Power Integrations, Inc.

Good afternoon. My name is Kathy and I will be your conference operator today. At this time, I would like to welcome everyone to the Power Integration's first quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star followed by the number one on your telephone keypad. If you'd like to withdraw your question, press the star one again. Thank you. And, Joe Schiffer, you may begin your conference.

Thanks, Kathy. Good afternoon, everyone. Thanks for joining us. With me on the call today are Balu Balakrishnan, President and CEO of Power Integrations, and Sandeep Nair, our Chief Financial Officer. During this call, we will refer to financial measures not calculated according to GAAP. Non-GAAP measures exclude stock-based compensation expenses, amortization of acquisition-related intangible assets, and the tax effects of these items. The reconciliation of non-GAAP measures to our GAAP results is included in our press release. Our discussion today, including the Q&A, will include forward-looking statements denoted by words like will, would, believe, should, expect, outlook, forecast, anticipate, prospects, and similar expressions that look toward future events or performance. Such statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected or implied. Such risks and uncertainties are discussed in today's press release and in our Form 10-K, filed with the SEC on February 7, 2022. This calls the property of power integrations, and any recording or rebroadcast is expressly prohibited without the written consent of power integrations. And one additional note before I turn it over to Balu. We plan to host an investor day on September 8th in New York. More details will be coming soon, but please do save the date. Again, that's September 8th in New York. Now I'll turn the call over to Balu.

Thanks, Joe, and good afternoon. 2022 is off to a great start for power integration with another quarter of record sales, strong earnings growth, and healthy cash flow. Our growth continues to be fueled by share gains and rising dollar content across a broad range of applications, including appliances, advanced chargers for smartphones and notebooks, and a diverse set of industrial applications, including utility meters, battery-powered tools, and home automation. New growth vectors like our highly integrated GaN ICs and our bridge switch motor drive products will make significant contributions to our top line this year, and we are making good progress on our automotive initiative, a key piece of our roadmap to doubling our addressable market over the next five years. While market share gains are mainly attributable to the strength of our product portfolio and the impact of secular trends like energy efficiency and advanced charging, we also continue to capitalize on industry-wide supply challenges in multiple ways. First, competing products require far more external components than our ICs. Integration has always been the core of our value proposition, bringing reliability, ease of use, and time to market. In today's supply environment, integration has the added benefit of eliminating components that are difficult or more expensive to obtain. Second, our ability to deliver parts in a timely fashion has enabled us to win against competitors that have struggled to deliver or chosen to allocate capacity to other applications. Our superior delivery performance is enabled by our unique foundry models, recent capacity additions, and our efforts to shift to true demand. We have even sustained our delivery performance despite disruptions at some foundry locations following recent earthquakes in Japan, thanks to our strong inventory position and our practice of sourcing most products from multiple locations. Our operations team has also successfully navigated a variety of logistical challenges arising from China's lockdowns. Our ability to supply parts has been especially impactful in the appliance market where we have expanded our share of AC to DC power supplies and our entry into motor drives has been aided by the scarcity of incumbent solutions like integrated power modules. Last year's new efficiency standards for air conditioning in China are providing an additional tailwind for our motor drive products, as is a new incentive program in India designed to accelerate the transition to brushless DC motors in ceiling fans. We expect our bit switch ICs to be in mass production this year with at least 10 customers, and we have a strong pipeline of designs that will enable us to grow this revenue stream in 2023 and beyond. Another important growth vector is our proprietary GaN technology, which is tightly integrated into our power conversion ICs and utilized in complementary products like MiniCap and ClampZero, which reduce the size of input capacitors and transformers, the bulkiest components in the power supply. We were the clear market leader in high-voltage GaN products last year, and Q1 was another strong quarter in terms of shipments and design wins. Wins included multiple designs for notebook PCs and several multipurpose aftermarket and OEM-branded chargers, including a dual-port USB PD charger for a major cell phone and notebook OEMs. We also want a range of industrial and appliance designs demonstrating the expanding use cases for GaN beyond mobile devices. We expect GaN to replace silicon across a broad range of power supply markets in years ahead. And the technology features prominently in our roadmap as we look to double our addressable market over the next five years. Our newest GaN product is HYPR-PFS5, the fifth generation of our highly integrated power factor correction ICs, and the industry's first power factor IC to incorporate a GaN switch. Power factor correction, or PFC, is required in most power supplies above 75 watts and is implemented as a separate stage of power supply prior to the main power conversion stage. Thanks to efficiency of our GaN switches, HyperPSS-5 implements PFC without a heat sink in applications up to 240 watts, including game consoles, e-bikes, power tools, and high-power adapters for PCs and mobile devices. The new IC can be paired with any of our AC to DC ICs for the power conversion stage, including GAN-based InnoSwitch 4 ICs or the new HYPER-LCS2 for the more efficient resonant mode conversion needed at higher power levels. Introduced last month alongside the new power factor chip, HYPER-LCS2 illustrates an important difference between power integrations and competitors offering a single technology in the form of discrete transistors. CI is the only company focused on complete system solutions for the power conversion market, and we have developed a portfolio of switch and controller technologies, system topologies, isolated communication techniques, and proprietary IC packages, all designed to work together to enable customers to build the world's best power converters. As we develop products for different segments of the market, we can integrate these elements in whatever combination works best. For example, we designed our Hyper-LCS2 product with a proprietary cost-effective silicon switch, known as Threadset, to achieve the optimum balance of efficiency and cost in resonant topologies. This follows our recent introduction of a 1700-volt version of our InnoSwitch products incorporating a silicon carbide transistor making it ideal for EV power supplies in 800 volt systems. We now offer InnoSwitch products with silicon, GaN, and silicon carbide options giving customers a level of flexibility that no one else can provide. The ability to mix and match technologies in this way is unique to power integrations and provides us a significant competitive advantage. A couple of final notes before I turn it over to Sandeep. First, we recently published our 2021 sustainability data, including our estimated energy savings generated by our EcoSmart technology, which drastically reduces energy consumption from electronic products in standby or idle mode. This includes products like appliances, computers, and TVs, when they are not in use, or adapters less plugged into the wall outlet after charging a device. This technology has been included in all of our power conversion ICs since 1998, and we have shipped more than 18 billion ICs with EcoSmart technology over that time. This proprietary technology saves power without any effort on the part of the end user, and it helps our customers meet a broad range of regulatory requirements around the world. Last year alone, we estimate that EcoSmart technologies save roughly 15 terawatt hours of electricity, enough to power almost 2 million homes for the entire year. And this is just one way our products contribute to a lower carbon future. Our GaN technology offers a dramatic increase in active mode efficiency over silicon mosfets, and our gate drivers are widely used in carbon-saving applications like solar and wind power, high voltage DC transmission lines, and electric locomotives. We also have a huge opportunity ahead of us in EV drivetrains, and we'll hit another milestone in that effort next month when we introduce a new line of gate drivers specifically targeting the EV market. Finally, I'd like to acknowledge an important figure in the history of our company, Steve Sharp, who will step down from our board of directors at our annual meeting next month. Steve is a co-founder of Power Integrations, and we would not be here today had he not recognized the potential of the innovative process technology that served as the foundation of the company. In fact, Steve was such a believer in the technology that he left his venture capital role to help start the company, serving as an interim CEO in his earliest days. Steve figured prominently in the glory days of the Silicon Valley semiconductor industry, helping start several other prominent chip companies, including Triquent, where he served as a CEO for more than a decade. We thank Steve for his enormous contributions to our company and to our industry, and we wish him the best as he retires from the board.