Power Integrations, Inc. Stock

Hello, everyone. Thank you for joining us, and welcome to Power Integrations' Q2 earnings. [Operator Instructions] I will now hand the conference over to Joe Shiffler, Senior Director of Investor Relations. Joe, please go ahead.

Thanks, Ben. Good afternoon. Thanks, everyone, for joining us. With me on the call today are Jen Lloyd, our CEO; and our CFO, Nancy Erba. After Jen and Nancy's prepared remarks, we'll open it up for questions. Slides accompanying today's earnings release and conference call can be found on our investor website at investors.power.com.

Our discussion today will include forward-looking statements denoted by words like will, expect, should, outlook, forecast and similar expressions that look toward future events or performance. Such statements are subject to risks that may cause actual results to differ from those projected or implied. Such risks are discussed in today's press release, in our most recent annual report on Form 10-K and in subsequent quarterly reports on Form 10-Q.

During this call, we will refer to financial measures not calculated according to GAAP. Non-GAAP income statement measures exclude stock-based compensation expenses, amortization of acquisition-related intangible assets, accrual for a judgment in a legal matter, a restructuring charge recognized in the first quarter of 2026, and the tax effects of these items. A reconciliation of non-GAAP measures to our GAAP results is included in today's press release and in the accompanying slides.

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 Jen.

Thank you, Joe, and thanks, everyone, for joining us. I'm excited to share more about our strong Q2 results, progress on our strategic objectives and new wins in our growth markets. We reported Q2 revenue of $119 million, up 10% from the prior quarter with sequential improvement in all 4 end market categories. Non-GAAP operating margin expanded by more than 5 percentage points to 17.1%, and we generated $22 million in operating cash flow. It was a strong quarter, and Nancy will cover more of the details in a few minutes.

These results demonstrate our ability to deliver profitable growth in the near-term as we pivot our long term focus toward markets like energy infrastructure, rail, data center, and automotive. These markets are characterized by rising voltage and power levels along with high uptime requirements, creating a need for high-voltage solutions which maximize efficiency, power density, reliability, and safety. Our technology and system expertise add the greatest value in these markets, and we are orienting our investments and our organization around these long-term opportunities.

Our commitment to innovation and investment in high-voltage GaN took another step forward today with the demonstration of our 2,200-volt PowiGaN technology. This milestone extends PowiGaN into application spaces traditionally served by silicon carbide while reinforcing Power Integrations' leadership in high-voltage GaN. Unlike conventional GaN on silicon, which faces practical voltage limitations, PowiGaN continues to scale to higher voltages while preserving the efficiency and power density advantages of GaN.

Another advantage of PowiGaN versus GaN on silicon is reliability. Because PowiGaN is a platform technology, our new 2,200-volt technology uses the same proven architecture as prior voltage nodes at 750, 900, 1,250, and 1,700 volts. That means customers can expect the same reliable performance that we've demonstrated over 8 years in the market. PowiGaN offers a long-term pathway for data center customers, giving them confidence that they can incorporate GaN today without fear of being boxed in and forced to change technologies on next-gen designs.

With 1,500-volt architectures already in view, customers can adopt GaN knowing that the technology road map extends well beyond current requirements. Rather than relying on complex stacked device approaches, future high-voltage systems can leverage a single technology platform that combines high reliability, high switching frequency, and exceptional power density. We're excited to demonstrate 2,200-volt GaN and share our road map for even higher voltage nodes to come.

Today, we have a broad range of ongoing customer engagements addressing 800-volt data centers. Recent discussions with hyperscalers confirm that power continues to be a major challenge for them, and we're excited about the opportunities for Power Integrations technology to be a key part of the solution. The biggest component of our projected $1 billion data center SAM is the main power path to the GPU, and we are working closely with customers to define and develop solutions using our unique 1,250-volt GaN, which offers a high-density alternative to stacked 650-volt designs.

The second track in our data center engagements is auxiliary power, where we see an expanding range of opportunities in and around the data center rack, including switch trays, power sidecars and other high-voltage sockets. We have a healthy roster of design-ins and a strong pipeline of ongoing design activity with our 1,700-volt products for 800-volt data centers.

In June, we published 2 reference designs targeting NVIDIA 800-volt racks with our 1,700-volt InnoMux products. These aux supplies will sit on the compute tray in a native 800-volt system, powering components such as MCUs, gate drivers, and op-amps, delivering space savings of about 30% compared to discrete silicon carbide designs.

Higher voltages are an important trend, not just in the context of data centers, but across the entire power ecosystem that will support AI infrastructure as well as electric vehicles and the modernization of power grids around the world. This evolving landscape includes renewable energy, high-voltage DC transmission, solid-state transformers, and battery storage. We address these applications today with our high-powered gate drivers, and our GaN road map will enable us to offer an even broader range of solutions for customers over time.

I'd like to say a few words specifically about battery storage systems, which are a critical part of modern power infrastructure with deployments expected to grow at a double-digit CAGR through 2035. Battery storage makes electrical systems more resilient, flexible, and efficient by storing energy and delivering it when needed to smooth fluctuations, balance supply and demand, or provide backup power.

Energy storage is becoming a foundational element of renewable energy systems, industrial power infrastructure, and power for AI data centers. Power conversion in large-scale battery systems is typically performed by high-voltage silicon-based switching modules paired with gate drivers like our SCALE-2 driver boards. However, rising power demands are driving a shift towards higher voltage architectures and greater adoption of silicon carbide.

While silicon carbide can deliver significant gains in efficiency and power density, it introduces new challenges requiring more advanced gate driver technology. This trend plays to our strengths. Our advanced gate drivers provide the precise switching performance required for silicon carbide systems, enabling our customers to confidently deploy the next generation of energy storage infrastructure.

