POWER INTEGRATIONS INC 10-Q

ITEM 1. FINANCIAL STATEMENTS POWER INTEGRATIONS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In thousands) ​ June 30, 2022 ​ December 31, 2021 ASSETS ​ ​ ​ ​ ​ ​ CURRENT ASSETS: ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 67,383 ​ $ 158,117 Short-term marketable securities ​ 260,209 ​ 372,235 Accounts receivable, net ​ 27,980 ​ 41,393 Inventories ​ 111,258 ​ 99,266 Prepaid expenses and other current assets ​ 14,219 ​ 15,804 Total current assets ​ 481,049 ​ 686,815 PROPERTY AND EQUIPMENT, net ​ 184,245 ​ 179,824 INTANGIBLE ASSETS, net ​ 7,684 ​ 9,012 GOODWILL ​ 91,849 ​ 91,849 DEFERRED TAX ASSETS ​ 19,830 ​ 16,433 OTHER ASSETS ​ 24,347 ​ 30,554 Total assets ​ $ 809,004 ​ $ 1,014,487 LIABILITIES AND STOCKHOLDERS’ EQUITY ​ ​ ​ ​ CURRENT LIABILITIES: ​ ​ ​ ​ Accounts payable ​ $ 41,402 ​ $ 43,721 Accrued payroll and related expenses ​ 14,569 ​ 15,492 Taxes payable ​ 561 ​ 1,210 Other accrued liabilities ​ 13,597 ​ 11,898 Total current liabilities ​ 70,129 ​ 72,321 LONG-TERM INCOME TAXES PAYABLE ​ 15,739 ​ 15,280 OTHER LIABILITIES ​ 12,891 ​ 14,854 Total liabilities ​ 98,759 ​ 102,455 COMMITMENTS AND CONTINGENCIES (Notes 11, 12 and 13) ​ ​ STOCKHOLDERS’ EQUITY: ​ ​ Common stock ​ 24 ​ 28 Additional paid-in capital ​ — ​ 162,301 Accumulated other comprehensive loss ​ ( 10,060 ) ​ ( 3,737 ) Retained earnings ​ 720,281 ​ 753,440 Total stockholders’ equity ​ 710,245 ​ 912,032 Total liabilities and stockholders’ equity ​ $ 809,004 ​ $ 1,014,487 ​ 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 ​ Six Months Ended ​ June 30, ​ June 30, (In thousands, except per share amounts) ​ 2022 2021 2022 2021 NET REVENUES ​ $ 183,986 ​ $ 180,110 ​ $ 366,135 ​ $ 353,847 COST OF REVENUES ​ 77,143 ​ 88,797 ​ 158,617 ​ 178,123 GROSS PROFIT ​ 106,843 ​ 91,313 ​ 207,518 ​ 175,724 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ OPERATING EXPENSES: ​ ​ ​ ​ Research and development ​ 23,507 ​ 21,741 ​ 47,185 ​ 41,768 Sales and marketing ​ 16,045 ​ 15,290 ​ 32,381 ​ 29,413 General and administrative ​ 6,059 ​ 9,306 ​ ​ 15,673 ​ 19,381 Other operating expenses, net ​ ​ 1,130 ​ ​ — ​ ​ 1,130 ​ ​ — Total operating expenses ​ 46,741 ​ 46,337 ​ 96,369 ​ 90,562 INCOME FROM OPERATIONS ​ 60,102 ​ 44,976 ​ 111,149 ​ 85,162 OTHER INCOME ​ 674 ​ 173 ​ 1,228 ​ 770 INCOME BEFORE INCOME TAXES ​ 60,776 ​ 45,149 ​ 112,377 ​ 85,932 PROVISION FOR INCOME TAXES ​ 4,952 ​ 3,268 ​ 10,305 ​ 4,253 NET INCOME ​ $ 55,824 ​ $ 41,881 ​ $ 102,072 ​ $ 81,679 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ EARNINGS PER SHARE: ​ ​ ​ ​ Basic ​ $ 0.97 ​ $ 0.69 ​ $ 1.75 ​ $ 1.35 Diluted ​ $ 0.96 ​ $ 0.68 ​ $ 1.72 ​ $ 1.33 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ SHARES USED IN PER SHARE CALCULATION: ​ ​ ​ ​ Basic ​ 57,731 ​ ​ 60,544 ​ ​ 58,480 ​ ​ 60,366 Diluted ​ 58,305 ​ ​ 61,466 ​ ​ 59,192 ​ ​ 61,481 ​ ​ The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. ​ 5 Table of Contents POWER INTEGRATIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ June 30, ​ June 30, (In thousands) 2022 2021 2022 2021 Net income ​ $ 55,824 ​ $ 41,881 ​ $ 102,072 ​ $ 81,679 Other comprehensive income (loss), net of tax: ​ ​ ​ ​ Foreign currency translation adjustments, net of $ 0 tax in each of the three and six months ended June 30, 2022 and 2021 ​ ​ ( 754 ) ​ ​ ( 40 ) ​ ​ ( 1,023 ) ​ ​ ( 58 ) Unrealized loss on marketable securities, net of $ 0 tax in each of the three and six