POWER INTEGRATIONS INC 10-Q

ITEM 1. FINANCIAL STATEMENTS POWER INTEGRATIONS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In thousands) ​ September 30, 2023 ​ December 31, 2022 ASSETS ​ ​ ​ ​ ​ ​ CURRENT ASSETS: ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 94,743 ​ $ 105,372 Short-term marketable securities ​ 261,896 ​ 248,441 Accounts receivable, net ​ 28,539 ​ 20,836 Inventories ​ 150,246 ​ 135,420 Prepaid expenses and other current assets ​ 20,692 ​ 15,004 Total current assets ​ 556,116 ​ 525,073 PROPERTY AND EQUIPMENT, net ​ 166,391 ​ 176,681 INTANGIBLE ASSETS, net ​ 4,967 ​ 6,597 GOODWILL ​ 91,849 ​ 91,849 DEFERRED TAX ASSETS ​ 28,943 ​ 19,034 OTHER ASSETS ​ 17,224 ​ 20,862 Total assets ​ $ 865,490 ​ $ 840,096 LIABILITIES AND STOCKHOLDERS’ EQUITY ​ ​ ​ ​ CURRENT LIABILITIES: ​ ​ ​ ​ Accounts payable ​ $ 28,553 ​ $ 30,088 Accrued payroll and related expenses ​ 13,778 ​ 14,778 Taxes payable ​ 774 ​ 938 Other accrued liabilities ​ 10,316 ​ 12,572 Total current liabilities ​ 53,421 ​ 58,376 LONG-TERM INCOME TAXES PAYABLE ​ 16,724 ​ 15,757 OTHER LIABILITIES ​ 10,288 ​ 10,747 Total liabilities ​ 80,433 ​ 84,880 COMMITMENTS AND CONTINGENCIES (Notes 11, 12 and 13) ​ ​ STOCKHOLDERS’ EQUITY: ​ ​ Common stock ​ 23 ​ 24 Additional paid-in capital ​ 19,429 ​ — Accumulated other comprehensive loss ​ ( 5,730 ) ​ ( 7,344 ) Retained earnings ​ 771,335 ​ 762,536 Total stockholders’ equity ​ 785,057 ​ 755,216 Total liabilities and stockholders’ equity ​ $ 865,490 ​ $ 840,096 ​ 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 ​ Nine Months Ended ​ September 30, ​ September 30, (In thousands, except per share amounts) ​ 2023 2022 2023 2022 NET REVENUES ​ $ 125,511 ​ $ 160,233 ​ $ 355,031 ​ $ 526,368 COST OF REVENUES ​ 59,566 ​ 68,198 ​ 172,283 ​ 226,815 GROSS PROFIT ​ 65,945 ​ 92,035 ​ 182,748 ​ 299,553 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ OPERATING EXPENSES: ​ ​ ​ ​ ​ Research and development ​ 24,064 ​ 23,205 ​ 72,562 ​ 70,390 Sales and marketing ​ 16,224 ​ 14,700 ​ 49,126 ​ 47,081 General and administrative ​ 7,945 ​ 5,759 ​ ​ 24,950 ​ 21,432 Other operating expenses, net ​ ​ — ​ ​ — ​ ​ — ​ ​ 1,130 Total operating expenses ​ 48,233 ​ 43,664 ​ 146,638 ​ 140,033 INCOME FROM OPERATIONS ​ 17,712 ​ 48,371 ​ 36,110 ​ 159,520 OTHER INCOME ​ 3,138 ​ 1,001 ​ 7,566 ​ 2,229 INCOME BEFORE INCOME TAXES ​ 20,850 ​ 49,372 ​ 43,676 ​ 161,749 PROVISION FOR INCOME TAXES ​ 1,054 ​ 3,408 ​ 2,212 ​ 13,713 NET INCOME ​ $ 19,796 ​ $ 45,964 ​ $ 41,464 ​ $ 148,036 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ EARNINGS PER SHARE: ​ ​ ​ ​ ​ ​ Basic ​ $ 0.34 ​ $ 0.80 ​ $ 0.72 ​ $ 2.55 Diluted ​ $ 0.34 ​ $ 0.80 ​ $ 0.72 ​ $ 2.52 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ SHARES USED IN PER SHARE CALCULATION: ​ ​ ​ ​ Basic ​ 57,383 ​ ​ 57,172 ​ ​ 57,282 ​ ​ 58,039 Diluted ​ 57,741 ​ ​ 57,603 ​ ​ 57,711 ​ ​ 58,635 ​ ​ 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 ​ Nine Months Ended ​ ​ September 30, ​ September 30, (In thousands) 2023 2022 2023 2022 Net income ​ $ 19,796 ​ $ 45,964 ​ $ 41,464 ​ $ 148,036 Other comprehensive income (loss), net of tax: ​ ​ ​ ​ Foreign currency translation adjustments, net of $ 0 tax in each of the three and nine months ended September 30, 2023 and 2022 ​ ​ ( 407 ) ​ ​ ( 1,044 ) ​ ​ ( 807 ) ​ ​ ( 2,067 ) Unrealized gain (loss) on marketable securities, net of $ 0 tax in each of the three and nine months ended September 30, 2023 and 2022 ​ ​ 455 ​ ​ ( 731 ) ​ ​ 2,483 ​ ​ ( 6,072 ) Amortization of defined benefit pension items, net of tax of ($ 4 ) and ($ 11 ) in the three and nine months ended September 30, 2023, respectively, and $ 3 and $ 6 in the three and nine months ended September 30, 2022, respectively ​ ​ ( 21 ) ​ ​ 18 ​ ​ ( 62 ) ​ ​ 59 Total other comprehensive income (loss) ​ 27 ​ ( 1,757 ) ​ 1,614 ​ ( 8,080 ) TOTAL COMPREHENSIVE INCOME ​ $ 19,823 ​ $ 44,207 ​ $ 43,078 ​ $ 139,956 ​ 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 ​ Nine Months Ended ​ ​ September 30, ​ September 30, (In thousands) 2023 2022 2023 2022 Common stock ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Beginning balance $ 23 ​ $ 24 ​ $ 24 ​ $ 28 Repurchase of common stock ​ — ​ — ​ ( 1 ) ​ ( 4 ) Ending balance ​ 23 ​ 24 ​ 23 ​ 24 ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional paid-in capital ​ ​ ​ ​ ​ ​ ​ ​ Beginning balance ​ 11,220 ​ — ​ — ​ 162,301 Common stock issued under employee stock plans ​ 3,139 ​ 3,105 ​ 6,237 ​ 6,162 Repurchase of common stock ​ ( 1,835 ) ​ — ​ ( 7,833 ) ​ ( 178,050 ) Stock-based compensation ​ 6,905 ​ 3,018 ​ 21,025 ​ 15,710 Ending balance ​ 19,429 ​ 6,123 ​ 19,429 ​ 6,123 ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated other comprehensive loss ​ ​ ​ ​ ​ ​ ​ ​ Beginning balance ​ ( 5,757 ) ​ ( 10,060 ) ​ ( 7,344 ) ​ ( 3,737 ) Other comprehensive income (loss) ​ 27 ​ ( 1,757 ) ​ 1,614 ​ ( 8,080 ) Ending balance ​ ( 5,730 ) ​ ( 11,817 ) ​ ( 5,730 ) ​ ( 11,817 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ Retained earnings ​ ​ ​ ​ ​ ​ ​ ​ Beginning balance ​ 762,443 ​ 720,281 ​ 762,536 ​ 753,440 Net income ​ 19,796 ​ 45,964 ​ 41,464 ​ 148,036 Repurchase of common stock ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 114,295 ) Payment of dividends to stockholders ​ ​ ( 10,904 ) ​ ​ ( 10,293 ) ​ ​ ( 32,665 ) ​ ​ ( 31,229 ) Ending balance ​ ​ 771,335 ​ ​ 755,952 ​ ​ 771,335 ​ ​ 755,952 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total stockholders’ equity $ 785,057 ​ $ 750,282 ​ $ 785,057 ​ $ 750,282 ​ ​ 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) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended ​ ​ September 30, (In thousands) 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES: ​ ​ Net income ​ $ 41,464 ​ $ 148,036 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ Depreciation ​ 26,316 ​ 26,055 Amortization of intangibles ​ 1,630 ​ 1,871 Loss on disposal of property and equipment ​ 86 ​ 1,162 Stock-based compensation expense ​ 21,025 ​ 15,710 Amortization of premium on marketable securities ​ 146 ​ 2,638 Deferred income taxes ​ ( 9,952 ) ​ ( 7,390 ) Increase (decrease) in accounts receivable allowance for credit losses ​ ( 454 ) ​ 690 Change in operating assets and liabilities: ​ ​ ​ Accounts receivable ​ ( 7,249 ) ​ 24,628 Inventories ​ ( 14,826 ) ​ ( 20,826 ) Prepaid expenses and other assets ​ ( 837 ) ​ 8,428 Accounts payable ​ ( 2,882 ) ​ ( 5,874 ) Taxes payable and accrued liabilities ​ ( 4,975 ) ​ ( 3,883 ) Net cash provided by operating activities ​ 49,492 ​ 191,245 ​ ​ ​ ​ ​ ​ ​ CASH FLOWS FROM INVESTING ACTIVITIES: ​ ​ ​ ​ Purchases of property and equipment ​ ( 14,741 ) ​ ( 33,444 ) Proceeds from sale of property and equipment ​ ​ — ​ ​ 1,202 Purchases of marketable securities ​ ( 173,015 ) ​ ( 27,244 ) Proceeds from sales and maturities of marketable securities ​ 161,897 ​ 161,014 Net cash provided by (used in) investing activities ​ ( 25,859 ) ​ 101,528 ​ ​ ​ ​ ​ ​ ​ CASH FLOWS FROM FINANCING ACTIVITIES: ​ ​ ​ ​ Issuance of common stock under employee stock plans ​ 6,237 ​ 6,162 Repurchase of common stock ​ ( 7,834 ) ​ ( 292,349 ) Payments of dividends to stockholders ​ ( 32,665 ) ​ ( 31,229 ) Net cash used in financing activities ​ ( 34,262 ) ​ ( 317,416 ) ​ ​ ​ ​ ​ ​ ​ NET DECREASE IN CASH AND CASH EQUIVALENTS ​ ( 10,629 ) ​ ( 24,643 ) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ​ 105,372 ​ 158,117 CASH AND CASH EQUIVALENTS AT END OF PERIOD ​ $ 94,743 ​ $ 133,474 ​ ​ ​ ​ ​ ​ ​ SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: ​ ​ ​ Unpaid property and equipment ​ $ 2,429 ​ $ 2,555 ​ ​ ​ ​ ​ ​ ​ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: ​ ​ ​ ​ Cash paid for income taxes, net ​ $ 13,683 ​ $ 17,834 ​ ​ 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, 2022, included in its Form 10-K filed on February 7, 2023, 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 , of the Company’s financial statements set forth in Item 8 of the Company’s Annual Report on Form 10-K, filed on February 7, 2023, for the year ended December 31, 2022. 