We are currently shipping gate drivers into battery storage systems used alongside renewable energy installations, and we added an important new customer in Q2, winning a utility scale design at a top supplier of batteries for energy storage systems and EVs. We also have a number of customer engagements underway for battery storage, specifically targeting AI data centers, another element of our projected $1 billion data center SAM in 2030.

Having touched on some of our longer-term growth opportunities, I'll now comment on the appliance and low-power industrial markets, which will continue to be the main drivers of revenue and cash flow as we pivot towards higher power markets. We are calibrating our investments to maintain strong competitive positioning in these markets even as we allocate more R&D and go-to-market resources toward our longer-term priorities.

Recent product releases like TOPSwitch GaN and TinySwitch-5 are emblematic of this approach, building on existing IP, brand equity, and customer familiarity with proven architectures. TOPSwitch GaN now has a strong pipeline of designs underway as customers look to bring the efficiency and power density of GaN to appliances, power tools, and more.

TinySwitch-5 now has designs in production and should contribute meaningful revenue in the second half of '26, particularly at appliance customers where we've had a number of recent wins. Tiny 5's flexible operating frequency helped one of our top appliance customers meet a tight time-to-market schedule because they could reuse an existing transformer design. In addition, its excellent cross-regulation performance easily enabled separate outputs for the main motor, control panel, and MCU, all while meeting a stringent standby power spec.

Driven largely by Tiny 5 and TOP GaN, our pipeline of appliance designs is healthy, keeping us in position to benefit when demand improves in the appliance market. Our industrial revenue is up 16% year-to-date, driven by broad-based growth across high and low power applications, including renewable energy, home and building automation, tools, and metering. We have a strong ongoing design activity in each of these areas, supported by a healthy demand environment.

Automotive revenue, which is included in our industrial category, is on track to double this year and ramp up in the years ahead as we leverage our strong position in emergency power supplies and drive further GaN penetration in EVs. Much like data centers, EV power architectures are evolving in ways that create greater need for advanced high-voltage technology.

Our GaN road map aligns with rising main battery voltages, while our highly integrated products are ideal for micro DC-to-DC converters. These power supplies represent the next layer of automotive content for Power Integrations as EV architectures move towards distributed high-voltage power conversion and away from low-voltage batteries for powering subsystems.

In Q2, we won a design at a major Tier 1 supplier for a GaN-based micro DC-to-DC converter scheduled for production next year. This win represents another important endorsement of PowiGaN in the auto market, where other high-voltage GaN offerings have struggled to break through, but customers are increasingly impressed by the documented reliability performance of our GaN.

In closing, our Q2 results demonstrate solid progress on our near-term priorities as we continue to invest for long term growth in data center, energy infrastructure, automotive, and high-power industrial.

We're excited about the direction the market is heading. The way the world generates, distributes, stores, and uses electrical energy is changing in ways that will demand more advanced high-voltage semiconductor technology. Power Integrations is a pure-play high-voltage company with differentiated technology and a road map increasingly well aligned with the long-term needs of the market. Our team is intently focused on converting those advantages into sustainable growth and shareholder value.

Now I'll turn it over to Nancy, for a review of the financial highlights.

Thanks, Jen, and good afternoon, everyone. Our Q2 results marked another quarter of execution against our financial priorities for 2026: driving revenue growth, focusing investment in our highest priority markets, expanding operating margin, and generating cash flow while reducing inventory in the channel and on our balance sheet. Revenue was $118.9 million in Q2, up 3% from a year-ago and 10% sequentially. Our Industrial business had another strong quarter with 14% growth led by home and building automation, power tools, and broad-based industrial applications.

For the first half of 2026, industrial revenue grew 16% year-over-year, following the 15% growth we reported for 2025, demonstrating sustained momentum in our largest end markets. Consumer revenue was up 5% over the prior quarter with seasonal strength in air conditioning, offsetting continued softness in major appliances. The communications and computer categories grew sequentially by 16% and 5%, respectively, coming off seasonal lows in Q1. Non-GAAP gross margin was 55.1% for the quarter, up 160 basis points sequentially and slightly above the high end of our outlook. This increase reflects better mix with industrial rising to 43% of sales as well as higher volume and a favorable impact from the yen-dollar exchange rate.

As a reminder, there is currently about a 1-year lag between fluctuations in the yen and the resulting impact on our P&L. The exchange rate was volatile through last year, causing some ripples in our gross margin as we move through 2026. In Q3, the yen flips back to being a slight headwind, followed by another modest benefit in Q4, based on what we see today. Non-GAAP operating expenses in Q2 were $45.2 million, down slightly from the prior quarter and below our outlook range, which had a midpoint of $47 million.

We continue to align expenses more closely with revenue through the restructuring we completed in Q1 and a broader set of efficiency and spending discipline initiatives. At the same time, we are protecting investments in our strategic growth markets, including data center, industrial, energy, automotive, and rail. Reflecting the combined effects of revenue growth, higher gross margin, and focused investments, non-GAAP operating margin for the second quarter was 17.1%, up 540 basis points from the prior quarter. Non-GAAP net income was $20.9 million or $0.37 per diluted share, up from $0.25 in the prior quarter.

Turning to the balance sheet and cash flow. Cash flow from operations was $22 million for the quarter, while CapEx was $4 million, resulting in free cash flow of $18 million. Receivables increased by $12 million during the quarter, reflecting higher revenue, while inventory decreased by $5 million. Days on hand fell by 27 days to 265 days at quarter end. We do expect a further reduction in inventory days in the second half. Channel inventory also declined during the quarter with weeks on hand improvement of more than 1.5 weeks to 7.3 weeks. As a reminder, we believe that channel inventory between 7 and 8 weeks is an appropriate target, and we're pleased to be back in that range.

