POWER INTEGRATIONS INC 10-Q

ITEM 1. FINANCIAL STATEMENTS POWER INTEGRATIONS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In thousands) ​ September 30, 2024 ​ December 31, 2023 ASSETS ​ ​ ​ ​ ​ ​ CURRENT ASSETS: ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 58,469 ​ $ 63,929 Short-term marketable securities ​ 245,282 ​ 247,640 Accounts receivable, net ​ 16,634 ​ 14,674 Inventories ​ 167,680 ​ 163,164 Prepaid expenses and other current assets ​ 19,821 ​ 22,193 Total current assets ​ 507,886 ​ 511,600 PROPERTY AND EQUIPMENT, net ​ 153,313 ​ 164,213 INTANGIBLE ASSETS, net ​ 8,283 ​ 4,424 GOODWILL ​ 95,271 ​ 91,849 DEFERRED TAX ASSETS ​ 36,393 ​ 28,325 OTHER ASSETS ​ 23,845 ​ 19,457 Total assets ​ $ 824,991 ​ $ 819,868 LIABILITIES AND STOCKHOLDERS’ EQUITY ​ ​ ​ ​ CURRENT LIABILITIES: ​ ​ ​ ​ Accounts payable ​ $ 27,091 ​ $ 26,390 Accrued payroll and related expenses ​ 13,337 ​ 13,551 Taxes payable ​ 1,063 ​ 1,016 Other accrued liabilities ​ 9,267 ​ 7,910 Total current liabilities ​ 50,758 ​ 48,867 LONG-TERM INCOME TAXES PAYABLE ​ 6,351 ​ 6,244 OTHER LIABILITIES ​ 18,669 ​ 12,516 Total liabilities ​ 75,778 ​ 67,627 COMMITMENTS AND CONTINGENCIES (Notes 11, 12 and 13) ​ ​ STOCKHOLDERS’ EQUITY: ​ ​ Common stock ​ 22 ​ 23 Additional paid-in capital ​ 11,347 ​ — Accumulated other comprehensive income (loss) ​ 1,008 ​ ( 1,462 ) Retained earnings ​ 736,836 ​ 753,680 Total stockholders’ equity ​ 749,213 ​ 752,241 Total liabilities and stockholders’ equity ​ $ 824,991 ​ $ 819,868 ​ 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) ​ 2024 2023 2024 2023 NET REVENUES ​ $ 115,837 ​ $ 125,511 ​ $ 313,723 ​ $ 355,031 COST OF REVENUES ​ 52,666 ​ 59,566 ​ 146,239 ​ 172,283 GROSS PROFIT ​ 63,171 ​ 65,945 ​ 167,484 ​ 182,748 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ OPERATING EXPENSES: ​ ​ ​ ​ ​ ​ ​ Research and development ​ 25,829 ​ 24,064 ​ 75,101 ​ 72,562 Sales and marketing ​ 17,119 ​ 16,224 ​ 50,894 ​ 49,126 General and administrative ​ 8,641 ​ 7,945 ​ ​ 27,479 ​ 24,950 Total operating expenses ​ 51,589 ​ 48,233 ​ 153,474 ​ 146,638 INCOME FROM OPERATIONS ​ 11,582 ​ 17,712 ​ 14,010 ​ 36,110 OTHER INCOME ​ 2,750 ​ 3,138 ​ 9,441 ​ 7,566 INCOME BEFORE INCOME TAXES ​ 14,332 ​ 20,850 ​ 23,451 ​ 43,676 PROVISION FOR INCOME TAXES ​ 41 ​ 1,054 ​ 357 ​ 2,212 NET INCOME ​ $ 14,291 ​ $ 19,796 ​ $ 23,094 ​ $ 41,464 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ EARNINGS PER SHARE: ​ ​ ​ ​ ​ ​ ​ Basic ​ $ 0.25 ​ $ 0.34 ​ $ 0.41 ​ $ 0.72 Diluted ​ $ 0.25 ​ $ 0.34 ​ $ 0.40 ​ $ 0.72 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ SHARES USED IN PER SHARE CALCULATION: ​ ​ ​ ​ ​ ​ ​ Basic ​ 56,817 ​ ​ 57,383 ​ ​ 56,810 ​ ​ 57,282 Diluted ​ 57,004 ​ ​ 57,741 ​ ​ 57,106 ​ ​ 57,711 ​ ​ 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) 2024 2023 2024 2023 Net income ​ $ 14,291 ​ $ 19,796 ​ $ 23,094 ​ $ 41,464 Other comprehensive income, net of tax: ​ ​ ​ ​ Foreign currency translation adjustments, net of $ 0 tax in each of the three and nine months ended September 30, 2024 and 2023 ​ ​ 1,235 ​ ​ ( 407 ) ​ ​ 598 ​ ​ ( 807 ) Unrealized gain on marketable securities, net of $ 615 tax in each of the three and nine months ended September 30, 2024 and net of $ 0 tax in each of the three and nine months ended September 30, 2023 ​ ​ 3,005 ​ ​ 455 ​ ​ 2,000 ​ ​ 2,483 Amortization of defined benefit pension items, net of tax of ($ 8 ) and ($ 23 ) in the three and nine months ended September 30, 2024, respectively, and ($ 4 ) and ($ 11 ) in the three and nine months ended September 30, 2023, respectively ​ ​ ( 43 ) ​ ​ ( 21 ) ​ ​ ( 128 ) ​ ​ ( 62 ) Total other comprehensive income ​ 4,197 ​ 27 ​ 2,470 ​ 1,614 TOTAL COMPREHENSIVE INCOME ​ $ 18,488 ​ $ 19,823 ​ $ 25,564 ​ $ 43,078 ​ 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) 2024 2023 2024 2023 Common stock ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Beginning balance $ 22 ​ $ 23 ​ $ 23 ​ $ 24 Repurchase of common stock ​ — ​ — ​ ( 1 ) ​ ( 1 ) Ending balance ​ 22 ​ 23 ​ 22 ​ 23 ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional paid-in capital ​ ​ ​ ​ ​ ​ ​ ​ Beginning balance ​ — ​ 11,220 ​ — ​ — Common stock issued under employee stock plans ​ 3,009 ​ 3,139 ​ 5,700 ​ 6,237 Repurchase of common stock ​ — ​ ( 1,835 ) ​ ( 20,140 ) ​ ( 7,833 ) Stock-based compensation ​ 8,338 ​ 6,905 ​ 25,787 ​ 21,025 Ending balance ​ 11,347 ​ 19,429 ​ 11,347 ​ 19,429 ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated other comprehensive income (loss) ​ ​ ​ ​ ​ ​ ​ ​ Beginning balance ​ ( 3,189 ) ​ ( 5,757 ) ​ ( 1,462 ) ​ ( 7,344 ) Other comprehensive income ​ 4,197 ​ 27 ​ 2,470 ​ 1,614 Ending balance ​ 1,008 ​ ( 5,730 ) ​ 1,008 ​ ( 5,730 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ Retained earnings ​ ​ ​ ​ ​ ​ ​ ​ Beginning balance ​ 733,909 ​ 762,443 ​ 753,680 ​ 762,536 Net income ​ 14,291 ​ 19,796 ​ 23,094 ​ 41,464 Repurchase of common stock ​ ​ — ​ ​ — ​ ​ ( 5,838 ) ​ ​ — Payment of dividends to stockholders ​ ​ ( 11,364 ) ​ ​ ( 10,904 ) ​ ​ ( 34,100 ) ​ ​ ( 32,665 ) Ending balance ​ ​ 736,836 ​ ​ 771,335 ​ ​ 736,836 ​ ​ 771,335 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total stockholders’ equity $ 749,213 ​ $ 785,057 ​ $ 749,213 ​ $ 785,057 ​ ​ 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) 2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES: ​ ​ Net income ​ $ 23,094 ​ $ 41,464 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ Depreciation ​ 25,560 ​ 26,316 Amortization of intangibles ​ 1,071 ​ 1,630 Loss on disposal of property and equipment ​ 216 ​ 86 Stock-based compensation expense ​ 25,787 ​ 21,025 Amortization