months ended June 30, 2022 and 2021 ​ ​ ( 1,160 ) ​ ​ ( 331 ) ​ ​ ( 5,341 ) ​ ​ ( 911 ) Amortization of defined benefit pension items, net of tax of $ 0 and $ 3 in the three and six months ended June 30, 2022, respectively, and $ 6 and $ 141 in the three and six months ended June 30, 2021, respectively ​ ​ 23 ​ ​ 52 ​ ​ 41 ​ ​ ( 23 ) Total other comprehensive loss ​ ( 1,891 ) ​ ( 319 ) ​ ( 6,323 ) ​ ( 992 ) TOTAL COMPREHENSIVE INCOME ​ $ 53,933 ​ $ 41,562 ​ $ 95,749 ​ $ 80,687 ​ 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 ​ Six Months Ended ​ ​ June 30, ​ June 30, (In thousands) 2022 2021 2022 2021 Common stock ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Beginning balance $ 26 ​ $ 29 ​ $ 28 ​ $ 28 Common stock issued under employee stock plans ​ — ​ — ​ — ​ 1 Repurchase of common stock ​ ( 2 ) ​ ( 1 ) ​ ( 4 ) ​ ( 1 ) Ending balance ​ 24 ​ 28 ​ 24 ​ 28 ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional paid-in capital ​ ​ ​ ​ ​ ​ ​ ​ Beginning balance ​ 39,684 ​ 203,051 ​ 162,301 ​ 190,920 Common stock issued under employee stock plans ​ — ​ — ​ 3,057 ​ 3,651 Repurchase of common stock ​ ( 43,363 ) ​ ( 26,373 ) ​ ( 178,050 ) ​ ( 26,373 ) Stock-based compensation ​ 3,679 ​ 9,200 ​ 12,692 ​ 17,680 Ending balance ​ — ​ 185,878 ​ — ​ 185,878 ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated other comprehensive loss ​ ​ ​ ​ ​ ​ ​ ​ Beginning balance ​ ( 8,169 ) ​ ( 2,836 ) ​ ( 3,737 ) ​ ( 2,163 ) Other comprehensive loss ​ ( 1,891 ) ​ ( 319 ) ​ ( 6,323 ) ​ ( 992 ) Ending balance ​ ( 10,060 ) ​ ( 3,155 ) ​ ( 10,060 ) ​ ( 3,155 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ Retained earnings ​ ​ ​ ​ ​ ​ ​ ​ Beginning balance ​ 789,032 ​ 653,579 ​ 753,440 ​ 621,626 Net income ​ 55,824 ​ 41,881 ​ 102,072 ​ 81,679 Repurchase of common stock ​ ​ ( 114,295 ) ​ ​ — ​ ​ ( 114,295 ) ​ ​ — Payment of dividends to stockholders ​ ​ ( 10,280 ) ​ ​ ( 7,867 ) ​ ​ ( 20,936 ) ​ ​ ( 15,712 ) Ending balance ​ ​ 720,281 ​ ​ 687,593 ​ ​ 720,281 ​ ​ 687,593 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total stockholders’ equity $ 710,245 ​ $ 870,344 ​ $ 710,245 ​ $ 870,344 ​ ​ 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) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended ​ ​ June 30, (In thousands) 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES: ​ ​ Net income ​ $ 102,072 ​ $ 81,679 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ Depreciation ​ 17,174 ​ 15,274 Amortization of intangibles ​ 1,328 ​ 1,905 Loss on disposal of property and equipment ​ 1,034 ​ 38 Stock-based compensation expense ​ 12,692 ​ 17,680 Amortization of premium on marketable securities ​ 1,867 ​ 300 Deferred income taxes ​ ( 3,282 ) ​ 1,182 Increase in accounts receivable allowance for credit losses ​ 259 ​ 91 Change in operating assets and liabilities: ​ ​ Accounts receivable ​ 13,154 ​ ( 5,533 ) Inventories ​ ( 11,992 ) ​ 13,235 Prepaid expenses and other assets ​ 4,075 ​ ( 4,501 ) Accounts payable ​ 5,577 ​ 8,053 Taxes payable and accrued liabilities ​ ( 2,539 ) ​ ( 4,433 ) Net cash provided by operating activities ​ 141,419 ​ 124,970 ​ ​ ​ ​ ​ ​ ​ CASH FLOWS FROM INVESTING ACTIVITIES: ​ ​ ​ ​ Purchases of property and equipment ​ ( 27,944 ) ​ ( 19,294 ) Proceeds from sale of property and equipment ​ ​ 1,202 ​ ​ 35 Purchases of marketable securities ​ ( 20,710 ) ​ ( 188,753 ) Proceeds from sales and maturities of marketable securities ​ 125,527 ​ 160,083 