I'll now review the third quarter outlook. We expect revenue to be between $122 million and $130 million, a 6% sequential increase at the midpoint. We expect consumer to be lower, reflecting normal seasonality, while revenue from the communications, computer, and industrial categories should continue to grow. I expect non-GAAP gross margin to be in a range of 54% to 55%, still near the top end of our target range. Non-GAAP operating expenses for Q3 should be in the range of $45 million to $46 million. At the midpoint, that would be a slight increase from Q2, but meaningfully below the prior year.

On last quarter's call, we said we expected low single-digit growth in non-GAAP OpEx this year. We now believe we are on a course for a low single-digit decrease even as we continue to make the important and material investments in key long-term growth initiatives. Finally, I expect non-GAAP operating margin for the third quarter to be between 17% and 19% as compared to the 17.1% we reported for Q2. The first half of 2026 demonstrates the leverage we have in our business model when we deliver revenue growth and maintain discipline on expenses and capital allocation. We remain committed to these financial principles and the importance of bringing differentiated value to our customers while executing to our road map.

In closing, I want to thank our global team for their commitment to POWI, focus on our strategic priorities, and to driving shareholder value. And now Ben, we can open it up for questions.

Your first question comes from the line of David Williams with Needham & Co.

Congratulations on the continued success here. Maybe, Jen, if we can think about -- sorry, I was really excited about the 2,200-volt GaN that you released and talked about in the script there. I'm just wondering if you could give us some color around that of when you expect maybe that could be in the market. Obviously, you've sampled that and shown it. But when do you think that could start producing revenue? And is it part of potential designs now that you can start talking about? Or are we still maybe a few more quarters out before you can start talking about design wins and potentials there?

Yes. Thank you, David, for that question. And I'm glad that you're excited about it. We're pretty excited about it also. Really, right now, we're looking at a time frame that's probably a bit further out. Right now, it's really just a technology demonstration. It's not a product -- we haven't launched any products on that platform. But we are seeing customers across data center, auto, and other markets that want to see that road map.

In the data center specifically, those products would be on the 1,500-volt road map. And that's obviously much further out in time. You're talking about several years before we would have products. So no, it's not probably the next couple of quarters. It would be the next couple of years before we see anything meaningful there.

Great. And then maybe just on the channel inventory, you talked about that coming down and being healthy. Just kind of curious what you're seeing in terms of order velocity and maybe speak to if you feel like you're shifting to consumption now? And what are the opportunities for maybe some channel fill now that we're back kind of in this normal range, but it feels like the demand is starting to pick up some.

I think you characterized it well. If I look at where we started the year with channel inventory above 9, we knew that there had been some buildup last year that seems to have worked its way through. So I'm pleased to see that level coming down both in Q1 and then again in Q2. I do think we're at much healthier levels right now. The devil is always in the detail, and we measure every channel partner and what they're holding, what they have by product type, as you can imagine, and where it is regionally. And right now, we feel good about the health of the inventory that's in the channel. And I do agree, I think in that 7 to 8, around 8 weeks, is a healthy level.

The first half demand has been compelling, right? We're pleased with how the first half has played out. We expect to continue to see growth in Q3, as I referenced. We expect that to be in 3 of the categories that we sell into in terms of growth rates, as I mentioned in my prepared remarks. And so I would expect some level of sell-in in Q3, but still aiming to stay in that healthy range around 8 weeks.

Your next question comes from the line of Tore Svanberg with Stifel.

Yes. So for my first question, Jen, obviously, there's some new products, design and so on and so forth. Could you just maybe update us on the time line, especially for data center and automotive? I think in the past, you've talked about maybe data center becoming more material in '28. I'm wondering if that's still on track. And then on the auto side, you sound a little bit more positive on this call over the revenues doubling this year. Just curious what the expectation would be for '27.

Okay, sure. Let me take the automotive first. So yes, we're -- we feel we're on track on automotive. So we've been talking about a $100 million target out in the '29, '30 time frame, and we still believe that that's attainable. Of course, how that progresses is dependent on the market conditions in EV, but we're excited about this next step of BOM expansion from where we entered that market with the emergency power supply designs and now we're seeing some of our first micro DC-to-DC converter designs. That's a significant step in the BOM expansion. So we think that's going well.

On the data center side, really, there's kind of 2 tracks to our engagement there. We've been very heavily focused on winning aux power designs. Those are applications that we can address with products that we have today. So that looks like could be revenue in 2028.

Then on maybe the second track of our engagement on data center is around the main power path to the GPU. And that is a further out in time that will -- that and actually some of the aux will be dependent on when the 800-volt systems deploy. But the engagement on the main power path is still earlier. It's still an opportunity that requires work with our customers since it is a unique technology that we're rolling out, and there are a number of things to be worked through. So that's still evolving, but that's a little further out in time.

That's great color. And as my follow-up, I do recognize the 2,200-volt GaN is obviously even further out. But I'm just curious what that means for potential 800-volt designs because I would think that as customers look for 800 volt, they obviously want to see the path to 1,500 volt. And with your 2,200-volt technology now available, I'm just curious if that potentially puts you in a better position as you try and garner some design wins for 800 volt.

I think so, Tore. What we just keep hearing is the criticality of power across -- it's not just data center, it's across lots of industries. It's super compelling. And our customers are saying and citing that power is really one of their key risk areas to solve. And having that road map and being -- having a track record of innovation in high voltage, we really think this is helping us and is giving us the opportunity to really partner with our customers with our road map to solve those challenges, not just today at 800 volts, but as things evolve.

Your next question comes from the line of Christopher Rolland with Susquehanna.