of premium (accretion of discount) on marketable securities ​ ( 1,252 ) ​ 146 Deferred income taxes ​ ( 8,688 ) ​ ( 9,952 ) Decrease in accounts receivable allowance for credit losses ​ ( 459 ) ​ ( 454 ) Change in operating assets and liabilities: ​ ​ ​ Accounts receivable ​ ( 1,501 ) ​ ( 7,249 ) Inventories ​ ( 4,516 ) ​ ( 14,826 ) Prepaid expenses and other assets ​ 5,614 ​ ( 837 ) Accounts payable ​ 1,914 ​ ( 2,882 ) Taxes payable and accrued liabilities ​ ( 385 ) ​ ( 4,975 ) Net cash provided by operating activities ​ 66,455 ​ 49,492 ​ ​ ​ ​ ​ ​ ​ CASH FLOWS FROM INVESTING ACTIVITIES: ​ ​ ​ ​ Purchases of property and equipment ​ ( 14,241 ) ​ ( 14,741 ) Purchases of marketable securities ​ ( 97,581 ) ​ ( 173,015 ) Proceeds from sales and maturities of marketable securities ​ 103,806 ​ 161,897 Acquisition (Note 15) ​ ​ ( 9,520 ) ​ ​ — Net cash used in investing activities ​ ( 17,536 ) ​ ( 25,859 ) ​ ​ ​ ​ ​ ​ ​ CASH FLOWS FROM FINANCING ACTIVITIES: ​ ​ ​ ​ Issuance of common stock under employee stock plans ​ 5,700 ​ 6,237 Repurchase of common stock ​ ( 25,979 ) ​ ( 7,834 ) Payments of dividends to stockholders ​ ( 34,100 ) ​ ( 32,665 ) Net cash used in financing activities ​ ( 54,379 ) ​ ( 34,262 ) ​ ​ ​ ​ ​ ​ ​ NET DECREASE IN CASH AND CASH EQUIVALENTS ​ ( 5,460 ) ​ ( 10,629 ) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ​ 63,929 ​ 105,372 CASH AND CASH EQUIVALENTS AT END OF PERIOD ​ $ 58,469 ​ $ 94,743 ​ ​ ​ ​ ​ ​ ​ SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: ​ ​ ​ Unpaid property and equipment ​ $ 1,535 ​ $ 2,429 ​ ​ ​ ​ ​ ​ ​ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: ​ ​ ​ ​ Cash paid for income taxes, net ​ $ 4,400 ​ $ 13,683 ​ ​ The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. ​ 8 POWER INTEGRATIONS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ​ ​ 1. BASIS OF PRESENTATION: The condensed consolidated financial statements include the accounts of Power Integrations, Inc., a Delaware corporation (the “Company”), and its wholly owned subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation. While the financial information furnished is unaudited, the condensed consolidated financial statements included in this report reflect all adjustments (consisting only of normal recurring adjustments) that the Company considers necessary for the fair presentation of the results of operations for the interim periods covered and the financial condition of the Company at the date of the interim balance sheet in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The results for interim periods are not necessarily indicative of the results for the entire year. The condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and the notes thereto for the year ended December 31, 2023, included in its Form 10-K filed on February 12, 2024, with the Securities and Exchange Commission. 2. SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS: Significant Accounting Policies and Estimates Except for the additional policy presented below, no material changes have been made to the Company’s significant accounting policies disclosed in Note 2, Significant Accounting Policies and Recent Accounting Pronouncements , of the Company’s financial statements set forth in Item 8 of the Company’s Annual Report on Form 10-K, filed on February 12, 2024, for the year ended December 31, 2023. Business Combinations The Company applies the provisions of ASC 805, Business Combinations (“ASC 805”), in accounting for acquisitions. ASC 805 requires that the Company evaluates whether a transaction pertains to an acquisition of assets, or to an acquisition of a business. A business is defined as an integrated set of assets and activities that is capable of being conducted and managed for the purpose of providing a return to investors. Asset acquisitions are accounted for by allocating the cost of the acquisition to the individual assets and liabilities assumed on a relative fair value basis; whereas the acquisition of a business requires the Company to recognize separately from goodwill the assets acquired and the liabilities assumed at the acquisition date fair values. Goodwill is measured as the excess of consideration transferred over the net acquisition date fair values of the assets acquired and the liabilities assumed. While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed as well as any contingent consideration, where applicable, the estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the business acquisition date, the Company may record certain adjustments to the assets acquired and liabilities assumed with the corresponding adjustment to goodwill. Upon the conclusion of a business acquisition’s measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations. All acquisition-related costs are accounted for as expenses in the period in which they are incurred. Recent Accounting Pronouncements In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which is intended to improve reportable segment disclosure requirements and expand public entities’ segment disclosures in the annual and interim financial statements. The amendment will require disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and within each reported measure of segment profit or loss, an amount and description of its composition for other segment items and interim disclosures of a reportable segment’s profit or loss and assets. All disclosure requirements of ASU 2023-07 are required for entities with a single reportable segment. The Company is required to adopt the amendments in fiscal year 2024 for annual and retrospective reporting periods and in the first quarter of fiscal year 2025 for all interim and retrospective reporting periods; with early adoption permitted. The Company does not expect the amendment to have a material impact on its consolidated financial statements upon adoption. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), which modifies the rules on income tax disclosures to require entities to disclose 9 ​ Table of Contents POWER INTEGRATIONS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) ​ (1) specific categories in the rate reconciliation, (2) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and (3) income tax expense or benefit from continuing operations (separated by federal, state and foreign). ASU 2023-09 also requires entities to disclose their income tax payments to international, federal, state and local jurisdictions, among other changes. The guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted. The Company does not expect the amendment to have a material impact on its consolidated financial statements upon adoption. 3. COMPONENTS OF THE COMPANY’S CONDENSED CONSOLIDATED BALANCE SHEETS: Accounts Receivable ​ ​ ​ ​ ​ ​ ​ ​ September 30, December 31, (In thousands) ​ 2024 ​ 2023 Accounts receivable trade ​ $ 50,090 ​ $ 53,147 Allowance for ship and debit ​ ( 30,445 ) ​ ( 36,017 ) Allowance for stock rotation and rebate ​ ( 2,789 ) ​ ( 1,775 ) Allowance for credit losses ​ ​ ( 222 ) ​ ​ ( 681 ) Total ​ $ 16,634 ​ $ 14,674 ​ ​ The Company maintains an allowance for estimated credit losses resulting from the inability of customers to make required payments. This allowance is established using estimates formulated by the Company’s management based upon factors such as the composition of the accounts receivable aging, historical losses, changes in payment patterns, customer creditworthiness and current economic trends. Receivables determined to be uncollectible are written off and deducted from the allowance. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Allowance for Credit Losses ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, (In thousands) ​ 2024 2023 2024 2023 Beginning balance ​ $ ( 1,007 ) ​ $ ( 681 ) ​ $ ( 681 ) ​ $ ( 1,135 ) Provision for credit loss expense ​ ( 202 ) ​ ( 671 ) ​ ( 1,050 ) ​ ( 1,498 ) Receivables written off ​ — ​ — ​ — ​ — Recoveries collected ​ 987 ​ 671 ​ 1,509 ​ 1,952 Ending balance ​ $ ( 222 ) ​ $ ( 681 ) ​ $ ( 222 ) ​ $ ( 681 ) ​ Inventories ​ ​ ​ ​ ​ ​ ​ ​ September 30, December 31, (In thousands) ​ 2024 ​ 2023 Raw materials ​ $ 104,084 ​ $ 96,467 Work-in-process ​ 28,775 ​ 24,727 Finished goods ​ 34,821 ​ 41,970 Total ​ $ 167,680 ​ $ 163,164 ​ 10 Table of Contents POWER INTEGRATIONS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) ​ Accumulated Other Comprehensive Income (Loss) Changes in accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2024 and 2023, were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized Gains ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ and Losses on ​ Defined Benefit ​ Foreign Currency ​ ​ ​ ​ Marketable Securities ​ Pension Items ​ Items ​ Total ​ Three Months Ended ​ Three Months Ended ​ Three Months Ended ​ Three Months Ended ​ September 30, ​ September 30, ​ September 30, ​ September 30, (In thousands) 2024 2023 2024 2023 2024 2023 2024 2023 Beginning balance $ ( 749 ) ​ $ ( 3,295 ) ​ $ 1,500 ​ $ 821 ​ $ ( 3,940 ) ​ $ ( 3,283 ) ​ $ ( 3,189 ) ​ $ ( 5,757 ) Other comprehensive income (loss) before reclassifications 3,005 ​ 455 ​ — ​ — ​ 1,235 ​ ( 407 ) ​ 4,240 ​ 48 Amounts reclassified from accumulated other comprehensive income (loss) — ​ — ​ ( 43 ) (1) ( 21 ) (1) — ​ — ​ ( 43 ) ​ ( 21 ) Net-current period other comprehensive income (loss) 3,005 ​ 455 ​ ( 43 ) ​ ( 21 ) ​ 1,235 ​ ( 407 ) ​ 4,197 ​ 27 Ending balance $ 2,256 ​ $ ( 2,840 ) ​ $ 1,457 ​ $ 800 ​ $ ( 2,705 ) ​ $ ( 3,690 ) ​ $ 1,008 ​ $ ( 5,730 ) (1) This component of accumulated other comprehensive income (loss) is included in the computation of net periodic pension cost for the three months ended September 30, 2024 and 2023. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized Gains ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ and Losses on ​ Defined Benefit ​ Foreign Currency ​ ​ ​ ​ Marketable Securities ​ Pension Items ​ Items ​ Total ​ Nine Months Ended ​ Nine Months Ended ​ Nine Months Ended ​ Nine Months Ended ​ September 30, ​ September 30, ​ September 30, ​ September 30, (In thousands) 2024 2023 2024 ​ 2023 2024 2023 2024 2023 Beginning balance $ 256 ​ $ ( 5,323 ) ​ $ 1,585 ​ $ 862 ​ $ ( 3,303 ) ​ $ ( 2,883 ) ​ $ ( 1,462 ) ​ $ ( 7,344 ) Other comprehensive income (loss) before reclassifications 2,000 ​ 2,483 ​ — ​ — ​ 598 ​ ( 807 ) ​ 2,598 ​ 1,676 Amounts reclassified from accumulated other comprehensive income (loss) — ​ — ​ ( 128 ) (1) ( 62 ) (1) — ​ — ​ ( 128 ) ​ ( 62 ) Net-current period other comprehensive income (loss) 2,000 ​ 2,483 ​ ( 128 ) ​ ( 62 ) ​ 598 ​ ( 807 ) ​ 2,470 ​ 1,614 Ending balance $ 2,256 ​ $ ( 2,840 ) ​ $ 1,457 ​ $ 800 ​ $ ( 2,705 ) ​ $ ( 3,690 ) ​ $ 1,008 ​ $ ( 5,730 ) (1) This component of accumulated other comprehensive income (loss) is included in the computation of net periodic pension cost for the nine months ended September 30, 2024 and 2023. ​ ​ 4. FAIR VALUE MEASUREMENTS: The FASB established a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices for identical assets in active markets; (Level 2) inputs other than the quoted prices in active markets that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which requires the Company to develop its own assumptions. This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. The Company’s cash equivalents and short-term marketable securities are classified within Level 1 or Level 2 of the fair-value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. 