Net cash provided by (used in) investing activities ​ 78,075 ​ ( 47,929 ) ​ ​ ​ ​ ​ ​ ​ CASH FLOWS FROM FINANCING ACTIVITIES: ​ ​ ​ ​ Issuance of common stock under employee stock plans ​ 3,057 ​ 3,652 Repurchase of common stock ​ ( 292,349 ) ​ ( 26,374 ) Payments of dividends to stockholders ​ ( 20,936 ) ​ ( 15,712 ) Net cash used in financing activities ​ ( 310,228 ) ​ ( 38,434 ) ​ ​ ​ ​ ​ ​ ​ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ​ ( 90,734 ) ​ 38,607 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ​ 158,117 ​ 258,874 CASH AND CASH EQUIVALENTS AT END OF PERIOD ​ $ 67,383 ​ $ 297,481 ​ ​ ​ ​ ​ ​ ​ SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: ​ ​ ​ Unpaid property and equipment ​ $ 2,984 ​ $ 5,070 ​ ​ ​ ​ ​ ​ ​ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: ​ ​ ​ ​ Cash paid for income taxes, net ​ $ 14,657 ​ $ 10,084 ​ ​ 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, 2021, included in its Form 10-K filed on February 7, 2022, with the Securities and Exchange Commission. 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 7, 2022, for the year ended December 31, 2021. 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 ​ ​ ​ ​ ​ ​ ​ ​ June 30, December 31, (In thousands) ​ 2022 ​ 2021 Accounts receivable trade ​ $ 92,444 ​ $ 87,503 Allowance for ship and debit ​ ( 59,974 ) ​ ( 41,599 ) Allowance for stock rotation and rebate ​ ( 3,786 ) ​ ( 4,066 ) Allowance for credit losses ​ ​ ( 704 ) ​ ​ ( 445 ) Total ​ $ 27,980 ​ $ 41,393 ​ ​ 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. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ June 30, ​ June 30, (In thousands) ​ 2022 2021 2022 2021 Beginning balance ​ $ ( 520 ) ​ $ ( 425 ) ​ $ ( 445 ) ​ $ ( 427 ) Provision for credit loss expense ​ ( 218 ) ​ ( 360 ) ​ ( 618 ) ​ ( 577 ) Receivables written off ​ — ​ — ​ — ​ — Recoveries collected ​ 34 ​ 267 ​ 359 ​ 486 Ending balance ​ $ ( 704 ) ​ $ ( 518 ) ​ $ ( 704 ) ​ $ ( 518 ) ​ 9 ​ Table of Contents POWER INTEGRATIONS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) ​ Inventories ​ ​ ​ ​ ​ ​ ​ ​ June 30, December 31, (In thousands) ​ 2022 ​ 2021 Raw materials ​ $ 38,824 ​ $ 24,131 Work-in-process ​ 22,357 ​ 31,788 Finished goods ​ 50,077 ​ 43,347 Total ​ $ 111,258 ​ $ 99,266 ​ Intangible Assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2022 ​ December 31, 2021 ​ ​ ​ Accumulated ​ ​ ​ ​ Accumulated ​ ​ (In thousands) ​ Gross ​ Amortization ​ Net ​ Gross ​ Amortization ​ Net Domain name ​ $ 1,261 ​ $ — ​ $ 1,261 ​ $ 1,261 ​ $ — ​ $ 1,261 Developed technology ​ 37,960 ​ ( 32,567 ) ​ 5,393 ​ 37,960 ​ ( 31,603 ) ​ 6,357 Customer relationships ​ 16,700 ​ ( 16,700 ) ​ — ​ 16,700 ​ ( 16,458 ) ​ 242 Technology licenses ​ 1,926 ​ ( 896 ) ​ 1,030 ​ 1,926 ​ ( 774 ) ​ 1,152 Total intangible assets ​ $ 57,847 ​ $ ( 50,163 ) ​ $ 7,684 ​ $ 57,847 ​ $ ( 48,835 ) ​ $ 9,012 ​ ​ The estimated future amortization expense related to finite-lived intangible assets at June 30, 2022, is as follows: ​ ​ ​ ​ ​ Estimated ​ ​ Amortization Fiscal Year ​ (In thousands) 2022 (remaining six months) ​ $ 1,087 2023 ​ 2,173 2024 ​ 1,279 2025 ​ 832 2026 ​ 687 Thereafter ​ 365 Total ​ $ 6,423 ​ Accumulated Other Comprehensive Loss Changes in accumulated other comprehensive loss for the three and six months ended June 30, 2022 and 2021, 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 ​ June 30, ​ June 30, ​ June 30, ​ June 30, (In thousands) 2022 