Congrats on the quarter. My first question is around supply. You guys kind of have a nontraditional supply chain. And at least during the last cycle, you were able to serve some upside when others were not. I guess, can you talk about your capacity, ability to serve upside, and whether you think your competitors are running into supply issues, opening the door for you to pick up share?

I think we have had feedback recently actually from certain of our customers, one hyperscaler in particular that we met with this week, that actually framed a very similar comment that you just put forward. We do have a unique supply chain structure.

We do think that our ability to supply and our ability to still keep our lead times very competitive does provide us an opportunity, particularly as we look across the markets that we serve. But as we think about the relationships that are needed now in technology road map, which Jen just commented on, but also an ability to supply and supply consistently, we do think that does present us an opportunity where we may be able to take advantage of that as we go forward.

I want to also acknowledge, right, the ops team here at POWI because they work really hard to make that happen. It's not something that's easy, but we have structured processes and relationships with our partners that allow us to maintain that competitiveness and have products available for our customers when we need them. But I appreciate you raising it because it literally just came up with -- from one of the customers this week, and we do think that it provides us an opportunity, and we're going to do our best to execute to that.

Great. Additionally, one of your competitors is talking about using GaN. I think it's even 600-volt GaN in a back-to-back FET architecture to address SSTs. And just considering you have this new announcement on 2.2 kilovolts, might you or have you explored anything for SSTs? Additionally, what kind of new applications do you think 2.2 kilovolts opens up for you?

So on the SSTs, to date, our discussions have been mostly around the products we have today, which are gate driver products that can potentially address those applications for our customers. However, there is discussion about our GaN in those applications. In terms of new applications for 2,200 volt, where we're hearing our customers really is around data center and automotive applications, where we think that that technology could be useful. But I mean, we learn new things every day, and it would not surprise me at all if new applications open up. So I don't have any detailed comments today, but you'll hear more as that market evolves.

I think one thing that we are seeing, though, is the footprint that we already have today in terms of work with energy customers and our gate driver business today is giving us access to early looks at what may be designed, right? I mean, there's still so much work to be done in this space. But as Jen mentioned, power being so critical both to inside the data center, which people have been focusing on, but really now how do you get power to the data center. And that infrastructure opportunity is one that we think we're very well positioned to serve because we already have that footprint and are already selling into those markets. So we are actively engaged there and look forward to being able to share more as we learn more in terms of the direction that our customers are going.

There are no further questions at this time. I will now turn the call back to CEO, Jen Lloyd, for closing remarks.

All right. Thank you again for joining us today and for your continued interest in Power Integrations. I want to thank our employees around the world for their hard work, innovation, and commitment to execution as well as our customers, partners, and suppliers for their continued collaboration and support.

We are encouraged by the progress we've made this year, reflected in stronger financial performance, continued momentum across our industrial business, and meaningful advances in our strategic growth initiatives. As power systems evolve toward higher voltages, greater efficiency, and increased reliability, we believe our technology, expertise, and products position us well for the opportunities ahead. We remain focused on disciplined execution, technological leadership, and creating long term value for our shareholders.

We thank you for your support and look forward to updating you again next quarter.

Thanks, Jen, and thanks, everyone, for listening. There will be a replay of this call available shortly on our website, our investor website, which is investors.power.com. Thanks again for listening, and good afternoon.

This concludes today's call. Thank you for attending. You may now disconnect.

Hello, and welcome to the Annual Meeting of Stockholders of Power Integrations. Please note that today's meeting is being recorded. During the meeting, we'll have a question-and-answer session limited to the business before the meeting. You can submit such questions or comments at any time by clicking on the message Q&A tab.

It is now my pleasure to turn today's meeting over to Jennifer Lloyd, President and CEO of Power Integrations. The floor is all yours.

Good morning, ladies and gentlemen. Welcome to the 2026 Annual Meeting of Stockholders of Power Integrations. We are pleased that you could join us today. Your interest in Power Integrations is appreciated.

It is now 8:00 a.m. Pacific Time, and I call this meeting to order. As President and CEO, I will preside over the meeting as the Chairperson; and Andrew Hughes, our General Counsel and Corporate Secretary, will act as Secretary of this meeting.

Before we proceed to the business of the meeting, I would like to introduce some individuals who are important to Power Integrations and who are here today. Joining me today is Nancy Erba, our Chief Financial Officer. Present from our independent registered public accounting firm, Deloitte & Touche, is Tim De Kay.

I would also like to introduce the other Board members who are attending today's meeting. In alphabetical order, they are: Wendy Arienzo, Balu Balakrishnan, Anita Ganti, Nancy Gioia, Balakrishnan Iyer, Gregg Lowe and Ravi Vig. Balu and Nick Brathwaite are departing from the Board following the annual meeting, and we thank them for their dedicated and long-standing service to the Board.

Andrew, would you please report on the presence of a quorum?

Thank you, Jen. The record date for determining stockholders eligible to vote at this meeting was April 13, 2026. Copies of the notice of meeting and Power Integrations' proxy statement and form of proxy were mailed to stockholders on or about April 22, 2026. I have been provided with an affidavit of mailing by Computershare, which will be filed with the minutes of this meeting.

A list of Power Integrations' stockholders of record on the record date is available and subject to inspection by any stockholder during this meeting. As of the close of business on the record date, there were 55,703,980 shares of Power Integrations common stock outstanding and entitled to be voted at this meeting. The presence in person by remote communication or by proxy duly authorized of the holders of a majority of the voting power of the outstanding shares of stock entitled to vote at the meeting constitutes a quorum.

I have been advised by our proxy solicitor that a quorum is present at this meeting, pending final confirmation by the Inspector of Elections.