11 Table of Contents POWER INTEGRATIONS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) ​ The fair-value hierarchy of the Company’s cash equivalents and marketable securities at September 30, 2024 and December 31, 2023, was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurement at ​ ​ September 30, 2024 ​ ​ ​ ​ ​ Quoted Prices in ​ ​ ​ ​ ​ ​ ​ ​ Active Markets for ​ Significant Other ​ ​ ​ ​ ​ Identical Assets ​ Observable Inputs (In thousands) ​ Total Fair Value ​ (Level 1) ​ (Level 2) Commercial paper ​ $ 13,808 ​ $ — ​ $ 13,808 Corporate securities ​ ​ 244,534 ​ ​ — ​ ​ 244,534 Money market funds ​ 371 ​ 371 ​ — U.S. government securities ​ ​ 1,000 ​ ​ — ​ ​ 1,000 Total ​ $ 259,713 ​ $ 371 ​ $ 259,342 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurement at ​ ​ December 31, 2023 ​ ​ ​ ​ ​ Quoted Prices in ​ ​ ​ ​ ​ ​ ​ ​ Active Markets for ​ Significant Other ​ ​ ​ ​ ​ Identical Assets ​ Observable Inputs (In thousands) ​ Total Fair Value ​ (Level 1) ​ (Level 2) Commercial paper ​ $ 20,275 ​ $ — ​ $ 20,275 Corporate securities ​ ​ 246,922 ​ ​ — ​ ​ 246,922 Money market funds ​ 491 ​ 491 ​ — Total ​ $ 267,688 ​ $ 491 ​ $ 267,197 ​ The Company did not transfer any investments between Level 1 and Level 2 of the fair-value hierarchy in the nine months ended September 30, 2024 and the twelve months ended December 31, 2023. 5. MARKETABLE SECURITIES: Amortized cost and estimated fair market value of marketable securities classified as available-for-sale (excluding cash equivalents) at September 30, 2024, were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortized ​ Gross Unrealized ​ Estimated Fair (In thousands) Cost Gains Losses Market Value Investments due in 3 months or less: ​ ​ ​ ​ Commercial paper ​ $ 748 ​ $ — ​ $ — ​ $ 748 Total ​ 748 ​ — ​ — ​ 748 Investments due in 4-12 months: ​ ​ ​ ​ Corporate securities ​ ​ 92,943 ​ ​ 269 ​ ​ ( 26 ) ​ ​ 93,186 Total ​ 92,943 ​ 269 ​ ( 26 ) ​ 93,186 Investments due in 12 months or greater: ​ ​ ​ ​ Corporate securities ​ 148,720 ​ 2,634 ​ ( 6 ) ​ 151,348 Total ​ ​ 148,720 ​ 2,634 ​ ​ ( 6 ) ​ 151,348 Total marketable securities ​ $ 242,411 ​ $ 2,903 ​ $ ( 32 ) ​ $ 245,282 ​ Accrued interest receivable was $ 2.6 million at September 30, 2024 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) ​ Amortized cost and estimated fair market value of marketable securities classified as available-for-sale (excluding cash equivalents) at December 31, 2023, were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortized ​ Gross Unrealized ​ Estimated Fair (In thousands) Cost Gains Losses Market Value Investments due in 3 months or less: ​ ​ ​ ​ Corporate securities ​ $ 10,688 ​ $ — ​ $ ( 42 ) ​ $ 10,646 Total ​ 10,688 ​ — ​ ( 42 ) ​ 10,646 Investments due in 4-12 months: ​ ​ ​ ​ Commercial paper ​ ​ 718 ​ ​ — ​ ​ — ​ ​ 718 Corporate securities ​ 48,680 ​ 15 ​ ( 347 ) ​ 48,348 Total ​ 49,398 ​ 15 ​ ( 347 ) ​ 49,066 Investments due in 12 months or greater: ​ ​ ​ ​ Corporate securities ​ ​ 187,298 ​ 952 ​ ( 322 ) ​ 187,928 Total ​ 187,298 ​ 952 ​ ( 322 ) ​ 187,928 Total marketable securities ​ $ 247,384 ​ $ 967 ​ $ ( 711 ) ​ $ 247,640 ​ Accrued interest receivable was $ 2.3 million at December 31, 2023 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 September 30, 2024: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Less Than 12 Months ​ 12 Months or Longer ​ Total ​ Estimated Gross Estimated Gross Estimated Gross ​ ​ Fair Market ​ Unrealized ​ Fair Market ​ Unrealized ​ Fair Market ​ Unrealized (In thousands) ​ Value ​ Losses ​ Value ​ Losses ​ Value ​ Losses Corporate securities ​ $ 10,790 ​ $ ( 9 ) ​ $ 13,222 ​ $ ( 23 ) ​ $ 24,012 ​ $ ( 32 ) Total marketable securities ​ $ 10,790 ​ $ ( 9 ) ​ $ 13,222 ​ $ ( 23 ) ​ $ 24,012 ​ $ ( 32 ) ​ In the three and nine months ended September 30, 2024 and 2023, 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. GOODWILL AND INTANGIBLE ASSETS: Changes in the carrying amount of goodwill during the nine months ended September 30, 2024 are as follows: ​ ​ ​ ​ (in thousands) ​ Goodwill Balance at December 31, 2023 ​ $ 91,849 Goodwill acquired during the period ​ ​ 3,422 Ending balance at September 30, 2024 ​ $ 95,271 ​ The $ 3.4 million of goodwill acquired during the nine months ended September 30, 2024 resulted from the purchase of the assets of Odyssey Semiconductor Technologies (“Odyssey”) see Note 15, Acquisition , for further details. Intangible Assets Intangible assets consist primarily of developed technology, in-process research and development, acquired licenses and domain name and are reported net of accumulated amortization. In July 2024, the Company acquired the 13 Table of Contents POWER INTEGRATIONS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) ​ assets of Odyssey, a U.S. company and developer of vertical gallium-nitride (“GaN”) transistor technology, resulting in the addition of in-process research and development of $ 4.9 million. Amortization of the in-process research and development will commence once development is completed and products are available for sale; the Company does not expect the amortization of its in-process research and development to begin in 2024. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2024 ​ December 31, 2023 ​ ​ ​ Accumulated ​ ​ ​ ​ Accumulated ​ ​ (In thousands) ​ Gross ​ Amortization ​ Net ​ Gross ​ Amortization ​ Net Domain name ​ $ 1,261 ​ $ — ​ $ 1,261 ​ $ 1,261 ​ $ — ​ $ 1,261 In-process research and development ​ 4,930 ​ — ​ 4,930 ​ — ​ — ​ — Developed technology ​ 37,960 ​ ( 36,346 ) ​ 1,614 ​ 37,960 ​ ( 35,459 ) ​ 2,501 Technology licenses ​ 1,926 ​ ( 1,448 ) ​ 478 ​ 1,926 ​ ( 1,264 ) ​ 662 Total intangible assets ​ $ 46,077 ​ $ ( 37,794 ) ​ $ 8,283 ​ $ 41,147 ​ $ ( 36,723 ) ​ $ 4,424 ​ ​ The estimated future amortization expense related to finite-lived intangible assets at September 30, 2024, is as follows: ​ ​ ​ ​ ​ Estimated ​ ​ Amortization Fiscal Year ​ (In thousands) 2024 (remaining three months) ​ $ 208 2025 ​ 832 2026 ​ 687 2027 ​ 365 Total* ​ $ 2,092 * Total excludes $ 4.9 million of in-process research and development which will be amortized upon completion of development over the estimated useful life of the technology. ​ 7. STOCK-BASED COMPENSATION: The following table summarizes the stock-based compensation expense recognized in accordance with ASC 718-10 for the three and nine months ended September 30, 2024 and 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, (In thousands) 2024 2023 2024 2023 Cost of revenues ​ $ 496 ​ $ 446 ​ $ 1,549 ​ $ 1,193 Research and development ​ 2,997 ​ 2,895 ​ 9,307 ​ 7,992 Sales and marketing ​ 1,876 ​ 1,787 ​ 5,990 ​ 5,061 General and administrative ​ 2,969 ​ 1,777 ​ 8,941 ​ 6,779 Total stock-based compensation expense ​ $ 8,338 ​ $ 6,905 ​ $ 25,787 ​ $ 21,025 ​ Stock-based compensation expense in the three months ended September 30, 2024, was approximately $ 8.3 million, comprising approximately $ 6.6 million related to restricted stock unit (“RSU”) awards, $ 1.3 million related to performance-based (“PSU”) awards and long-term performance-based (“PRSU”) awards and $ 0.4 million related to the Company’s employee stock purchase plan. Stock-based compensation expense in the nine months ended September 30, 2024, was approximately $ 25.8 million, comprising approximately $ 19.0 million related to RSUs, $ 5.6 million related to PSUs and PRSUs and $ 1.2 million related to the Company’s employee stock purchase plan. 14 Table of Contents POWER INTEGRATIONS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) ​ Stock-based compensation expense in the three months ended September 30, 2023, was approximately $ 6.9 million, comprising approximately $ 6.1 million related to RSUs, $ 0.3 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 nine months ended September 30, 2023, was approximately $ 21.0 million, comprising approximately $ 17.3 million related to RSUs, $ 2.3 million related to PSUs and PRSUs and $ 1.4 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 2024, it was determined that approximately 38,000 shares subject to the PSUs granted in 2023 vested in aggregate; the shares were released to the Company’s employees and executives in the first quarter of 2024. A summary of PSUs outstanding as of September 30, 2024 and activity during the nine months ended, is presented below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-Average ​ ​ ​ ​ ​ ​ ​ Weighted-Average ​ Remaining ​ Aggregate ​ ​ Shares ​ Grant Date Fair ​ Contractual Term ​ Intrinsic Value ​ (In thousands) Value Per Share (In years) (In thousands) Outstanding at January 1, 2024 38 ​ $ 82.95 ​ ​ ​ Granted 185 ​ $ 69.97 ​ ​ Vested ( 38 ) ​ $ 82.94 ​ Forfeited ( 12 ) ​ $ 70.16 ​ Outstanding at September 30, 2024 173 ​ $ 69.96 0.25 ​ $ 11,121 Outstanding and expected to vest at September 30, 2024 75 ​ ​ ​ 0.25 ​ $ 4,828 ​ 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 2022, 2023 and 2024 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”) and 2024 (“2024 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 and 2024 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 2024, it was determined that no shares subject to the PRSUs granted in 2021 vested and no shares were released to the Company’s executives. 15 Table of Contents POWER INTEGRATIONS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) ​ A summary of PRSUs outstanding as of September 30, 2024 and activity during the nine months ended, is presented below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-Average ​ Aggregate ​ ​ ​ ​ Weighted-Average ​ Remaining ​ Intrinsic ​ ​ Shares ​ Grant Date Fair ​ Contractual Term ​ Value ​ (In thousands) Value Per Share (In years) (In thousands) Outstanding at January 1, 2024 256 ​ $ 80.08 ​ ​ ​ Granted 186 ​ $ 68.30 ​ Vested — ​ ​ — ​ Forfeited ( 21 ) ​ $ 75.24 ​ Outstanding at September 30, 2024 421 ​ $ 75.11 1.42 ​ $ 26,982 Outstanding and expected to vest at September 30, 2024 177 ​ ​ ​ ​ 2.25 ​ $ 11,375 ​ RSU Awards A summary of RSUs outstanding as of September 30, 2024 and activity during the nine months ended, is presented below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-Average ​ Aggregate ​ ​ ​ ​ Weighted-Average ​ Remaining ​ Intrinsic ​ ​ Shares ​ Grant Date Fair ​ Contractual Term ​ Value ​ (In thousands) Value Per Share (In years) (In thousands) Outstanding at January 1, 2024 981 ​ $ 70.27 ​ ​ ​ ​ ​ Granted 424 ​ $ 67.34 ​ ​ ​ ​ Vested ( 344 ) ​ $ 63.42 ​ ​ ​ ​ Forfeited ( 73 ) ​ $ 73.15 ​ ​ ​ ​ Outstanding at September 30, 2024 988 ​ $ 71.18 ​ 1.64 ​ $ 63,360 Outstanding and expected to vest at September 30, 2024 917 ​ ​ ​ 1.56 ​ $ 58,824 ​ ​ ​ ​ 8. 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 78 % of net revenues for both the three and nine months ended September 30, 2024, and 83 % and 81 % in the corresponding periods of 2023. 