2021 2022 2021 2022 2021 2022 2021 Beginning balance $ ( 5,346 ) ​ $ 310 ​ $ ( 656 ) ​ $ ( 1,716 ) ​ $ ( 2,167 ) ​ $ ( 1,430 ) ​ $ ( 8,169 ) ​ $ ( 2,836 ) Other comprehensive income (loss) before reclassifications ( 1,160 ) ​ ( 331 ) ​ — ​ — ​ ( 754 ) ​ ( 40 ) ​ ( 1,914 ) ​ ( 371 ) Amounts reclassified from accumulated other comprehensive loss — ​ — ​ 23 (1) 52 (1) — ​ — ​ 23 ​ 52 Net-current period other comprehensive income (loss) ( 1,160 ) ​ ( 331 ) ​ 23 ​ 52 ​ ( 754 ) ​ ( 40 ) ​ ( 1,891 ) ​ ( 319 ) Ending balance $ ( 6,506 ) ​ $ ( 21 ) ​ $ ( 633 ) ​ $ ( 1,664 ) ​ $ ( 2,921 ) ​ $ ( 1,470 ) ​ $ ( 10,060 ) ​ $ ( 3,155 ) ​ (1) This component of accumulated other comprehensive income (loss) is included in the computation of net periodic pension cost for the three months ended June 30, 2022 and 2021. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 10 Table of Contents POWER INTEGRATIONS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) ​ ​ Unrealized Gains ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ and Losses on ​ Defined Benefit ​ Foreign Currency ​ ​ ​ ​ Marketable Securities ​ Pension Items ​ Items ​ Total ​ Six Months Ended ​ Six Months Ended ​ Six Months Ended ​ Six Months Ended ​ June 30, ​ June 30, ​ June 30, ​ June 30, (In thousands) 2022 2021 2022 ​ 2021 2022 2021 2022 2021 Beginning balance $ ( 1,165 ) ​ $ 890 ​ $ ( 674 ) ​ $ ( 1,641 ) ​ $ ( 1,898 ) ​ $ ( 1,412 ) ​ $ ( 3,737 ) ​ $ ( 2,163 ) Other comprehensive income (loss) before reclassifications ( 5,341 ) ​ ( 911 ) ​ — ​ — ​ ( 1,023 ) ​ ( 58 ) ​ ( 6,364 ) ​ ( 969 ) Amounts reclassified from accumulated other comprehensive loss — ​ — ​ 41 (1) ( 23 ) (1) — ​ — ​ 41 ​ ( 23 ) Net-current period other comprehensive income (loss) ( 5,341 ) ​ ( 911 ) ​ 41 ​ ( 23 ) ​ ( 1,023 ) ​ ( 58 ) ​ ( 6,323 ) ​ ( 992 ) Ending balance $ ( 6,506 ) ​ $ ( 21 ) ​ $ ( 633 ) ​ $ ( 1,664 ) ​ $ ( 2,921 ) ​ $ ( 1,470 ) ​ $ ( 10,060 ) ​ $ ( 3,155 ) (1) This component of accumulated other comprehensive income (loss) is included in the computation of net periodic pension cost for the six months ended June 30, 2022 and 2021 . 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 June 30, 2022 and December 31, 2021, was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurement at ​ ​ June 30, 2022 ​ ​ ​ Quoted Prices in ​ ​ ​ ​ ​ ​ ​ Active Markets for ​ Significant Other ​ ​ ​ ​ ​ Identical Assets ​ Observable Inputs (In thousands) ​ Total Fair Value ​ (Level 1) ​ (Level 2) Commercial paper ​ $ 8,795 ​ $ — ​ $ 8,795 Corporate securities ​ ​ 260,209 ​ ​ — ​ ​ 260,209 Money market funds ​ 4,040 ​ 4,040 ​ — Total ​ $ 273,044 ​ $ 4,040 ​ $ 269,004 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurement at ​ ​ December 31, 2021 ​ ​ ​ Quoted Prices in ​ ​ ​ ​ ​ ​ ​ Active Markets for ​ Significant Other ​ ​ ​ ​ ​ Identical Assets ​ Observable Inputs (In thousands) ​ Total Fair Value ​ (Level 1) ​ (Level 2) Commercial paper ​ $ 172,237 ​ $ — ​ $ 172,237 Corporate securities ​ ​ 282,540 ​ ​ — ​ ​ 282,540 Money market funds ​ 29,793 ​ 29,793 ​ — Total ​ $ 484,570 ​ $ 29,793 ​ $ 454,777 ​ 11 Table of Contents POWER INTEGRATIONS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) ​ The Company did not transfer any investments between Level 1 and Level 2 of the fair-value hierarchy in the six months ended June 30, 2022 and the twelve months ended December 31, 2021. 