Thank you, Andrew. So that stockholders attending this meeting have sufficient time to vote, we are opening the polls. It is 8:03 a.m. Pacific Time on June 3, 2026, and the polls are now open. You can vote your shares by clicking on the appropriate link on the meeting website.

As a reminder, if you have previously submitted a proxy and do not wish to change your voting instructions, you do not need to vote at this meeting. Voting at this meeting will revoke your prior proxy. We will provide another reminder to vote your shares before we close the polls. You must submit your vote before the polls close for your vote to be counted.

Sylvia Morales of Computershare Trust Company has been appointed as the Inspector of Elections to supervise the vote at this meeting. The Inspector of Elections has taken the oath of office, which I direct to be filed with the minutes of this meeting.

There are 5 items of business to be voted on today. After I introduce the items of business, there will be an opportunity to ask questions about the proposals. These are the only questions that we will address, and there will not be a general question-and-answer session.

The first item of business at this meeting is the election of 7 directors to serve until Power Integrations' 2027 Annual Meeting of Stockholders or until their respective successors are duly elected and qualified. The nominees for election designated by the Board of Directors are: Wendy Arienzo, Anita Ganti, Nancy Gioia, Balakrishnan Iyer, Jennifer Lloyd, Gregg Lowe and Ravi Vig. The Board recommends a vote for each of its nominees.

The second item of business is the advisory vote to approve named executive officer compensation. The Board of Directors recommends a vote for this proposal.

The third item of business is to ratify the selection of Deloitte & Touche as our independent registered public accounting firm for the year ending December 31, 2026. The Board of Directors recommends a vote for this proposal.

The fourth item of business is to approve the amendment and restatement of the Power Integrations 2016 Incentive Award Plan to increase the number of shares reserved for issuance thereunder as further described in the proxy statement. The Board recommends a vote for this proposal.

The fifth item of business is to consider, if properly presented at this meeting, a stockholder proposal related to the separation of the office of Chairman of the Board and the office of Chief Executive Officer. The Board recommends a vote against this proposal.

Thank you, Jen. As noted, the fifth item of business is to consider, if properly presented at this meeting, a stockholder proposal related to the separation of the office of Chairman of the Board and the office of Chief Executive Officer. This proposal has been submitted by Mr. John Chevedden, a stockholder of Power Integrations. If Mr. Chevedden or his representative is present and wishes to present his proposal, he or his representative may do so at this time.

Mr. Chevedden, you may now proceed with your proposal. You have 3 minutes.

Hello. This is John Chevedden. Proposal 5, Independent Board Chairman. Shareholders request that the Board of Directors adopt an enduring policy and amend the governing documents in order that 2 separate people hold the office of the Chairman and the office of the CEO as soon as possible. The Chairman of the Board shall be an Independent Director. A Lead Director shall not be a substitute for an independent Board Chairman. The Board shall have the discretion to select an interim Chairman of the Board, who is not an independent director, to serve while the Board is required to seek an independent Chairman of the Board on an accelerated basis.

An independent Board Chairman at all times improves corporate governance by bringing impartiality, objective oversight and external expertise to Board decisions, mitigating conflicts of interest, enhancing transparency and boosting shareholder confidence. This detached perspective allows the Chairman to focus on shareholder interest, strengthen management accountability and provide critical checks and balances, ultimately contributing to long-term sustainability and profitability.

Now could be a good time for a change since Power Integrations stock was at $110 in 2021 and at only $84 now in spite of a robust stock market. This proposal received 45% support at the 2025 Power Integrations Annual Meeting without any special effort by the proponent. This 45% support represented more than 50% support from the shares that have access to independent proxy voting advice. Please vote for an independent Board Chairman, Proposal 5.

Also, it's unfortunate that Street name shareholders cannot submit questions to this Annual Shareholder Meeting.

Thank you. This proposal is duly placed before this meeting. For the reasons described in our proxy statement, our Board of Directors recommends a vote against the proposal submitted by Mr. Chevedden.

The polls are open for stockholders to vote. You can vote your shares by clicking on the appropriate link on the meeting website. As a reminder, if you have previously submitted a proxy and do not wish to change your voting instructions, you do not need to vote at this meeting. Voting at this meeting will revoke your prior proxy. You must submit your vote before the polls close for your vote to be counted.

We will now address any questions concerning the business before the meeting. Stockholders who have completed the registration process in advance of the meeting may submit questions by typing in the Ask a Question box and clicking the send button.

At this time, we've not received any relevant stockholder questions.

We will now pause to give stockholders a final opportunity to vote. The polls will close very shortly.

[Voting]

It is now 8:09 a.m. Pacific Time on June 3, 2026, and the polls are now closed. Based on the preliminary count, stockholders have elected all 7 of Power Integrations' nominees, approved on a nonbinding advisory basis, Power Integrations' named executive officer compensation, ratified the selection of Deloitte & Touche as Power Integrations' independent registered public accounting firm, approved the amended and restated Power Integrations 2016 Incentive Award Plan and did not approve the stockholder proposal related to the separation of the office of Chairman of the Board and the office of Chief Executive Officer.

We will announce final results as soon as they are available.

This concludes the formal portion of the meeting, and the meeting is now adjourned. We express our sincere appreciation to those stockholders who attended the meeting as well as to those who submitted their proxies but were unable to be present at the meeting. We are grateful for your interest in and support of Power Integrations.

This concludes the meeting. You may now disconnect.

Hello, everyone. Thank you for joining us, and welcome to the Power Integrations' Q1 Earnings Call. [Operator Instructions]

I will now hand the call over to Joe Shiffler, Senior Director of Investor Relations. Please go ahead.

Thanks, Alexandra. Good afternoon. Thanks, everyone, for joining us. With me on the call are Jen Lloyd, our CEO; and our CFO, Nancy Erba. After Jen and Nancy's prepared remarks, we'll open it up for questions.