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 $ 80.5 million and 16 Table of Contents POWER INTEGRATIONS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) ​ $ 220.4 million in the three and nine months ended September 30, 2024, respectively, and $ 93.2 million and $ 238.7 million in the corresponding periods of 2023. Direct sales to OEMs and power-supply manufacturers accounted for the remainder. The following customers represented 10% or more of the Company’s net revenues for the respective periods: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended Nine Months Ended ​ ​ September 30, ​ September 30, Customer ​ 2024 ​ 2023 ​ 2024 ​ 2023 Avnet 31 % ​ 28 % 30 % ​ 26 % Honestar Technologies Co., Ltd. ​ 10 % ​ 23 % ​ 11 % ​ 17 % Salcomp Group ​ * ​ ​ * ​ ​ * ​ ​ 11 % ​ * Total customer revenue was less than 10% of net revenues. No other customers accounted for 10% or more of the Company’s net revenues in the periods presented. Concentration of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash investments and trade receivables. The Company does not have any off-balance-sheet credit exposure related to its customers. As of September 30, 2024 and December 31, 2023, 84 % and 86 % of accounts receivable were concentrated with the Company’s top ten customers. The following customers represented 10% or more of accounts receivable at September 30, 2024 and December 31, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ December 31, Customer 2024 ​ 2023 Avnet ​ 33 % ​ 39 % Salcomp Group ​ 12 % ​ 10 % Flextronics Group ​ 10 % ​ * ​ Honestar Technologies Co., Ltd. ​ * ​ ​ 20 % * Total customer accounts receivable was less than 10% of accounts receivable. No other customers accounted for 10% or more of the Company’s accounts receivable in the periods presented. Geographic Net Revenues The Company markets its products globally through its sales personnel and a worldwide network of independent sales representatives and distributors. Geographic net revenues by region and country with 5% or more of the Company’s revenue during any of the periods presented, based on “bill to” customer locations were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, (In thousands) 2024 2023 2024 2023 Americas: ​ $ 5,507 ​ $ 5,557 ​ $ 15,793 ​ $ 17,643 EMEA: ​ ​ ​ ​ ​ ​ ​ ​ Germany ​ ​ 5,321 ​ 5,741 ​ 16,269 ​ 19,290 Other EMEA ​ 6,190 ​ 8,498 ​ 18,450 ​ 20,912 APAC: ​ ​ ​ ​ ​ ​ ​ ​ Hong Kong/China ​ 65,425 ​ 79,735 ​ 178,229 ​ 215,829 India ​ 8,571 ​ 9,697 ​ 20,351 ​ 27,738 Korea ​ ​ 9,762 ​ ​ 4,308 ​ ​ 28,215 ​ ​ 17,425 Taiwan ​ ​ 7,471 ​ ​ 4,949 ​ ​ 17,523 ​ ​ 11,453 Other APAC ​ 7,590 ​ 7,026 ​ 18,893 ​ 24,741 Total net revenues ​ $ 115,837 ​ $ 125,511 ​ $ 313,723 ​ $ 355,031 ​ ​ ​ ​ 17 Table of Contents POWER INTEGRATIONS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) ​ 9. STOCKHOLDERS’ EQUITY: Common Stock Shares Outstanding ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, (In thousands) 2024 2023 2024 2023 Beginning balance ​ ​ 56,778 ​ ​ 57,351 ​ ​ 56,738 ​ ​ 56,961 Common stock issued under employee stock plans ​ 62 ​ 59 ​ 473 ​ 529 Repurchased ​ — ​ ( 24 ) ​ ( 371 ) ​ ( 104 ) Ending balance ​ ​ 56,840 ​ ​ 57,386 ​ ​ 56,840 ​ ​ 57,386 ​ Common Stock Repurchases As of December 31, 2023, the Company had $ 26.0 million remaining under its authorized stock-repurchase program. The Company exhausted this authorization in the nine months ended September 30, 2024, purchasing approximately 371,000 shares of the Company’s common stock for $ 26.0 million. In October 2024, the Company’s board of directors authorized the use of $ 50.0 million for the repurchase of the Company’s common stock, with repurchases to be executed according to pre-defined price/volume guidelines. The program has no expiration date. Authorization of future repurchase programs is at the discretion of 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. Cash Dividends 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 with the declaration of five cash dividends of $ 0.20 per share to be paid at the end of the fourth quarter of 2023 (in lieu of the previously declared dividend of $ 0.19 per share) and at the end of each quarter in 2024 . In October 2024, the Company’s board of directors raised the quarterly cash dividend again with the declaration of five cash dividends of $ 0.21 per share to be paid at the end of the fourth quarter of 2024 (in lieu of the previously declared dividend of $ 0.20 per share) and at the end of each quarter in 2025 . For the three and nine months ended September 30, 2024 and 2023, cash dividends declared and paid were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, (In thousands, except per share amounts) 2024 2023 2024 2023 Dividends declared and paid ​ $ 11,364 ​ $ 10,904 ​ $ 34,100 ​ $ 32,665 Dividends declared per common share ​ $ 0.20 ​ $ 0.19 ​ $ 0.60 ​ $ 0.57 ​ ​ ​ 10. EARNINGS PER SHARE: Basic earnings per share are calculated by dividing net income by the weighted-average shares of common stock outstanding during the period. Diluted earnings per share are calculated by dividing net income by the weighted-average shares of common stock and dilutive common equivalent shares outstanding during the period. Dilutive common equivalent shares included in this calculation consist of dilutive shares issuable upon the assumed exercise of outstanding common stock options, the assumed vesting of outstanding restricted stock units, the assumed issuance of awards under the stock purchase plan and contingently issuable performance-based awards, as computed using the treasury stock method. 