5. MARKETABLE SECURITIES: Amortized cost and estimated fair market value of marketable securities classified as available-for-sale (excluding cash equivalents) at June 30, 2022, were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortized ​ Gross Unrealized ​ Estimated Fair (In thousands) Cost Gains Losses Market Value Investments due in 3 months or less: ​ ​ ​ ​ Corporate securities ​ $ 6,316 ​ $ — ​ $ ( 14 ) ​ $ 6,302 Total ​ 6,316 ​ — ​ ( 14 ) ​ 6,302 Investments due in 4-12 months: ​ ​ ​ ​ Corporate securities ​ 113,048 ​ — ​ ( 2,253 ) ​ 110,795 Total ​ 113,048 ​ — ​ ( 2,253 ) ​ 110,795 Investments due in 12 months or greater: ​ ​ ​ ​ Corporate securities ​ 147,351 ​ — ​ ( 4,239 ) ​ 143,112 Total ​ ​ 147,351 ​ — ​ ​ ( 4,239 ) ​ 143,112 Total marketable securities ​ $ 266,715 ​ $ — ​ $ ( 6,506 ) ​ $ 260,209 ​ Accrued interest receivable was $ 1.4 million at June 30, 2022 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, 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 ​ $ 89,965 ​ $ — ​ $ — ​ $ 89,965 Corporate securities ​ ​ 7,285 ​ ​ — ​ ​ ( 3 ) ​ ​ 7,282 Total ​ 97,250 ​ — ​ ( 3 ) ​ 97,247 Investments due in 4-12 months: ​ ​ ​ ​ Corporate securities ​ 25,054 ​ — ​ ( 42 ) ​ 25,012 Total ​ 25,054 ​ — ​ ( 42 ) ​ 25,012 Investments due in 12 months or greater: ​ ​ ​ ​ Corporate securities ​ ​ 251,096 ​ 21 ​ ( 1,141 ) ​ 249,976 Total ​ 251,096 ​ 21 ​ ( 1,141 ) ​ 249,976 Total marketable securities ​ $ 373,400 ​ $ 21 ​ $ ( 1,186 ) ​ $ 372,235 ​ Accrued interest receivable was $ 1.5 million at December 31, 2021 and was recorded within prepaid expenses and other current assets on the condensed consolidated balance sheet. 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 June 30, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 ​ $ 245,800 ​ $ ( 6,188 ) ​ $ 10,533 ​ $ ( 318 ) ​ $ 256,333 ​ $ ( 6,506 ) Total marketable securities ​ $ 245,800 ​ $ ( 6,188 ) ​ $ 10,533 ​ $ ( 318 ) ​ $ 256,333 ​ $ ( 6,506 ) ​ In the three and six months ended June 30, 2022 and 2021, no unrealized losses on marketable securities were recognized in income. 12 Table of Contents POWER INTEGRATIONS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) ​ 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. STOCK-BASED COMPENSATION: The following table summarizes the stock-based compensation expense recognized in accordance with ASC 718-10 for the three and six months ended June 30, 2022 and 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ June 30, ​ June 30, (In thousands) 2022 2021 2022 2021 Cost of revenues ​ $ 235 ​ $ 640 ​ $ 555 ​ $ 1,271 Research and development ​ 2,323 ​ 3,159 ​ 5,378 ​ 5,550 Sales and marketing ​ 1,177 ​ 1,725 ​ 3,125 ​ 3,339 General and administrative ​ ( 56 ) ​ 3,676 ​ 3,634 ​ 7,520 Total stock-based compensation expense ​ $ 3,679 ​ $ 9,200 ​ $ 12,692 ​ $ 17,680 ​ ​ Stock-based compensation expense in the three months ended June 30, 2022, was approximately $ 3.7 million, comprising approximately $ 5.3 million related to restricted stock unit (RSU) awards, a $ 2.1 million credit to expense 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. Stock-based compensation expense in the six months ended June 30, 2022, was approximately $ 12.7 million, comprising approximately $ 10.9 million related to RSUs, $ 0.9 million related to PSUs and PRSUs and $ 0.9 million related to the Company’s employee stock purchase plan. Stock-based compensation expense in the three months ended June 30, 2021, was approximately $ 9.2 million, comprising approximately $ 4.7 million related to RSUs, $ 4.0 million related to PSUs and PRSUs and $ 0.5 million related to the Company’s employee stock purchase plan. Stock-based compensation expense in the six months ended June 30, 2021, was approximately $ 17.7 million, comprising approximately $ 10.0 million related to RSUs, $ 6.7 million related to PSUs and PRSUs and $ 1.0 million related to the Company’s employee stock purchase plan. 