Our discussion today will include forward-looking statements denoted by words like will, expect, should, outlook, forecast and similar expressions that look toward future events or performance. Such statements are subject to risks that may cause actual results to differ from those projected or implied. Such risks are discussed in today's press release, in our most recent annual report on Form 10-K and in subsequent quarterly reports on Form 10-Q, including the one being filed this afternoon with the SEC.

During this call, we will refer to financial measures not calculated according to GAAP. Non-GAAP income statement measures in the first quarter excludes stock-based compensation expenses, amortization of acquisition-related intangible assets, restructuring charges and the tax effects of these items.

A reconciliation of non-GAAP measures to our GAAP results is included in today's press release and in the accompanying slides, both of which can be found on our investor website at investors.power.com. 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 Jen.

Thanks, Joe, and thank you, everyone, for joining us today. I'm pleased with how we started the year with Q1 revenue of $108 million and non-GAAP earnings of $0.25 per diluted share. Industrial was the main driver of revenue growth again this quarter, up 23% year-over-year. Consumer revenue was down compared to the first quarter of 2025, which had been unusually strong due to tariff-related pull-ins in appliances. However, we saw a 17% sequential increase in Q1 as that inventory build appears to have cleared.

Looking ahead, while visibility is somewhat hampered by the ongoing macro uncertainty, we've seen an increase in order activity since our last earnings call, and we're forecasting seasonally higher revenue in the second quarter, along with higher gross margin. Just as importantly, we're making good progress on our strategic focus areas: customer centricity, streamlining our product pipeline for time to market and operational and organizational efficiency.

Firstly, we are improving alignment between our commercial and engineering teams to bring the customer's voice closer to our product development process. Reinforcing this customer commitment, earlier this week, we announced the addition of Mike Balow to our leadership team as SVP of Worldwide Sales. Mike is a veteran sales leader with deep experience in power, having led the sales organizations at onsemi, Infineon, and Cypress. I'm excited to have him on the team, and I'm confident that he will both strengthen our existing relationships and help us expand our customer reach in markets like data center and automotive.

Secondly, we're streamlining our product pipeline to accelerate time to market on the projects most tightly aligned with our target markets and long-term strategy. And finally, we are implementing organizational changes to drive operational effectiveness and redirect resources, both functionally and geographically, to the opportunities most critical to our long-term growth. Although it will take time for these changes to be reflected in our results, I'm encouraged by our progress. And over time, you will see product releases with quicker time to revenue based on earlier customer engagement and improved alignment between our products and customer needs.

For example, our new TinySwitch-5 is off to a strong start with a wide range of designs set to ramp in the second half of the year. And we also expect a nice ramp with TOPSwitchGaN, which we introduced at the APEC Show in March. The TinySwitch and TOPSwitch names are well known in the power supply industry with billions of units shipped and an embedded base of designers accustomed to using these proven architectures.

Even as we pivot towards the AI data center, industrial and automotive markets, we're refreshing these existing product families to sustain and grow core markets like appliances, where reliability and efficiency are highly valued and dollar content is rising along with the appliance power levels. The addition of a PowiGaN Switch more than doubles the power capability of the TOPSwitch architecture to 440 watts, so designers can now use this classic flyback topology for a wider range of designs than ever before.

The flyback topology offers a variety of benefits, including smaller board footprint, faster design cycles, high standby efficiency and lower component count. In fact, the flyback power supply can save up to 30% on both component count and BOM cost compared to the more complex topologies typically used above 200 watts. TOPGaN is already opening doors for us at new customers designing high-power chargers for industrial applications, drones and e-bikes where flybacks now have access to sockets that have historically been off limits.

We are also seeing strong engagements at appliance customers, many of whom have been using TOPSwitch for years and are excited to realize the efficiency benefits of GaN in their designs. In automotive, we're currently in production or in design engagements with 17 of the top 20 EV manufacturers, and we're on track to double our automotive revenue this year. In the first quarter, we won a new emergency power supply design with China's second largest EV OEM. And as mentioned on last quarter's call, we also began production in Q1 at a major German carmaker using a platform developed as part of its joint venture with a U.S. EV OEM.

As we continue to accumulate wins for inverter emergency power supplies, we are also expanding engagements with customers for next-gen EVs featuring micro DC to DC converters. These power supplies will bypass the 12-volt batteries used in today's EVs instead powering subsystems directly from the main high-voltage battery. We are also developing products for higher power sockets such as onboard charging using our 1,250-volt GaN technology.

As we expand our automotive product portfolio to address evolving EV architectures, we see addressable dollar content rising from single-digit dollars today to tens of dollars in the near term and approaching $100 per vehicle over the next several years. Our high-power business, which sits in the industrial category, continues to grow at a healthy pace, driven by a diverse set of verticals, including electric rail, renewables, oil and gas and power grid applications, including DC transmission and power quality. Key design wins in Q1 included a design for 6-megawatt wind turbines at a European customer and at STATCOM power conditioning design for an Indian customer.

Lastly, turning to everybody's favorite topic, data center. We continue to pursue multiple paths to growth with our unique PowiGaN technology. Our ongoing collaboration with NVIDIA includes a variety of sockets utilizing our 1,250 and 1,700-volt GaN technologies in the forthcoming 800-volt DC architectures. We continue to gain share in aux power supplies for today's data centers, winning 2 new designs in Q1 at Taiwan customers serving U.S. equipment makers. We also have ongoing customer engagements on upcoming higher-power GaN products for rack-level AC to DC conversion.

