summary of PSUs outstanding as of March 31, 2021, and activity during the three months then ended, is presented below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted- ​ ​ ​ ​ ​ ​ ​ Weighted- ​ Average ​ ​ ​ ​ ​ ​ ​ Average ​ Remaining ​ Aggregate ​ ​ Shares ​ Grant Date Fair ​ Contractual Term ​ Intrinsic Value ​ (In thousands) Value Per Share (In years) (In thousands) Outstanding at January 1, 2021 150 ​ $ 46.27 ​ ​ ​ Granted 57 ​ $ 84.05 ​ Vested ( 150 ) ​ $ 46.27 ​ Forfeited — ​ ​ — ​ Outstanding at March 31, 2021 57 ​ $ 84.05 0.75 ​ $ 4,682 Outstanding and expected to vest at March 31, 2021 57 ​ ​ ​ 0.75 ​ $ 4,682 ​ 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 three-year performance period based on results achieved versus the Company’s performance goals, and may range from zero to 200 % of the target number. The performance goals for PRSUs granted in fiscal 2019 were based on the Company’s annual revenue growth, while the PRSUs granted in 2020 and 2021 were based on the Company’s compound annual growth rate (“CAGR”) of revenue as measured against the revenue CAGR of the analog semiconductor industry, in each case over the respective three-year performance period. Expense associated with these awards, net of estimated forfeitures, is recorded throughout the year based on an assessment of the expected achievement of the performance targets. If the performance conditions are not achieved, no compensation cost is recognized and any previously recognized compensation is reversed. In January 2021 it was determined that approximately 6,000 shares subject to the PRSUs granted in 2018 vested in aggregate; the shares were released to the Company’s executives in the first quarter of 2021. A summary of PRSUs outstanding as of March 31, 2021, and activity during the three months then 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, 2021 301 ​ $ 41.90 ​ ​ ​ Granted 97 ​ $ 83.01 ​ Vested ( 6 ) ​ $ 29.95 ​ Forfeited ( 15 ) ​ $ 40.05 ​ Outstanding at March 31, 2021 377 ​ $ 52.75 1.65 ​ $ 30,737 Outstanding and expected to vest at March 31, 2021 377 ​ ​ ​ 1.65 ​ $ 30,737 ​ 14 Table of Contents POWER INTEGRATIONS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) ​ RSU Awards A summary of RSUs outstanding as of March 31, 2021, and activity during the three months then 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, 2021 1,518 ​ $ 35.51 ​ ​ ​ Granted 89 ​ $ 82.50 ​ Vested ( 209 ) ​ $ 34.57 ​ Forfeited ( 39 ) ​ $ 35.73 ​ Outstanding at March 31, 2021 1,359 ​ $ 38.72 1.83 ​ $ 110,731 Outstanding and expected to vest at March 31, 2021 1,273 ​ ​ ​ 1.38 ​ $ 103,716 ​ ​ ​ ​ 7. SIGNIFICANT CUSTOMERS AND GEOGRAPHIC NET REVENUES: Segment Reporting The Company is organized and operates as one reportable segment, the design, development, manufacture and marketing of integrated circuits and related components for use primarily in the high-voltage power-conversion market. The Company’s chief operating decision maker, the Chief Executive Officer, reviews financial information presented on a consolidated basis for purposes of making operating decisions and assessing financial performance. Customer Concentration The Company’s top ten customers accounted for approximately 79 % of net revenues for the three months ended March 31, 2021, and approximately 55 % in the corresponding period of 2020. A significant portion of these revenues are attributable to sales of the Company’s products to distributors of electronic components. These distributors sell the Company’s products to a broad, diverse range of end users, including original equipment manufacturers, or OEMs, and merchant power supply manufacturers. Sales to distributors were $ 134.2 million in the three months ended March 31, 2021, and $ 83.5 million for the corresponding period of 2020. Direct sales to OEMs and power-supply manufacturers accounted for the remainder. The following customers represented 10% or more of the Company’s net revenues for the respective periods: ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ March 31, ​ Customer ​ 2021 ​ 2020 ​ ​ Avnet 31 % 11 % Honestar Technologies Co., Ltd. ​ 18 % * ​ ​ Powertech Distribution Ltd. * ​ 11 % ​ * 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 March 31, 2021, and December 31, 2020, 86 % and 90 %, respectively, of accounts receivable were concentrated with the Company’s top ten customers. 