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 ​ ​ ​ ​ ​ ​ ​ ​ September 30, December 31, (In thousands) ​ 2023 ​ 2022 Accounts receivable trade ​ $ 76,507 ​ $ 78,914 Allowance for ship and debit ​ ( 44,089 ) ​ ( 53,184 ) Allowance for stock rotation and rebate ​ ( 3,198 ) ​ ( 3,759 ) Allowance for credit losses ​ ​ ( 681 ) ​ ​ ( 1,135 ) Total ​ $ 28,539 ​ $ 20,836 ​ ​ The Company maintains an allowance for estimated credit losses resulting from the inability of customers to make required payments. This allowance is established using estimates formulated by the Company’s management based upon factors such as the composition of the accounts receivable aging, historical losses, changes in payment patterns, customer creditworthiness and current economic trends. Receivables determined to be uncollectible are written off and deducted from the allowance. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Allowance for Credit Losses ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, (In thousands) ​ 2023 2022 2023 2022 Beginning balance ​ $ ( 681 ) ​ $ ( 704 ) ​ $ ( 1,135 ) ​ $ ( 445 ) Provision for credit loss expense ​ ( 671 ) ​ ( 967 ) ​ ( 1,498 ) ​ ( 1,585 ) Receivables written off ​ — ​ 49 ​ — ​ 49 Recoveries collected ​ 671 ​ 487 ​ 1,952 ​ 846 Ending balance ​ $ ( 681 ) ​ $ ( 1,135 ) ​ $ ( 681 ) ​ $ ( 1,135 ) ​ 9 ​ Table of Contents POWER INTEGRATIONS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) ​ Inventories ​ ​ ​ ​ ​ ​ ​ ​ September 30, December 31, (In thousands) ​ 2023 ​ 2022 Raw materials ​ $ 87,904 ​ $ 75,355 Work-in-process ​ 25,187 ​ 15,440 Finished goods ​ 37,155 ​ 44,625 Total ​ $ 150,246 ​ $ 135,420 ​ Intangible Assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2023 ​ December 31, 2022 ​ ​ ​ Accumulated ​ ​ ​ ​ Accumulated ​ ​ (In thousands) ​ Gross ​ Amortization ​ Net ​ Gross ​ Amortization ​ Net Domain name ​ $ 1,261 ​ $ — ​ $ 1,261 ​ $ 1,261 ​ $ — ​ $ 1,261 Developed technology ​ 37,960 ​ ( 34,977 ) ​ 2,983 ​ 37,960 ​ ( 33,531 ) ​ 4,429 Technology licenses ​ 1,926 ​ ( 1,203 ) ​ 723 ​ 1,926 ​ ( 1,019 ) ​ 907 Total intangible assets ​ $ 41,147 ​ $ ( 36,180 ) ​ $ 4,967 ​ $ 41,147 ​ $ ( 34,550 ) ​ $ 6,597 ​ ​ The estimated future amortization expense related to finite-lived intangible assets at September 30, 2023, is as follows: ​ ​ ​ ​ ​ ​ Estimated ​ ​ Amortization Fiscal Year ​ (In thousands) 2023 (remaining three months) ​ $ 543 2024 ​ 1,279 2025 ​ 832 2026 ​ 687 2027 ​ 365 Total ​ $ 3,706 ​ Accumulated Other Comprehensive Loss Changes in accumulated other comprehensive loss for the three and nine months ended September 30, 2023 and 2022, were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized Gains ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ and Losses on ​ Defined Benefit ​ Foreign Currency ​ ​ ​ ​ Marketable Securities ​ Pension Items ​ Items ​ Total ​ Three Months Ended ​ Three Months Ended ​ Three Months Ended ​ Three Months Ended ​ September 30, ​ September 30, ​ September 30, ​ September 30, (In thousands) 2023 2022 2023 2022 2023 2022 2023 2022 Beginning balance $ ( 3,295 ) ​ $ ( 6,506 ) ​ $ 821 ​ $ ( 633 ) ​ $ ( 3,283 ) ​ $ ( 2,921 ) ​ $ ( 5,757 ) ​ $ ( 10,060 ) Other comprehensive income (loss) before reclassifications 455 ​ ( 731 ) ​ — ​ — ​ ( 407 ) ​ ( 1,044 ) ​ 48 ​ ( 1,775 ) Amounts reclassified from accumulated other comprehensive loss — ​ — ​ ( 21 ) (1) 18 (1) — ​ — ​ ( 21 ) ​ 18 Net-current period other comprehensive income (loss) 455 ​ ( 731 ) ​ ( 21 ) ​ 18 ​ ( 407 ) ​ ( 1,044 ) ​ 27 ​ ( 1,757 ) Ending balance $ ( 2,840 ) ​ $ ( 7,237 ) ​ $ 800 ​ $ ( 615 ) ​ $ ( 3,690 ) ​ $ ( 3,965 ) ​ $ ( 5,730 ) ​ $ ( 11,817 ) (1) This component of accumulated other comprehensive income (loss) is included in the computation of net periodic pension cost for the three months ended September 30, 2023 and 2022. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 ​ Nine Months Ended ​ Nine Months Ended ​ Nine Months Ended ​ Nine Months Ended ​ September 30, ​ September 30, ​ September 30, ​ September 30, (In thousands) 2023 2022 2023 ​ 2022 2023 2022 2023 2022 Beginning balance $ ( 5,323 ) ​ $ ( 1,165 ) ​ $ 862 ​ $ ( 674 ) ​ $ ( 2,883 ) ​ $ ( 1,898 ) ​ $ ( 7,344 ) ​ $ ( 3,737 ) Other comprehensive income (loss) before reclassifications 2,483 ​ ( 6,072 ) ​ — ​ — ​ ( 807 ) ​ ( 2,067 ) ​ 1,676 ​ ( 8,139 ) Amounts reclassified from accumulated other comprehensive loss — ​ — ​ ( 62 ) (1) 59 (1) — ​ — ​ ( 62 ) ​ 59 Net-current period other comprehensive income (loss) 2,483 ​ ( 6,072 ) ​ ( 62 ) ​ 59 ​ ( 807 ) ​ ( 2,067 ) ​ 1,614 ​ ( 8,080 ) Ending balance $ ( 2,840 ) ​ $ ( 7,237 ) ​ $ 800 ​ $ ( 615 ) ​ $ ( 3,690 ) ​ $ ( 3,965 ) ​ $ ( 5,730 ) ​ $ ( 11,817 ) (1) This component of accumulated other comprehensive income (loss) is included in the computation of net periodic pension cost for the nine months ended September 30, 2023 and 2022. 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 September 30, 2023 and December 31, 2022, was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurement at ​ ​ September 30, 2023 ​ ​ ​ Quoted Prices in ​ ​ ​ ​ ​ ​ ​ Active Markets for ​ Significant Other ​ ​ ​ ​ ​ Identical Assets ​ Observable Inputs (In thousands) ​ Total Fair Value ​ (Level 1) ​ (Level 2) Commercial paper ​ $ 39,539 ​ $ — ​ $ 39,539 Corporate securities ​ ​ 261,896 ​ ​ — ​ ​ 261,896 Money market funds ​ 781 ​ 781 ​ — Total ​ $ 302,216 ​ $ 781 ​ $ 301,435 11 Table of Contents POWER INTEGRATIONS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurement at ​ ​ December 31, 2022 ​ ​ ​ Quoted Prices in ​ ​ ​ ​ ​ ​ ​ Active Markets for ​ Significant Other ​ ​ ​ ​ ​ Identical Assets ​ Observable Inputs (In thousands) ​ Total Fair Value ​ (Level 1) ​ (Level 2) Commercial paper ​ $ 58,683 ​ $ — ​ $ 58,683 Corporate securities ​ ​ 248,441 ​ ​ — ​ ​ 248,441 Money market funds ​ 363 ​ 363 ​ — Total ​ $ 307,487 ​ $ 363 ​ $ 307,124 ​ The Company did not transfer any investments between Level 1 and Level 2 of the fair-value hierarchy in the nine months ended September 30, 2023 and the twelve months ended December 31, 2022. 5. MARKETABLE SECURITIES: Amortized cost and estimated fair market value of marketable securities classified as available-for-sale (excluding cash equivalents) at September 30, 2023, were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortized ​ Gross Unrealized ​ Estimated Fair (In thousands) Cost Gains Losses Market Value Investments due in 3 months or less: ​ ​ ​ ​ Corporate securities ​ $ 36,088 ​ $ — ​ $ ( 207 ) ​ $ 35,881 Total ​ 36,088 ​ — ​ ( 207 ) ​ 35,881 Investments due in 4-12 months: ​ ​ ​ ​ Corporate securities ​ 39,377 ​ 4 ​ ( 664 ) ​ 38,717 Total ​ 39,377 ​ 4 ​ ( 664 ) ​ 38,717 Investments due in 12 months or greater: ​ ​ ​ ​ Corporate securities ​ 189,271 ​ 18 ​ ( 1,991 ) ​ 187,298 Total ​ ​ 189,271 ​ 18 ​ ​ ( 1,991 ) ​ 187,298 Total marketable securities ​ $ 264,736 ​ $ 22 ​ $ ( 2,862 ) ​ $ 261,896 ​ Accrued interest receivable was $ 2.7 million at September 30, 2023 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, 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 ​ $ 21,803 ​ $ — ​ $ ( 135 ) ​ $ 21,668 Total ​ 21,803 ​ — ​ ( 135 ) ​ 21,668 Investments due in 4-12 months: ​ ​ ​ ​ Corporate securities ​ 173,833 ​ — ​ ( 4,019 ) ​ 169,814 Total ​ 173,833 ​ — ​ ( 4,019 ) ​ 169,814 Investments due in 12 months or greater: ​ ​ ​ ​ Corporate securities ​ ​ 58,128 ​ 71 ​ ( 1,240 ) ​ 56,959 Total ​ 58,128 ​ 71 ​ ( 1,240 ) ​ 56,959 Total marketable securities ​ $ 253,764 ​ $ 71 ​ $ ( 5,394 ) ​ $ 248,441 ​ Accrued interest receivable was $ 1.2 million at December 31, 2022 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) ​ The following table summarizes marketable securities classified as available-for-sale (excluding cash equivalents) in a continuous unrealized loss position for which an allowance for credit losses was not recorded at September 30, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 ​ $ 200,713 ​ $ ( 2,001 ) ​ $ 55,695 ​ $ ( 861 ) ​ $ 256,408 ​ $ ( 2,862 ) Total marketable securities ​ $ 200,713 ​ $ ( 2,001 ) ​ $ 55,695 ​ $ ( 861 ) ​ $ 256,408 ​ $ ( 2,862 ) ​ In the three and nine months ended September 30, 2023 and 2022, no unrealized losses on marketable securities were recognized in income. 