The data center rack is one of the most attractive opportunities in power semiconductors today. We believe our differentiated GaN technology gives us a significant competitive advantage and customers are looking to us as they develop long-term road maps calling for higher voltages and improving power density. But our opportunity in data center goes beyond the rack. The demands that data centers are placing on the power grid are just as important and challenging, and we are well positioned to respond with our high-power products.

Power grids are rapidly evolving to support the estimated 200 gigawatts of power needed for data centers by 2030. Renewable energy, including dedicated installations for data centers, is certain to become a bigger part of the energy mix accompanied by battery storage to ensure consistent availability. High-voltage transmission lines will deliver renewable energy to the grid or directly to the data center and solid-state transformers will convert power at the front end of the data center to be delivered to the rack.

The value of our gate driver product is proven in renewable energy, battery storage, and high-voltage transmission, which together accounted for about 40% of our high-power revenue in the first quarter. We have a strong offering for solid-state transformers as well with a differentiated driver solution for silicon carbide modules. We have a variety of data center-related customer engagements underway in high power, and we anticipate that opportunities related to the data center build-out will add hundreds of millions of dollars to our SAM for gate driver products in the years ahead. Altogether, we estimate that our data center SAM, including rack and grid applications, will exceed $1 billion by 2030.

In closing, the opportunities ahead of us grow more attractive by the day as markets demand more of the technology and system expertise that PI has developed over many years. We are a pure-play high-voltage company with foundational technologies like PowiGaN and SCALE gate drivers backed by deep system expertise, and we are building an organization capable of turning our foundational advantages into long-term value for our customers and shareholders.

Now I'll turn it over to Nancy for a review of the financial highlights.

Thanks, Jen, and good afternoon. Before I cover our results, I'd like to direct you to the supplemental information shared with our press release this afternoon. There, you will find many of the financial details we normally share in our prepared remarks in addition to a GAAP to non-GAAP reconciliation.

We had a very solid start to the year with Q1 delivering revenue growth with key financial metrics at or better than our outlook. We also improved our balance sheet as we generated $18 million of free cash flow and reduced inventory, both on the balance sheet and in the channel. Revenue was $108.3 million, up 3% from a year ago and 5% versus Q4 of last year.

Our Industrial business continues to perform well with sequential growth of 15% in Q1. The communications and computer categories were seasonally down, while consumer revenues were up 17% sequentially with the recovery in appliances.

Turning to gross margin. Non-GAAP gross margin was 53.5% for the quarter, right at the midpoint of our outlook range and up 20 basis points sequentially. While end market mix was favorable, we saw less benefit from the yen-dollar exchange rate in Q1 due to the stronger yen in the early part of 2025. As a reminder, there is currently about a 1-year lag between fluctuations in the yen and the resulting impact on our P&L.

Non-GAAP operating expenses were $45.3 million, coming in below our outlook range of $45.5 million to $46.5 million. This resulted in non-GAAP operating margin of 11.7%, up 200 basis points from the prior quarter. Expanding our operating margin is an important priority for us. We are tightly managing the investment decisions that drive our customer-focused technology development and product road map, addressing the highest growth markets.

During our Q1 restructuring activities, we evaluated our engineering resources across the organization and determined that in order to better drive the road map requirements of our customers, certain engineers previously accounted for in our marketing organization would be more fully dedicated to the development work and moved into R&D. These changes were effective at the time of the restructuring in early February and resulted in approximately $3 million of R&D expense in Q1 that would previously have been included in SG&A. All investments in SG&A are evaluated with the same rigor.

Continuing down the income statement, non-GAAP net income was $13.9 million or $0.25 per diluted share. Our GAAP results include $6.6 million of restructuring charges, primarily consisting of severance payments related to the restructuring activity we announced in February. $6.2 million was in GAAP OpEx with the remainder in cost of goods sold.

Turning to the balance sheet and cash flow. Cash flow from operations was $20 million for the quarter, while CapEx was $2 million. Our 2026 plan still calls for CapEx of 5% to 6% of revenue for the year. We are applying the same ROI-based discipline to capital decisions that we are to operating expenses and expect to see CapEx more heavily weighted to the second half of the year.

Inventory decreased by $4 million during the quarter, while days on hand fell by 21 days to 292 days at quarter end. Our target is to bring days on hand below 200. Channel inventory also declined during the quarter, falling by 0.5 week to 8.9 weeks and nearing our target of 8 weeks. I expect further improvement in both metrics throughout the year.

I'll now review the second quarter outlook. We expect revenue to be between $115 million and $120 million, which would be up 8.5% sequentially at the midpoint. Communications and computer should have the largest increases in percentage terms coming off the seasonal lows in Q1, with industrial also up sequentially. We expect a sub-seasonal quarter from consumer with positive air conditioning seasonality offsetting -- offset by the ongoing demand and headwinds in major appliances.

I expect non-GAAP gross margin to improve sequentially with a range of 54% to 55%. At the midpoint, that would be an improvement of 100 basis points from Q1, primarily due to manufacturing efficiencies and volume-related benefits of the higher revenue as well as the dollar-yen exchange rate.

Non-GAAP operating expenses will be sequentially higher in Q2 with a range of $47 million, plus or minus $0.5 million. The increase from Q1 mainly reflects annual merit increases, which took effect in April. I anticipate that OpEx in the second half will remain roughly flat with the Q2 run rate, putting us on track for low single-digit growth in 2026. Our intent is for OpEx to grow at a rate of less than half of revenue growth over time. Finally, I expect non-GAAP operating margin to be between 13.5% and 15.5%.

In closing, I'm encouraged by the demand we are experiencing in the first half of the year and that the markets we compete in appear largely healthy. We are excited by the opportunities in front of the company and focused on executing to the long-term growth drivers in data center, automotive and industrial. And importantly, we are continuing to stay agile, cognizant of the macro and geopolitical uncertainty we operate within, and we'll continue to manage the business accordingly.

