Power Integrations, Inc.

Thank you for standing by. We do apologize for the delay in starting today. My name is Christina and I will be your conference operator. At this time, I would like to welcome everyone to the Power Integrations Q3 earnings conference call. All lines have been placed on mute to prevent any background noise. And 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 star followed by the number one on your telephone keypad. If you would like to withdraw your question again, press star one. Thank you. I would now like to turn the floor over to Joe Schiffler, Director of Investor Relations. Joe, you may begin your conference.

Thank you. Good afternoon, everyone. Thanks for joining us. With me on the call today are Balu Balakrishnan, Chairman and CEO of Power Integrations, and Sandeep Nair, our Chief Financial Officer. During the call, we will refer to financial measures not calculated according to GAAP, Non-GAAP measures for the third quarter exclude stock-based compensation expenses, amortization of acquisition-related intangible assets, and the tax effects of these items. A reconciliation of non-GAAP measures to our GAAP results is included in today's press release. Our discussion today, including the Q&A session, will include forward-looking statements denoted by words like will, would, believe, should, expect, outlook, vision, view, 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 most recent form, 10-K, filed with the SEC on February 7, 2023. Finally, this call is the property of power integrations, and any recording or rebroadcast is expressly prohibited without the written consent of power integrations. Now I'll turn it over to Balu.

Thank you, Joe, and good afternoon. Third quarter revenues were up 2% from the prior quarter, but came in at the low end of our guidance range at $125 million. And for the fourth quarter, we expect a sequential decrease to $90 million at the midpoint of the range. Our results and the outlook largely reflect the broad-based weakness cited by many of our peers this earnings season. In the industrial category, we are seeing strength in renewable energy thanks to recent design wins, but the broader industrial market has weakened, as several of our peers have noted. The appliance market, which now accounts for about a quarter of our revenues, has been affected by the slowdown in home sales and the residual effects of the pandemic when many appliance purchases were pulled forward. We also had an unexpected cancellation late in the quarter affecting both third quarter revenues and fourth quarter backlog in the computer and communications categories. We believe this reflects efforts on part of an OEM to reduce charger and component inventories. Notwithstanding the short-term outlook, we continue to see strong design activity and design wins that position us well for the eventual upturn in demand, and we feel as good as ever about our long-term growth prospects. We are on track to double our addressable market by 2027, driven by electric vehicles, motor drive, renewable energy, expanding dollar content, and a host of upcoming products featuring our proprietary GaN technology. We are full speed ahead on GaN development, more confident than ever that GaN will not only overtake silicon as a technology of choice for most high voltage applications, but will also be a more cost-effective and greener alternative to silicon carbide over the long term. Most GaN suppliers rely on the technology of a single foundry, leaving little room for differentiation and affording them no control over technology roadmap. Our GaN is proprietary, which means that we not only control the roadmap, but also that we can tailor our GaN switch for optimal system performance in each application. Our GaN technology is also unique with characteristics that make it better suited for higher voltages than any other technology in the market today. In March, we introduced a 900-volt version of our GaN InnoSwitch products. And last week, we took the next step on the roadmap with our latest InnoSwitch featuring a 1,250-volt GaN switch. Higher voltage inner switch ICs are ideal for many industrial applications and for geographies with unstable mains voltages, as well as power supplies in 400-volt electric vehicles. These higher voltage GAN technologies will also enable us to expand our SAM with new products that address higher power applications up to 10 kilowatts, such as EV onboard chargers and DC-to-DC converters and a range of industrial applications. Many of these applications are served today by silicon carbide because there is no viable alternative that delivers the necessary level of efficiency. However, we have products in our pipeline that will offer system level GAN solution at a much higher level of performance than silicon carbide. GAN is fundamentally more cost effective than silicon carbide because it uses lower cost raw materials and requires a tiny fraction of the energy needed to produce silicon carbide, which is processed at extremely high temperatures. That also makes GaN a more sustainable technology than silicon carbide, which squanders a portion of the efficiency benefits in its own manufacture. Our GaN roadmap does not end at 1250 volts. We expect to introduce even higher voltage GaN in the near future, and our vision includes potential to drive GaN beyond 10 kilowatts, making it a viable replacement for silicon carbide in a wider range of applications. While pushing GaN beyond 10 kilowatts is a longer-term proposition, our current GaN products are making significant gains in power supplies. We won more than a dozen smartphone and notebook designs in Q3, including a 100-watt inbox design for a top notebook OEM, which uses our HyperPFS5 power factor chip in tandem with InnoSwitch, both incorporating GaN switches. We want an even greater number of GaN designs in non-mobile applications, including a multi-million dollar design for a new platform at a top European appliance OEM, as well as designs in home automation, lighting, audio, and industrial controls. GaN also features prominently in our roadmap for motor drive products, and will enable us to more than double the addressable market for our Bridge Switch products. Meanwhile, current Bridge Switch products, which incorporate our proprietary silicon thread-fed technology, continue to win designs despite strong headwinds in the appliance market. In addition to exceptional efficiency in active mode, Bridge Switch offers very low standby consumption, which is attracting strong interest from appliance customers in light of upcoming changes in the European EcoDesign standards. As we mentioned last quarter, the allowable standby consumption for a wide range of electronic products will be reduced beginning in 2025, and we expect the new standards to be especially impactful in the appliance market. The low standby performance of BridgeSwitch perfectly complements our EcoSmart technology, which has helped us win a dominant share in the appliance auxiliary power supplies. In September, we introduced our latest EcoSmart product, LinkSwitch XT2SR, which offers no-load consumption of less than 5 milliwatts. In Q3, we won a design at a top European customer for chipsets combining LinkSwitch XT2SR and BridgeSwitch in a refrigerator compressor scheduled to begin production in the middle of 2024. At a higher level, customer interest in our products has never been stronger. On last quarter's call, we said that we had added more potential revenue to our design pipeline than any quarter in our history. And we beat that record again in the third quarter. This reflects the broader range of applications we are addressing and our rising dollar content as evidenced by the fact that our average selling price has increased by almost 70% over the past six years. And we are well positioned for growth once demand returns, thanks to recent design wins, including a Q3 design win that will give us a significant role in India's 5G fixed wireless rollout, which is expected to ramp over the next several years. Finally, we demonstrated the superior efficiency and ruggedness of GaN InnoSwitch ICs last month in the Bridgestone World Solar Challenge, where we co-sponsored a team of engineering students in a race across the Australian Outback in a solar-powered car. With the help of our applications team, Razors implemented a DC-to-DC converter that achieved almost 96% efficiency at full power and a 50% improvement in light load efficiency compared to an earlier solution. greatly reducing the car's energy use. I'm happy to report that of the nearly 30 entrants in the race, Pauvi's sponsored team was one of only 12 to complete the seven-day, 300-kilometer journey. To conclude, in spite of the tough demand environment, our long-term outlook is unchanged, and we are focused on what we control, sticking to the playbook we have followed in every downturn. We are keeping inventory elevated to retain foundry capacity and to be ready for the strong upturn, knowing that we will be among the first to see the turn when it comes. We are managing expenses prudently, but investing in the products and technologies that will drive our long-term growth, such as GAN, automotive, motor drive, and our next-generation gate drivers. And we are buying back our stock when it's down, and growing our dividend knowing that we will continue to generate strong cash flow as revenues recover. With that, I will turn it over to Sandeep for a review of the financials.