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 nine months ended September 30, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, (In thousands) 2023 2022 2023 2022 Cost of revenues ​ $ 446 ​ $ 172 ​ $ 1,193 ​ $ 727 Research and development ​ 2,895 ​ 2,334 ​ 7,992 ​ 7,712 Sales and marketing ​ 1,787 ​ 1,267 ​ 5,061 ​ 4,392 General and administrative ​ 1,777 ​ ( 755 ) ​ 6,779 ​ 2,879 Total stock-based compensation expense ​ $ 6,905 ​ $ 3,018 ​ $ 21,025 ​ $ 15,710 ​ Stock-based compensation expense in the three months ended September 30, 2023, was approximately $ 6.9 million, comprising approximately $ 6.1 million related to restricted stock unit (“RSU”) awards, $ 0.5 million related to the Company’s employee stock purchase plan and $ 0.3 million related to performance-based (“PSU”) awards and long-term performance-based (“PRSU”) awards. Stock-based compensation expense in the nine months ended September 30, 2023, was approximately $ 21.0 million, comprising approximately $ 17.3 million related to RSUs, $ 1.4 million related to the Company’s employee stock purchase plan and $ 2.3 million related to PSUs and PRSUs. Stock-based compensation expense in the three months ended September 30, 2022, was approximately $ 3.0 million, comprising approximately $ 6.4 million related to RSUs, $ 0.5 million related to the Company’s employee stock purchase plan and $ 3.9 million credit related to PSUs and PRSUs. Stock-based compensation expense in the nine months ended September 30, 2022, was approximately $ 15.7 million, comprising approximately $ 17.3 million related to RSUs, $ 1.3 million related to the Company’s employee stock purchase plan and $ 2.9 million credit related to PSUs and PRSUs. 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 13 Table of Contents POWER INTEGRATIONS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) ​ 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 2023, it was determined that approximately 34,000 shares subject to the PSUs granted in 2022 vested in aggregate; the shares were released to the Company’s employees and executives in the first quarter of 2023. A summary of PSUs outstanding as of September 30, 2023 and activity during the nine months ended, is presented below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-Average ​ ​ ​ ​ ​ ​ ​ Weighted-Average ​ Remaining ​ Aggregate ​ ​ Shares ​ Grant Date Fair ​ Contractual Term ​ Intrinsic Value ​ (In thousands) Value Per Share (In years) (In thousands) Outstanding at January 1, 2023 34 ​ $ 79.94 ​ ​ ​ Granted 130 ​ $ 82.96 ​ ​ Vested ( 34 ) ​ $ 79.94 ​ Forfeited — ​ ​ — ​ Outstanding at September 30, 2023 130 ​ $ 82.96 0.25 ​ $ 9,964 Outstanding and expected to vest at September 30, 2023 39 ​ ​ ​ 0.25 ​ $ 2,989 ​ 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 2021, 2022 and 2023 were based on the Company’s compound annual growth rate (“CAGR”) of revenue as measured against the revenue CAGR of the analog semiconductor industry (“Relative Measure”), in each case over the respective three-year performance period. In addition, the PRSUs granted in 2023 (“2023 PRSUs”) also include a performance goal related to the Company’s revenue growth over the respective three-year performance period as compared to defined targets (“Absolute Measure”) with the actual vesting of the 2023 PRSUs calculated based on higher achievement under the Relative Measure or the Absolute Measure. 