Power Integrations, Inc.

We stand by. We're about to begin. Good afternoon, ladies and gentlemen. Welcome to the Power Integrations Q2 2024 earnings conference call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing star 1 on your telephone keypad, and you may withdraw yourself from the queue by pressing star 2. Also, today's call is being recorded, and if you should need any assistance during the call today, please press star zero. And now at this time, I would like to turn things over to Mr. Joe Schiffler, Director of Investor Relations. Please go ahead, sir.

Thank you, Beau. 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 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. 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, forecast, estimate, anticipate, 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 are discussed in today's press release and in our most recent Form 10-K, filed with the SEC on February 12, 2024. 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. As expected, Q2 marked the beginning of our recovery, with revenues up 16% sequentially and another increase expected in the third quarter. Like many of our peers, our near-term outlook reflects limited visibility and challenging macro conditions. Customers are behaving cautiously, and our short lead times enable customers to order products only when needed. All these factors make the slope of recovery highly uncertain. Nevertheless, inventory-related headwinds have lessened considerably, clearing the way for a rebound off the bottom. We consider seven to eight weeks a desirable range for channel inventory, and while pockets of excess remain at few distributors, we ended June at 7.8 weeks overall. That's down a week from the prior quarter and well below the peak of 13.6 weeks in Q3 of 2022. The recovery is being led by our consumer category, where revenues are up 70% over the past two quarters after falling all the way back to 2009 levels in Q4 of last year. Just as the supply chain had bulked up on inventory after the shortages of the prior year, demand for appliances fell sharply due to a confluence of factors, including the collapse of China real estate, and more broadly, higher interest rates, slower home sales, and the hangover from the accelerated purchases during the COVID times. The resulting correction had an outsized impact on power integrations with about a third of our revenue coming from the appliance market in 2022. As often happens, the supply chain overcorrected, drawing inventories down to unsustainable levels and then replenishing throughout the first half of the year. Looking ahead, appliance demand remains soft and we expect seasonally lower air conditioning sales in the September quarter. However, we have continued to win market share and grow our dollar content in appliances through the downturn, and we look forward to the fundamental strength of our consumer business coming back to the forefront now that cyclical factors are no longer dominant. Power integrations is number one in the world in appliance power supplies thanks to our reliability and energy efficiency benefits of our products. As the market leader, we have the inside track on incremental content from the additional features such as connectivity, displays, and LED lighting, even as designers work to meet tighter efficiency standards such as new EU limits on standby power supply. These conflicting design challenges are driving greater adoption of higher performance, higher value products, such as our GaN-based InnoSwitch and InnoMux 2 products and our Bridge Switch motor drive ICs. In June, we introduced Bridge Switch 2, raising our addressable power range for BLDC motors to one horsepower. The expanded power range encompasses applications such as washing machine drums, heat pumps for clothes dryers, and kitchen mixers and blenders, and double our addressable market for motor drive over $1 billion. BitSwitch 2 is the most efficient BLDC driver solution available with standby consumption of less than 10 milliwatts and inverter efficiency up to 99%, which eliminates the need for heat sinks. We have received our first purchase orders for BitSwitch 2 in recent weeks, including two from air conditioning customers in China and another for a dishwasher pump at a major European appliance OEM. We also continue to win new programs with the first-generation bridge switch, with recent wins including a range hood fan for the India market. We are equally excited about the market perception for INOMUX2, which we introduced in March. INOMUX2 is a new architecture for products with multiple DC outputs eliminating the need for separate DC-to-DC conversion stages by providing up to three independently regulated DC outputs. This not only simplifies the design, but also increases the efficiency by eliminating the compounded losses over multiple conversion stages. Inomux2 also incorporates our proprietary PowerVGAN switches, further boosting efficiency. Our first high-volume design began production earlier this quarter in a 24-inch monitor for a top-tier PC OEM, and we have a range of designs in progress across the computing, TV, and appliance markets. We also won a wide range of designs in Q2 with our GaN InnoSwitch and HyperPFS products, including multi-port USB PD chargers ranging from 65 to 140 watts at brands like Anker, Ugreen, and G-Power. OEM notebook design wins and India's 5G fixed wireless rollout should also contribute meaningful revenues next year. Overall, we expect 2025 to be an inflection point in the growth of GaN, reflecting the continued migration of our product portfolio from silicon to GaN as well as broader customer awareness and adoption across all end markets. This includes a notable uptick in opportunities for GAN products at industrial customers, reflecting greater awareness of GAN in general and our highly integrated products in particular. Because of the relatively low volumes over which their engineering costs are spread, industrial customers value ease of design and are less inclined to devote resources to solving the challenges of discrete GAN solutions. We strip away the complexity from the customer's perspective by incorporating POVI GAN switches into our system-level products so the customer doesn't have to invest the time learning about GAN to take advantage of its superior performance. Our 900 and 1,250-volt GAN InnoSwitch products are especially well-suited for industrial applications, such as utility meters, which are directly connected to the grid, and highly exposed to surges and spikes, especially in markets like India, where the grid voltages fluctuate widely. We have a leading position in India, metering market, and we are encouraged by the level of interest in higher voltage GaN products as India proceeds with its plan to deploy 250 million new meters over the next several years. Automotive customers also value the ease of use, reliability, efficiency, and space savings of our products, including our higher voltage GAN ICs. We expect to be in production with about 20 electric vehicle OEMs by the end of this year, and at least 10 more slated to begin production next year. We are adding dozens of design opportunities to our funnel every quarter, with a range of applications including emergency power supplies, 12-volt battery replacement, micro-DC-to-DC converters, and compressors for battery and cabin cooling. We believe automotive will be a billion-dollar addressable market in the years ahead, with the potential to go much higher as we develop high-current GaN technology to address higher power levels. On July 1st, we closed our acquisition of the assets of Odyssey semiconductor, adding expertise in vertical GaN technology, which supports much higher current than today's lateral devices. The acquisition also includes a clean room to enable quick turnaround of wafers and significantly shorten overall development time. While success is not guaranteed, we believe we can achieve the necessary breakthroughs to make high-power GaN a reality in the next three to five years, and ultimately to introduce GaN products that compete with silicon carbide in high-power applications such as EV drivetrain inverters. We are excited to have the Odyssey team on board to support those efforts. With that, I'll turn it over to Sandeep for a review of the financials.