Power Integrations, Inc.

Good day, everyone, and welcome to today's Power Integrations third quarter earnings call. At this time, all participants are in a listen-only mode. Later, you will have an opportunity to ask questions during the question-and-answer session. You may register to ask a question at any time by pressing the star and 1 on your telephone keypad. Please note this call is being recorded, and I will be standing by should you need any assistance. It is now my pleasure to turn today's program over to Joe Schiffler, Director of Investor Relations.

Thank you, Brittany. 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. Now I'll turn the call over to Balu.

Balu Patel Thanks, Joe, and good afternoon. Our third quarter results were on target with revenues up 9 percent sequentially to $116 million non-GAAP gross margin of 55.1%, and non-GAAP earnings of $0.40 per share. Our revenue outlook for the fourth quarter is $105 million plus or minus $5 million. The decrease from Q3 reflects a soft demand environment called out this quarter by many of our analog peers and by some of our key customers in the appliance market. Appliances account for the bulk of our consumer category, which comprises nearly 40% of our sales. Further tempering the outlook in consumer is a buildup of appliance inventory at Chinese OEMs ahead of the China government's long-awaited consumer stimulus program, which thus far appears to be having a limited impact. Overall, while the recovery is proceeding in fits and starts, we are pleased to be returning to year-over-year growth with the midpoint of our Q4 forecast up 17% compared to last year. We also expect to remain at the high end of our gross margin model through at least next year, thanks to the dollar-yen exchange rate and a favorable end market mix. While all four of our end markets should grow in 2025, we expect the strongest growth from industrials which has the highest margin of our four categories. We expect growth in multiple sub-segments of industrial, led by high power with particular strength in high-voltage DC transmission projects. Long-distance DC transmission lines deliver renewable energy efficiently to the grid and are also a key part of efforts to modernize power infrastructure to enhance energy security and meet the increasing power needs of AI data centers. In Q3, we won high-voltage DC designs with expected annual revenue value of more than $5 million, including our second multimillion-dollar design win for Tenet, a major North European grid operator. We also expect to begin delivery of our scale-to-gate drivers in early 2025 for two other major projects, phase one of Saudi Arabia's planned nine gigawatt link between Yanbu and Neom, and an undersea link connecting Japanese islands of Honshu and Hokkaido. Metering is another growth driver in the industrial category, most notably in India, where our metering business is on track to double this year as the government continues with its planned installation of 250 million smart meters over the next few years. We have earned a sizable share of that market and expect dollar content to increase over time as customers migrate to our 900 and 1,250-volt GaN products to achieve higher efficiency and reliability. While still early in its revenue ramp, automotive will contribute to our industrial revenues in 2025, leading up to an inflection in 2026. Building on our early success in China, With drivetrain emergency power supplies, we are expanding both geographically and in the range of sockets we are winning as EVs evolve to a distributed architecture, requiring multiple converters to power subsystems from the main battery instead of a 12-volt battery. We achieved an important milestone in September, becoming an approved vendor at the world's largest Tier 1 automotive supplier. On the heels of our recent qualification at a major Japanese Tier 1. We've also had key developments at two American EV customers in recent weeks. Pre-production began last week on a micro-DC-DC converter socket using our silicon carbide inner switch, while another customer awarded us an emergency power supply socket using the 900-volt GaN inner switch with production scheduled to begin in 2026. In our consumer category, notwithstanding the soft demand environment, our position in appliances remains strong, and we are leveraging our market leadership to capture incremental dollar content driven by connectivity, LED lighting, brushless DC motors, and other features being added to appliances. We're also seeing strong design activity related to new EU standby rules set to take effect next year. We are capitalizing on these opportunities with bridge switch motor drive ICs and GaN products, including InnoMux2, which enables much higher efficiency in appliances, displays, and industrial applications through the use of zero-voltage switching and the elimination of multiple DC-to-DC converters at the output. Earlier this week, we introduced a new version of InnoMux2, featuring the industry's first 1,700-volt GaN switch, marking another milestone on the technology roadmap we presented at our Investors Day in 2022. We developed our proprietary GaN process and device designs with five key attributes in mind, cost, reliability, ease of use, voltage, and power. and we are executing to plan on each of them. We concluded early on that even with its superior performance, our GAN had to be cost competitive with silicon to achieve mass adoption. Over the past six years, we have executed on an aggressive cost reduction roadmap that has our GAN on the verge of parity with the most advanced silicon MOSFETs, but with far superior performance. Reservations about reliability and ease of use are the top concerns we hear from automotive and AI data center customers that have struggled to use discrete GAN devices. We designed PowerVGAN to be inherently more reliable than other GAN technologies, and we now have over a trillion hours of field operation to prove it. Our GaN is also easy to use because of the system-level approach that has defined our product strategy for the past 30 years. Not only are discrete power devices eventually commoditized, they are also harder to use, and this is especially true of GaN because of its extreme high switching speed. All the GaN switches are incorporated in system-level products with our innovative controllers and drivers that provide comprehensive protection and optimize the performance of the switch, eliminating the trickiest aspects of designing with GaN. Engineers familiar with our silicon-based products can use GaN versions of the same products seamlessly, taking advantage of GaN's superior performance with no added design effort. In fact, this strategy has worked so well with our InnoSwitch products that we are now refreshing some high volume legacy products with GaN to enhance performance and extend the power ranges of products that our customers love to use. We also have a pipeline of new system level GaN products targeting higher power applications we don't address today, including AI data center, EV onboard chargers, telecom infrastructure, and more. These products will help us reach our goal of expanding our SAM to an estimated $8 million over the next few years. In terms of voltage, while the leading foundry technology is limited to 750 volts, our unique process and device technologies offer a clear path to higher voltages. Following our announcement earlier this week, we now have GaN devices at 750 volts, 900 volts, 1250, and 1700 volts, with more to come. Many industrial customers prefer higher voltage ratings for three-phase applications and as an insurance against surges and spikes, especially in areas with unstable AC grid voltages. In the EV market, a 1700 volt rating is essential for flyback power supplies in 800 and 1000 volt battery systems, which today can only be addressed by silicon carbide. The final track of our GaN roadmap is power, and we are approaching that from multiple directions. The output capability of our current technology continues to increase and is now in tens of kilowatts. We are also developing an all-new GaN technology capable of delivering hundreds of kilowatts, which we believe would make GaN an alternative to silicon carbide in drivetrain inverters at much lower cost and with superior performance. While the necessary breakthroughs are still a few years away, we are excited about our progress and our acquisition of Odyssey last quarter will help accelerate our development. While the full deceptive potential of GAN will unfold over many years to come, we expect wider GAN adoption to be a significant growth driver in 2025, when GAN products should account for more than 10% of sales. Recent wins include major next-generation game console, now ramping with GaN InnoSwitch ICs, a 65-watt notebook adapter for VIO, and a 140-watt multiport adapter for ASUS containing GaN InnoSwitch and HyperPFS power factor ICs. We are also seeing existing designs migrate to GaN, such as our 5G fixed wireless design in India. That program ramped this year with silicon-based products, but should generate incremental growth next year as customers add GAN to the mix, mainly to reduce the size of the power supply. To conclude, though our outlook reflects industry-wide demand softness, we expect strong year-over-year growth in Q4, while 2024 revenues will be down from the prior year due to the losses we suffered in the China cell phone market early this year. Combined sales into industrial consumer and computer categories will be up mid to high teens for 2024. We expect that momentum to carry into 2025, sustained by strong growth in GAN products and high power, a broad range of new design wins, and a return to growth in communications driven by non-cell phone applications. And now I'll turn it over to Sandeep for a review of the financials.