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 2023, it was determined that approximately 23,000 shares subject to the PRSUs granted in 2020 vested in aggregate; the shares were released to the Company’s executives in the first quarter of 2023. A summary of PRSUs outstanding as of September 30, 2023 and activity during the nine months ended, is presented below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-Average ​ Aggregate ​ ​ ​ ​ Weighted-Average ​ Remaining ​ Intrinsic ​ ​ Shares ​ Grant Date Fair ​ Contractual Term ​ Value ​ (In thousands) Value Per Share (In years) (In thousands) Outstanding at January 1, 2023 236 ​ $ 77.82 ​ ​ ​ Granted 145 ​ $ 80.92 ​ Vested ( 23 ) ​ $ 49.68 ​ Forfeited — ​ ​ — ​ Outstanding at September 30, 2023 358 ​ $ 80.89 1.37 ​ $ 27,344 Outstanding and expected to vest at September 30, 2023 6 ​ ​ ​ 2.25 ​ $ 445 ​ 14 Table of Contents POWER INTEGRATIONS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) ​ RSU Awards A summary of RSUs outstanding as of September 30, 2023 and activity during the nine months ended, is presented below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-Average ​ Aggregate ​ ​ ​ ​ Weighted-Average ​ Remaining ​ Intrinsic ​ ​ Shares ​ Grant Date Fair ​ Contractual Term ​ Value ​ (In thousands) Value Per Share (In years) (In thousands) Outstanding at January 1, 2023 1,096 ​ $ 60.52 ​ ​ ​ ​ ​ Granted 333 ​ $ 81.06 ​ ​ ​ ​ Vested ( 386 ) ​ $ 51.49 ​ ​ ​ ​ Forfeited ( 22 ) ​ $ 71.71 ​ ​ ​ ​ Outstanding at September 30, 2023 1,021 ​ $ 70.39 ​ 1.68 ​ $ 77,875 Outstanding and expected to vest at September 30, 2023 946 ​ ​ ​ 1.59 ​ $ 72,163 ​ ​ ​ ​ 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 83 % and 81 % of net revenues for the three and nine months ended September 30, 2023, respectively, and 72 % and 75 %, respectively, in the corresponding periods of 2022. 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 (“OEMs”) and merchant power-supply manufacturers. Similarly, merchant power-supply manufacturers sell power supplies incorporating the Company’s products to a broad range of OEMs. Sales to distributors were $ 93.2 million and $ 238.7 million in the three and nine months ended September 30, 2023, respectively, and $ 103.6 million and $ 373.3 million, respectively, in the corresponding periods of 2022. 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 Nine Months Ended ​ ​ September 30, ​ September 30, Customer ​ 2023 ​ 2022 ​ 2023 ​ 2022 Avnet 28 % ​ 28 % 26 % ​ 30 % Honestar Technologies Co., Ltd. ​ 23 % ​ * ​ ​ 17 % ​ 12 % Salcomp Group ​ * ​ ​ 12 % ​ 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 September 30, 2023, and December 31, 2022, 89 % and 87 % 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 at September 30, 2023 and December 31, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ December 31, Customer 2023 ​ 2022 Avnet ​ 41 % ​ 42 % Honestar Technologies Co., Ltd. ​ 12 % ​ * ​ Salcomp Group ​ 10 % ​ 13 % Flextronics Group ​ * ​ ​ 11 % * 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 and nine months ended September 30, 2023 and 2022, were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, (In thousands) 2023 2022 2023 2022 United States of America ​ $ 2,208 ​ $ 8,387 ​ $ 6,903 ​ $ 22,862 Hong Kong/China ​ 79,735 ​ 80,508 ​ 215,829 ​ 282,508 India ​ ​ 9,697 ​ 9,660 ​ 27,738 ​ 22,765 Taiwan ​ 4,949 ​ 4,895 ​ 11,453 ​ 16,000 Korea ​ 4,308 ​ 10,071 ​ 17,425 ​ 47,298 Western Europe (excluding Germany) ​ 8,498 ​ 10,790 ​ 20,912 ​ 27,164 Japan ​ 4,311 ​ 9,777 ​ 13,390 ​ 27,986 Germany ​ 5,741 ​ 16,601 ​ 19,290 ​ 42,545 Other ​ 6,064 ​ 9,544 ​ 22,091 ​ 37,240 Total net revenues ​ $ 125,511 ​ $ 160,233 ​ $ 355,031 ​ $ 526,368 ​ ​ ​ ​ 8. STOCKHOLDERS’ EQUITY: Common Stock Shares Outstanding ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, (In thousands) 2023 2022 2023 2022 Beginning balance ​ ​ 57,351 ​ ​ 57,134 ​ ​ 56,961 ​ ​ 59,913 Common stock issued under employee stock plans ​ 59 ​ 61 ​ 529 ​ 785 Repurchased ​ ( 24 ) ​ — ​ ( 104 ) ​ ( 