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 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 2022, it was determined that approximately 104,000 shares subject to the PSUs granted in 2021 vested in aggregate; the shares were released to the Company’s employees and executives in the first quarter of 2022. 13 Table of Contents POWER INTEGRATIONS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) ​ A summary of PSUs outstanding as of June 30, 2022 and activity during the six 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, 2022 104 ​ $ 84.47 ​ ​ ​ Granted 118 ​ $ 79.93 ​ ​ Vested ( 104 ) ​ $ 84.47 ​ Forfeited ( 2 ) ​ $ 79.23 ​ Outstanding at June 30, 2022 116 ​ $ 79.94 0.50 ​ $ 8,678 Outstanding and expected to vest at June 30, 2022 75 ​ ​ ​ 0.50 ​ $ 5,623 ​ 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 2020, 2021 and 2022 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 February 2022 it was determined that approximately 135,000 shares subject to the PRSUs granted in 2019 vested in aggregate; the shares were released to the Company’s executives in the first quarter of 2022. A summary of PRSUs outstanding as of June 30, 2022 and activity during the six 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, 2022 383 ​ $ 53.14 ​ ​ ​ Granted 110 ​ $ 78.96 ​ Vested ( 135 ) ​ $ 34.09 ​ Forfeited — ​ ​ — ​ Outstanding at June 30, 2022 358 ​ $ 68.18 1.40 ​ $ 26,881 Outstanding and expected to vest at June 30, 2022 152 ​ ​ ​ 1.07 ​ $ 11,408 ​ RSU Awards A summary of RSUs outstanding as of June 30, 2022 and activity during the six 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, 2022 1,144 ​ $ 46.81 ​ ​ ​ Granted 481 ​ $ 76.45 ​ Vested ( 433 ) ​ $ 42.34 ​ Forfeited ( 40 ) ​ $ 56.04 ​ Outstanding at June 30, 2022 1,152 ​ $ 60.55 2.00 ​ $ 86,448 Outstanding and expected to vest at June 30, 2022 1,053 ​ ​ ​ 1.89 ​ $ 79,006 ​ ​ ​ ​ 14 Table of Contents POWER INTEGRATIONS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) ​ 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 77 % of net revenues for both the three and six months ended June 30, 2022, and 80 % in both the corresponding periods of 2021. 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 $ 133.9 million and $ 269.7 million in the three and six months ended June 30, 2022, respectively, and $ 136.4 million and $ 270.7 million, respectively, in the corresponding periods of 2021. Direct sales to OEMs and power-supply manufacturers accounted for the remainder. The following customers (both of which are distributors of the Company’s products) represented 10% or more of the Company’s net revenues for the respective periods: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended Six Months Ended ​ ​ June 30, ​ June 30, Customer ​ 2022 ​ 2021 ​ 2022 ​ 2021 Avnet 30 % ​ 29 % 31 % ​ 30 % Honestar Technologies Co., Ltd. ​ 11 % ​ 19 % ​ 13 % ​ 19 % ​ 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 June 30, 2022 and December 31, 2021, 84 % and 86 %, respectively, of accounts receivable were concentrated with the Company’s top ten customers. The following customer represented 10% or more of accounts receivable at June 30, 2022 and December 31, 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ December 31, Customer 2022 ​ 2021 Avnet ​ 39 % ​ 45 % ​ No other customers accounted for 10% or more of the Company’s accounts receivable in the periods presented. 