18 Table of Contents POWER INTEGRATIONS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) ​ A summary of the earnings per share calculation is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, (In thousands, except per share amounts) 2024 2023 2024 2023 Basic earnings per share: ​ ​ ​ ​ Net income ​ $ 14,291 ​ $ 19,796 ​ $ 23,094 ​ $ 41,464 Weighted-average common shares ​ 56,817 ​ 57,383 ​ 56,810 ​ 57,282 Basic earnings per share ​ $ 0.25 ​ $ 0.34 ​ $ 0.41 ​ $ 0.72 Diluted earnings per share: (1) ​ ​ ​ ​ Net income ​ $ 14,291 ​ $ 19,796 ​ $ 23,094 ​ $ 41,464 Weighted-average common shares ​ 56,817 ​ 57,383 ​ 56,810 ​ 57,282 Effect of dilutive awards: ​ ​ ​ ​ Employee stock plans ​ 187 ​ 358 ​ 296 ​ 429 Diluted weighted-average common shares ​ 57,004 ​ 57,741 ​ 57,106 ​ 57,711 Diluted earnings per share ​ $ 0.25 ​ $ 0.34 ​ $ 0.40 ​ $ 0.72 ​ (1) The Company includes the shares underlying performance-based awards in the calculation of diluted earnings per share if the performance conditions have been satisfied as of the end of the reporting period and excludes such shares when the necessary conditions have not been met. The Company has excluded the shares underlying the outstanding performance-based awards in the 2024 and 2023 calculations as the shares were not contingently issuable as of the end of the reporting periods. In the three and nine months ended September 30, 2024 and 2023, no outstanding stock awards were determined to be anti-dilutive and therefore excluded from the computation of diluted earnings per share. ​ 11. PROVISION FOR INCOME TAXES: Income-tax expense includes a provision for federal, state and foreign taxes based on the annual estimated effective tax rate applicable to the Company and its subsidiaries, adjusted for certain discrete items which are fully recognized in the period they occur. Accordingly, the interim effective tax rate may not be reflective of the annual estimated effective tax rate. The Company’s effective tax rate for the three and nine months ended September 30, 2024 was 0.3 % and 1.5 %, respectively, as compared to 5.1 % in both corresponding periods of 2023. 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, i n the nine months ended September 30, 2024, the Company’s effective tax rate was also favorably impacted by the recognition of excess tax benefits related to share-based payments and by discrete items associated with the release of unrecognized tax benefits. In the three and nine months ended September 30, 2023, the Company’s effective tax rate was favorably impacted by a discrete item associated with recognition of excess tax benefits related to share-based payments. In the nine months ended September 30, 2023, the Company’s effective tax rate was also favorably impacted by discrete items associated with the release of unrecognized tax benefits. These benefits were partially offset by U.S. tax on foreign income, known as global intangible low-taxed income. The 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, 2024, the Company maintained a valuation allowance on its California deferred tax assets, New Jersey deferred tax assets and a valuation allowance with respect to its deferred tax assets relating to tax credits in Canada. Determining the consolidated provision for income-tax expense, income-tax liabilities and deferred tax assets and liabilities involves judgment. The Company calculates and provides for income taxes in each of the tax jurisdictions in which it operates, which involves estimating current tax exposures as well as making judgments regarding the recoverability of deferred tax assets in each jurisdiction. The estimates used could differ from actual results, which may have a significant impact on operating results in future periods. ​ 19 Table of Contents POWER INTEGRATIONS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) ​ 12. COMMITMENTS: Supplier Agreements Under the terms of the Company’s wafer-supply agreements with Seiko Epson Corporation ("Epson") and ROHM Lapis Semiconductor Co., Ltd. ("Lapis"), the wafers purchased from these suppliers are priced in U.S. dollars, with mutual sharing of the impact of fluctuations in the exchange rate between the Japanese yen and the U.S. dollar on future purchases. Each year, the Company’s management and these two suppliers review and negotiate future pricing; the negotiated pricing is denominated in U.S. dollars but is subject to contractual exchange-rate provisions. The fluctuation in the exchange rate is shared equally between the Company and each of these suppliers on future purchases. ​ 13. LEGAL PROCEEDINGS AND CONTINGENCIES: From time to time in the ordinary course of business, the Company becomes involved in lawsuits, or customers and distributors may make claims against the Company. In accordance with ASC 450-10, Contingencies , the Company makes a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. On December 18, 2019, CogniPower LLC filed a complaint against a customer of the Company in the United States District Court for the District of Delaware for infringement of two patents; the Company thereafter intervened and sought a declaration of non-infringement with respect to use of the Company’s products. The case was then stayed until February 26, 2024, when the Delaware Court then set a schedule for the remainder of the case, with further proceedings in the coming months, and a trial scheduled in August 2025. 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. 