3,503 ) Ending balance ​ ​ 57,386 ​ ​ 57,195 ​ ​ 57,386 ​ ​ 57,195 ​ Common Stock Repurchases As of December 31, 2022, the Company had $ 81.3 million remaining under its authorized stock-repurchase program. In the three and nine months ended September 30, 2023 the Company purchased approximately 24,000 shares for $ 1.8 million and approximately 104,000 shares for $ 7.8 million, respectively, leaving $ 73.4 million remaining on the repurchase authorization as of September 30, 2023. Authorization of future repurchase programs is at the discretion of the Company’s board of directors and will depend on the Company’s financial condition, results of operations, capital requirements, business conditions and other factors; the program has no expiration date. 16 Table of Contents POWER INTEGRATIONS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) ​ Cash Dividends In January 2022, the Company’s board of directors declared dividends of $ 0.18 per share to be paid to stockholders of record at the end of each quarter in 2022. In February 2023, the Company’s board of directors declared dividends of $ 0.19 per share to be paid to stockholders of record at the end of each quarter in 2023. In October 2023, the Company’s board of directors raised the quarterly cash dividend again with the declaration of five cash dividends of $ 0.20 per share to be paid to stockholders of record at the end of the fourth quarter in 2023 (in lieu of the $ 0.19 per share announced in February 2023) and at the end of each quarter in 2024 . For the three and nine months ended September 30, 2023 and 2022, cash dividends declared and paid were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, (In thousands, except per share amounts) 2023 2022 2023 2022 Dividends declared and paid ​ $ 10,904 ​ $ 10,293 ​ $ 32,665 ​ $ 31,229 Dividends declared per common share ​ $ 0.19 ​ $ 0.18 ​ $ 0.57 ​ $ 0.54 ​ ​ ​ 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 ​ Nine Months Ended ​ ​ September 30, ​ September 30, (In thousands, except per share amounts) 2023 2022 2023 2022 Basic earnings per share: ​ ​ ​ ​ Net income ​ $ 19,796 ​ $ 45,964 ​ $ 41,464 ​ $ 148,036 Weighted-average common shares ​ 57,383 ​ 57,172 ​ 57,282 ​ 58,039 Basic earnings per share ​ $ 0.34 ​ $ 0.80 ​ $ 0.72 ​ $ 2.55 Diluted earnings per share: (1) ​ ​ ​ ​ Net income ​ $ 19,796 ​ $ 45,964 ​ $ 41,464 ​ $ 148,036 Weighted-average common shares ​ 57,383 ​ 57,172 ​ 57,282 ​ 58,039 Effect of dilutive awards: ​ ​ ​ ​ Employee stock plans ​ 358 ​ 431 ​ 429 ​ 596 Diluted weighted-average common shares ​ 57,741 ​ 57,603 ​ 57,711 ​ 58,635 Diluted earnings per share ​ $ 0.34 ​ $ 0.80 ​ $ 0.72 ​ $ 2.52 ​ (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 2023 and 2022 calculations as the shares were not contingently issuable as of the end of the reporting periods. In the three and nine months ended September 30, 2023 and 2022, no outstanding stock awards were determined to be anti-dilutive and therefore excluded from the computation of diluted earnings per share. 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 17 Table of Contents POWER INTEGRATIONS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) ​ recognized in the period they occur. Accordingly, the interim effective tax rate may not be reflective of the annual estimated effective tax rate. The Company’s effective tax rate for both the three and nine months ended September 30, 2023 was 5.1 %, as compared to 6.9 % and 8.5 %, respectively, in the corresponding periods of 2022. The effective tax rate in these periods were 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 September 30, 2023, our effective tax rate was favorably impacted by the recognition of excess tax benefits related to share-based payments. In the nine months ended September 30, 2023, our 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 September 30, 2023, the Company maintained a valuation allowance on its California deferred tax