15 Table of Contents POWER INTEGRATIONS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) ​ 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 and six months ended June 30, 2022 and 2021, were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ June 30, ​ June 30, (In thousands) 2022 2021 2022 2021 United States of America ​ $ 7,569 ​ $ 3,819 ​ $ 14,476 ​ $ 7,919 Hong Kong/China ​ 96,760 ​ 122,123 ​ 202,001 ​ 240,853 Taiwan ​ 5,848 ​ 6,361 ​ 11,106 ​ 12,803 Korea ​ 18,563 ​ 13,705 ​ 37,226 ​ 26,194 Western Europe (excluding Germany) ​ 8,129 ​ 8,720 ​ 16,374 ​ 15,850 Japan ​ 10,160 ​ 5,152 ​ 18,209 ​ 9,799 Germany ​ 14,460 ​ 7,656 ​ 25,943 ​ 14,662 Other ​ 22,497 ​ 12,574 ​ 40,800 ​ 25,767 Total net revenues ​ $ 183,986 ​ $ 180,110 ​ $ 366,135 ​ $ 353,847 ​ ​ ​ ​ 8. STOCKHOLDERS’ EQUITY: Common Stock Shares Outstanding ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ June 30, ​ June 30, (In thousands) 2022 2021 2022 2021 Beginning balance ​ ​ 58,778 ​ ​ 60,363 ​ ​ 59,913 ​ ​ 59,910 Common stock issued under employee stock plans ​ 275 ​ 316 ​ 724 ​ 769 Repurchased ​ ( 1,919 ) ​ ( 335 ) ​ ( 3,503 ) ​ ( 335 ) Ending balance ​ ​ 57,134 ​ ​ 60,344 ​ ​ 57,134 ​ ​ 60,344 ​ Common Stock Repurchases As of December 31, 2021, the Company had $ 67.3 million remaining under its stock-repurchase program. In January, February and April 2022, the Company’s board of directors authorized the use of an additional $ 100 million, $ 50 million and $ 75 million, respectively, for the repurchase of the Company’s common stock, with repurchases to be executed according to pre-defined price/volume guidelines. In the six months ended June 30, 2022, the Company purchased 3.5 million shares for $ 292.3 million, leaving no funds authorized as of June 30, 2022. 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. Cash Dividends In January 2021, the Company’s board of directors declared four cash dividends of $ 0.13 per share to be paid to stockholders of record at the end of each quarter in 2021. In October 2021, the Company’s board of directors raised the quarterly cash dividend with the declaration of five cash dividends of $ 0.15 per share (in lieu of the $ 0.13 per share announced in January 2021) to be paid to stockholders of record at the end of the fourth quarter in 2021 and at the end of each quarter in 2022 . In January 2022, the Company’s board of directors raised the quarterly cash dividend by an additional $ 0.03 per share with the declaration of four cash dividends of $ 0.18 per share (in lieu of the $ 0.15 per share announced in October 2021) to be paid to stockholders of record at the end of each quarter in 2022. 