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. On March 12, 2024 the Delaware Court dismissed the remaining case in view of a series of covenants not to sue that the Delaware defendants filed with the Court. The Company is unable to predict the outcome of legal proceedings with certainty, and there can be no assurance that the Company will prevail in the above-mentioned unsettled litigations. These litigations, whether or not determined in the Company’s favor or settled, will be costly and will divert the efforts and attention of the Company’s management and technical personnel from normal business operations, potentially causing a material adverse effect on the business, financial condition and operating results. Currently, the Company is not able to estimate a loss or a range of loss for the ongoing litigations disclosed above, however adverse determinations in litigation could result in monetary losses, the loss of proprietary rights, subject the Company to significant liabilities, require the Company to seek licenses from third parties or prevent the Company from licensing the technology, any of which could have a material adverse effect on the Company’s business, financial condition and operating results. 20 Table of Contents POWER INTEGRATIONS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) ​ 14. INDEMNIFICATIONS: The Company sells products to its distributors under contracts, collectively referred to as Distributor Sales Agreements (“DSA”). Each DSA contains the relevant terms of the contractual arrangement with the distributor, and generally includes certain provisions for indemnifying the distributor against losses, expenses, and liabilities from damages that may be awarded against the distributor in the event the Company’s products are found to infringe upon a patent, copyright, trademark, or other proprietary right of a third party (“Customer Indemnification”). The DSA generally limits the scope of and remedies for the Customer Indemnification obligations in a variety of industry-standard respects, including, but not limited to, limitations based on time and geography, and a right to replace an infringing product. The Company also, from time to time, has granted a specific indemnification right to individual customers. The Company believes its internal development processes and other policies and practices limit its exposure related to such indemnifications. In addition, the Company requires its employees to sign a proprietary information and inventions agreement, which assigns the rights to its employees’ development work to the Company. To date, the Company has not had to reimburse any of its distributors or customers for any losses related to these indemnifications and no material claims were outstanding as of September 30, 2024. For several reasons, including the lack of prior indemnification claims and the lack of a monetary liability limit for certain infringement cases, the Company cannot determine the maximum amount of potential future payments, if any, related to such indemnifications. 15. ACQUISITION: Odyssey Semiconductor Technologies On March 12, 2024, the Company agreed to acquire the assets of Odyssey, a U.S. company and a developer of vertical gallium-nitride (“GaN”) transistor technology. The transaction closed on July 1, 2024, at which time all key Odyssey employees joined the Company. P ursuant to the asset purchase agreement, Odyssey sold, transferred and assigned substantially all of its assets to the Company for $ 9.52 million in cash. The purchase is intended to augment the Company’s development of high-power GaN switching technology. The acquisition has been accounted for using the acquisition method of accounting in accordance with ASC 805 - Business Combinations. Under the acquisition method of accounting, the total purchase consideration of the acquisition is allocated to the tangible assets and identifiable intangible assets acquired based on their relative fair values. The excess of the purchase consideration over the net tangible and identifiable intangible assets is recorded as goodwill, the amount of which represents the expected benefits to the Company of future technology and the knowledgeable and experienced employees who joined the Company. Goodwill is expected to be deductible over 15 years for tax purposes. The following table summarizes the purchase price and estimated fair values of the assets acquired as of July 1, 2024, the completion of the Odyssey acquisition: ​ ​ ​ ​ (In thousands) ​ Total Amount Assets Acquired ​ ​ ​ Property and equipment, net ​ $ 1,168 In-process research and development ​ ​ 4,930 Goodwill ​ ​ 3,422 Total purchase price ​ $ 9,520 ​ The fair value of in-process research and development was determined based on the cost approach using the Company’s estimate of the costs that would be incurred if a market participant were to create the acquired technology from scratch. The Company considered the number of engineers required, salaries and related benefits, allocated overhead and the development time required to recreate the technology. The Company will record the in-process research and development as an intangible asset with an indefinite life until completion or abandonment of the associated research and development efforts, and will begin amortizing the value over the estimated life of the technology upon completion of development. Consistent with the treatment of other intangible assets with indefinite lives, the Company will test the in-process research and development for impairment on an annual basis or when impairment indicators are present. 21 Table of Contents POWER INTEGRATIONS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) ​ Pro forma results of operations for this acquisition have not been presented because they are not material to the Company’s consolidated financial statements. ​ ​ 22 Table of Contents ​