assets, New Jersey deferred tax assets and a valuation allowance with respect to its deferred tax assets relating to tax credits in Canada. Determining the consolidated provision for income-tax expense, income-tax liabilities and deferred tax assets and liabilities involves judgment. The Company calculates and provides for income taxes in each of the tax jurisdictions in which it operates, which involves estimating current tax exposures as well as making judgments regarding the recoverability of deferred tax assets in each jurisdiction. The estimates used could differ from actual results, which may have a significant impact on operating results in future periods. ​ 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 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 recently filed a motion to amend its claims against CogniPower to include three additional patents that are in the same family as the two CogniPower patents that are already in the lawsuit, after CogniPower accused the Company’s 18 Table of Contents POWER INTEGRATIONS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) ​ customers of infringing those three related patents in a lawsuit in the Eastern District of Texas. A ruling on the Company’s motion is expected in the coming months, and the Company believes it has strong claims and defenses with respect to all of CogniPower’s asserted patents, and intends to vigorously defend itself against CogniPower’s claims against the Company’s technology, with appeals to follow if necessary. On October 31, 2022, Waverly Licensing LLC filed a complaint against the Company in the United States District Court for the Western District of Texas. In its complaint, Waverly alleged that the Company was infringing one patent pertaining to charging a battery-operated device. The Company believes it has strong claims and defenses, and intends to vigorously defend itself against Waverly’s claims, with appeals to follow if necessary. Because the Company believed that Waverly’s Texas complaint was improperly filed in the wrong court, the Company filed a motion to dismiss, and on November 30, 2022, the Company filed a complaint against Waverly Licensing LLC and related entities IP Edge LLC, Mavexar LLC, and Array IP LLC in the United States District Court for the District of Delaware seeking a declaration of non-infringement with respect to a patent that Waverly charged the Company with infringing. The Texas court thereafter dismissed Waverly’s Texas complaint. The Company’s Delaware lawsuit is in its earliest stages, but on April 6, 2023, the Delaware defendants filed a motion to dismiss based on a series of covenants not to sue that the Delaware defendants filed with the Court, with further proceedings on the Delaware defendants’ motion expected in the coming months. The Company is unable to predict the outcome of legal proceedings with certainty, and there can be no assurance that the Company will prevail in the above-mentioned unsettled litigations. These litigations, whether or not determined in the Company’s favor or settled, will be costly and will divert the efforts and attention of the Company’s management and technical personnel from normal business operations, potentially causing a material adverse effect on the business, financial condition and operating results. Currently, the Company is not able to estimate a loss or a range of loss for the ongoing litigations disclosed above, however adverse determinations in litigation could result in monetary losses, the loss of proprietary rights, subject the Company to significant liabilities, require the Company to seek licenses from third parties or prevent the Company from licensing the technology, any of which could have a material adverse effect on the Company’s business, financial condition and operating results. 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 September 30, 2023. 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 ​