15 Table of Contents POWER INTEGRATIONS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) ​ The following customers represented 10% or more of accounts receivable: ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ December 31, ​ Customer 2021 ​ 2020 ​ Avnet ​ 58 % 50 % Powertech Distribution Ltd. * ​ 10 % * 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, based on “bill to” customer locations, for the three months ended March 31, 2021, and March 31, 2020, were as follows: ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ March 31, ​ (In thousands) 2021 2020 United States of America $ 4,100 ​ $ 2,713 ​ Hong Kong/China 118,730 ​ 60,413 ​ Taiwan 6,442 ​ 6,479 ​ Korea 12,489 ​ 10,357 ​ Western Europe (excluding Germany) 7,130 ​ 10,035 ​ Japan 4,647 ​ 3,905 ​ Germany 7,006 ​ 5,567 ​ Other 13,193 ​ 10,195 ​ Total net revenues $ 173,737 ​ $ 109,664 ​ ​ ​ ​ ​ 8. STOCKHOLDERS’ EQUITY: Common Stock Shares Outstanding ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ March 31, (In thousands) ​ 2021 ​ 2020 Beginning balance ​ ​ 59,910 ​ ​ 58,862 Common stock issued under employee stock plans ​ 453 ​ 568 Repurchased ​ — ​ ( 48 ) Ending balance ​ ​ 60,363 ​ ​ 59,382 ​ In July 2020, the Company’s board of directors approved a two -for-one stock split in the form of a stock dividend, payable on August 18, 2020 , to stockholders of record as of the close of business on August 14, 2020 . The Company’s stockholders received one additional share of common stock for each share of common stock held on August 14, 2020. The share and per share information for all periods presented in this Form 10-Q reflects the effect of the stock split. Common Stock Repurchases The Company did not repurchase any common stock during the three months ended March 31, 2021. As of March 31, 2021, the Company had approximately $ 41.3 million remaining under its current repurchase program, which has no expiration date. In April 2021, the Company’s board of directors authorized the use of an additional $ 50.0 million for the repurchase of the Company’s common stock, with repurchases to be executed according to pre-defined price/volume guidelines. Authorization of future repurchase programs is at the discretion of the board of directors and will depend on the Company’s financial condition, results of operations, capital requirements, business conditions and other factors. 16 Table of Contents POWER INTEGRATIONS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) ​ Cash Dividends In October 2019, the Company’s board of directors declared four quarterly cash dividends of $ 0.095 per share to be paid to stockholders of record at the end of each quarter in 2020. In April 2020, the Company’s board of directors raised the cash dividends with the declaration of three cash dividends of $ 0.105 per share (in lieu of the $ 0.095 per share previously announced in October 2019) to be paid to stockholders of record at the end of each of the second, third and fourth quarter in 2020. In July 2020, the Company’s board of directors raised the cash dividends further with the declaration of two cash dividends of $ 0.11 per share (in lieu of the $ 0.105 per share announced in April 2020) to be paid to stockholders of record at the end of each of the third and fourth quarter in 2020. In January 2021, the Company’s board of directors raised the quarterly cash dividend by an additional $ 0.02 per share with the declaration of four cash dividends of $ 0.13 per share to be paid to stockholders of record at the end of each quarter in 2021. For the three months ended March 31, 2021, and 2020, cash dividends declared and paid were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ March 31, (In thousands, except per share amounts) 2021 2020 Dividends declared and paid ​ $ 7,845 ​ $ 5,644 Dividends declared per common share ​ $ 0.13 ​ $ 0.095 ​ ​ ​ ​ 9. 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. A summary of the earnings per share calculation is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ ​ March 31, ​ (In thousands, except per share amounts) 2021 2020 Basic earnings per share: ​ ​ Net income ​ $ 39,798 ​ $ 15,886 ​ Weighted-average common shares ​ 60,184 ​ 59,204 ​ Basic earnings per share ​ $ 0.66 ​ $ 0.27 ​ Diluted earnings per share: (1) ​ ​ ​ Net income ​ $ 39,798 ​ $ 15,886 ​ Weighted-average common shares ​ 60,184 ​ 59,204 ​ Effect of dilutive awards: ​ ​ ​ Employee stock plans ​ 1,267 ​ 1,064 ​ Diluted weighted-average common shares ​ 61,451 ​ 60,268 ​ Diluted earnings per share ​ $ 0.65 ​ $ 0.26 ​ ​ (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 2021 and 2020 calculations as the shares were not contingently issuable as of the end of the reporting periods. In the three months ended March 31, 2021 and 2020, no outstanding stock awards were determined to be anti-dilutive and therefore excluded from the computation of diluted earnings per share. 17 Table of Contents POWER INTEGRATIONS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) ​ In July 2020, the Company’s board of directors approved a two -for-one stock split in the form of a stock dividend to stockholders of record as of the close of business on August 14, 2020. Refer to Note 8, Stockholders’ Equity , for additional information. The share and per share information for all periods presented in this Form 10-Q reflects the effect of the stock split. ​ 10. 