16 Table of Contents POWER INTEGRATIONS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) ​ For the three and six months ended June 30, 2022 and 2021, cash dividends declared and paid were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ June 30, ​ June 30, (In thousands, except per share amounts) 2022 2021 2022 2021 Dividends declared and paid ​ $ 10,280 ​ $ 7,867 ​ $ 20,936 ​ $ 15,712 Dividends declared per common share ​ $ 0.18 ​ $ 0.13 ​ $ 0.36 ​ $ 0.26 ​ ​ ​ 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 ​ Six Months Ended ​ ​ June 30, ​ June 30, (In thousands, except per share amounts) 2022 2021 2022 2021 Basic earnings per share: ​ ​ ​ ​ Net income ​ $ 55,824 ​ $ 41,881 ​ $ 102,072 ​ $ 81,679 Weighted-average common shares ​ 57,731 ​ 60,544 ​ 58,480 ​ 60,366 Basic earnings per share ​ $ 0.97 ​ $ 0.69 ​ $ 1.75 ​ $ 1.35 Diluted earnings per share: (1) ​ ​ ​ ​ Net income ​ $ 55,824 ​ $ 41,881 ​ $ 102,072 ​ $ 81,679 Weighted-average common shares ​ 57,731 ​ 60,544 ​ 58,480 ​ 60,366 Effect of dilutive awards: ​ ​ ​ ​ Employee stock plans ​ 574 ​ 922 ​ 712 ​ 1,115 Diluted weighted-average common shares ​ 58,305 ​ 61,466 ​ 59,192 ​ 61,481 Diluted earnings per share ​ $ 0.96 ​ $ 0.68 ​ $ 1.72 ​ $ 1.33 ​ (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 2022 and 2021 calculations as the shares were not contingently issuable as of the end of the reporting periods. In the three months ended June 30, 2022, no outstanding stock awards were determined to be anti-dilutive and therefore excluded from the computation of diluted earnings per share; in the comparable period of 2021, stock awards with approximately 0.1 million underlying shares were determined to be anti-dilutive. In the six months ended June 30, 2022 and 2021, no outstanding stock awards were determined to be anti-dilutive. ​ ​ 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 and six months ended June 30, 2022, were 8.1 % and 9.2 %, respectively, and 7.2 % and 4.9 %, respectively, in the corresponding periods of 2021. The effective tax rate in these periods 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 and federal research tax credits. Additionally, in the three months ended 17 Table of Contents POWER INTEGRATIONS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) ​ June 30, 2022 and 2021, the Company’s effective tax rate was favorably impacted by the recognition of excess tax benefits related to share-based payments. In the six months ended June 30, 2022 and 2021, the Company’s effective tax rate was favorably impacted by discrete items associated with the release of unrecognized tax benefits and recognition of excess tax benefits related to share-based payments. 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 June 30, 2022, 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 May 16, 2022, the Company entered into a binding settlement agreement (the “Settlement Agreement”) with Opticurrent, LLC, pursuant to which the parties agreed to end all outstanding legal disputes. Neither party granted any licenses to the other. Pursuant to the Settlement Agreement, the Company and Opticurrent have dismissed, withdrawn, and/or terminated all legal proceedings between the parties and the Company has agreed to pay Opticurrent $ 2.9 million. 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, and the parties thereafter agreed to dismiss the Company’s separate lawsuit against CogniPower. The remaining case is currently stayed, 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 litigation. This litigation, whether or not determined in 18 Table of Contents POWER INTEGRATIONS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) ​ 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 June 30, 2022. 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 ​