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 rates for the three months ended March 31, 2021 and 2020, were 2.4 % and 5.8 %, respectively. In the three months ended March 31, 2021 and 2020, the effective tax rate was lower than the statutory federal income-tax rate of 21 % due to the geographic distribution of the Company’s world-wide earnings in lower-tax jurisdictions, federal research tax credits and the recognition of excess tax benefits related to share-based payments. Additionally, in the three months ended March 31, 2021, the Company’s effective tax rate was favorably impacted by a discrete item associated with the release of an unrecognized tax benefit. These benefits were partially offset by foreign income subject to U.S. tax, known as global intangible low-taxed income. The Company’s primary jurisdiction where foreign earnings are derived is the Cayman Islands, which is a non-taxing jurisdiction. Income earned in other foreign jurisdictions was not material. The Company has not been granted any incentivized tax rates and does not operate under any tax holidays in any jurisdiction. As of March 31, 2021, the Company maintained a valuation allowance on its California deferred tax assets, New Jersey deferred tax assets, and capital losses for federal purposes, 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. ​ 11. 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. ​ 12. 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 April 1, 2016, Opticurrent, LLC filed a complaint against the Company in the United States District Court for the Eastern District of Texas alleging that the Company infringed one patent pertaining to transistor switch devices and seeking damages for the alleged infringement. The Company filed a motion to transfer the case to the Northern District of California, which the Court granted, and the case was assigned to a new judge in San Francisco following the transfer. On December 21, 2018, the Court granted the Company’s challenge to Opticurrent’s damages expert but denied the Company’s motion for summary judgment. Following a trial in February 2019, a jury issued a finding of direct 18 Table of Contents POWER INTEGRATIONS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) ​ infringement by the Company but found that the Company did not induce infringement, and awarded Opticurrent damages of $ 6.7 million. The Company challenged those findings in post-trial proceedings, and the Court granted one of the Company’s post-trial motions, reducing the damages award to $ 1.2 million. The Court of Appeals affirmed the original findings and the reduced damages award, but the Company believes Opticurrent made key disclaimers during reexamination proceedings after the original trial, giving rise to a motion to set aside the original judgment in view of a disclaimer, an issue that is currently on appeal to the Federal Circuit. Briefing on the Company’s appeal is expected to take place over the coming months, with oral argument and a ruling thereafter. The District Court has issued an order staying execution on the original judgment pending the Company’s appeal. As such, the Company continues to believe it has strong defenses, and intends to continue to vigorously defend itself against Opticurrent’s claims. On June 19, 2019, Opticurrent, LLC filed a follow-on lawsuit in the United States District Court for the Northern District of California accusing more of the Company’s products of infringement and seeking damages for the alleged infringement of the same claim of the same patent asserted in the parties’ prior litigation, as described above. Limited discovery has taken place, but proceedings are currently stayed, and no schedule has yet been set for expert discovery, dispositive motions, or trial. The Company believes it has strong defenses, independent of the issue on appeal in the first case, and intends to vigorously defend itself against Opticurrent’s claims, with appeals to follow if necessary. On January 6, 2020, the Company filed a complaint against CogniPower LLC in the United States District Court for the District of Delaware for infringement of two of the Company’s patents and seeking a declaration of non-infringement with respect to patents that CogniPower had charged the Company’s customers with infringing , based on customer use of the Company’s products. In response, CogniPower filed a motion to dismiss the Company’s declaratory judgment claims on the basis that CogniPower had not threatened the Company directly with suit. That motion was granted, so CogniPower’s claims for infringement initially went forward separately in their lawsuit against the Company’s customers in the District of Delaware, but the Company filed a motion to intervene in that lawsuit and received a ruling allowing the Company to intervene in CogniPower’s customer lawsuit on February 1, 2021. Fact discovery is now under way, but the Company believes it has strong claims and defenses, and intends to vigorously defend itself against CogniPower’s claims against the Company’s technology, with appeals to follow if necessary. 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 litigation 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. 13. 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 March 31, 2021. 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. ​ 19 Table of Contents ​