After a full quarter in the CFO role, I'm confident in the direction we're heading as a company and our ability to achieve faster growth, improved profitability, and increased shareholder value. I'd like to thank the POWI team for their continued commitment to innovation, customer success and execution excellence and to our partners, customers and shareholders for their continued cooperation and support.

And now, Alexandra, let's open for Q&A.

[Operator Instructions] Your first question comes from the line of Christopher Rolland with Susquehanna.

I guess starting out, I guess, compute and comms has been disappointing for quite some time, but particularly in March. I know there's some seasonality there. I guess how are you thinking about these markets going forward? They are obviously kind of subscale, I think, probably at this point in time. Maybe you can talk about what your strategic plan is for these moving forward? Are you deemphasizing these markets? How should we think about them and maybe the mix of end markets moving forward for you guys?

Okay. Great. Thank you, Chris, for the question. So in terms of compute and comms in Q1, we do expect that to be seasonally a low quarter. So we're expecting those to be seasonally up in Q2. You're correct that they are 2 of the smaller of our market areas. So in terms of the strategic plan and are we deemphasizing, we're not deemphasizing those areas. We continue to look at those as there's opportunity there. I talked in the prepared remarks about the TopGaN and Tiny. I mean those are serving applications across the spectrum of our market segments. So we continue to nurture those areas. And when you look at those for the year, yes, they're not the biggest growth drivers, but they're also not the largest part of our business.

Great. And perhaps on your favorite and everyone's favorite topic, AI. You had some great detail on aux power and solid-state transformers, et cetera. But perhaps if you could talk about GaN and maybe even silicon opportunities, but mostly GaN, like how are engagements going on the main power? And as we think about the powertrain applications, are we talking about interest in power delivery boards or IBCs or power supplies? Where are you getting the most interest? And is there any -- are there any applications I left out that you might be engaged in for your GaN portfolio?

Yes. I mean thank you for asking the question about our favorite topic. I think it's going great. I do want to emphasize that the aux and the SST opportunities, those are the shorter-term opportunities for us. But we do have ongoing engagements for those as well as on the opportunities for GaN. And we are seeing there's a real pull for our high-voltage GaN technology for the high-voltage architectures, the 800-volt architecture in particular.

Our GaN works natively at 800, 1,200, 1,250, 1,700 and offers a simpler design. So even in our discussions with NVIDIA a couple of weeks ago, we are learning about additional sockets where our technology is a great fit. I think where there's the most interest across applications, we are engaging across the whole data center ecosystem. So hyperscalers, server OEMs, rack providers, power supply providers, and we're finding opportunities across all of those.

Your next question comes from the line of Ross Seymore with Deutsche Bank.

Thanks for letting me ask a couple questions. I guess my first one in the near term on the consumer segment, I know you split the kind of air conditioning versus the white goods side, but the appliance market doesn't sound so great to put it mildly if you listen to Whirlpool and others. So when you say that's subseasonal in the second quarter, what do you mean? Is it still going to be up? Or will it be down? And how do you think you guys address that market over time? If the market is weaker, do the inventory dynamics allow you to still grow? Or is that something that's going to be a challenge that's going to last a little bit longer?

So I'll take that one. Just as I said in my comments, all of the markets will be up, although on the consumer front, it will be very modestly up, so think flattish. And that is a balance, as we commented, between some of the pressure on appliances that you referenced, but also there are some offsets within our portfolio. So net-net, flat to slightly up.

Certainly, the other markets are growing faster in Q2 from the standpoint, both of dollar and percentage. And we're really pleased with the demand that we've seen thus far in the first half and the continued strength we're seeing in Q2. So net-net, a good first half, and we're off and running through the year.

Great. And I guess following up, I'll follow the same trend hit on the AI side. How do you envision the time to market for these different opportunities, whether it be the percentage of your business that you think it will represent this year, next year and the year after, if you want to talk about the aux and the SST side versus some of the bigger ones. How should we think about how those fold in just kind of timing-wise, not necessarily magnitude, even though I'll take that if you'll give it.

Yes. Thank you, Ross. I think the -- I mean, the aux, obviously, those are opportunities now, and we continue to see a sequencing of opportunities. There's continuous new designs, I think, in this space for aux and SST, and we continue -- we talked about a couple of those wins that we're seeing. I think for the high voltage, we know that, that's longer term for us, right? So that's not next year, that's in a couple of years basically.

So what is encouraging is that it's a continuous sequencing of wins. And so we're expecting that as those 800-volt systems come online, there's going to be the momentum we already have and then some continued momentum from the new systems, but it's a couple of years out.

And I think just to reiterate, Jen mentioned in her comments that we expect that to be at least $1 billion by 2030. We're continuing to size it. As new sockets become available to us and as conversations continue and we find new places where our technology can be a good fit, we continue to evaluate that and size it as we go quarter-to-quarter.

Your next question comes from the line of David Williams with Needham & Co.

I guess to continue on that data center topic there. You talked about it being maybe $1 billion in possible TAM for you all. How do you think about the GaN portion of that specifically? And maybe you can just kind of speak to that level of engagements you're having today. Clearly, you have one of the highest power capabilities in the market. I would presume that you're certainly leading those discussions. But just curious how that traction has been going there, specifically on the GaN and how you see that from a size perspective?

Thanks, David. And by the way, congrats on the move. Yes. So in terms of the GaN, I mean, we really do see a bulk of that being the GaN. I think it's a split between inside the data center and outside the data center. The outside the data center would be our gate driver product family. Inside the data center, where we really have the advantages is with GaN. So we see that as mostly GaN.

Great. And then it sounds like on the automotive side, you're making some really nice progress there as well. And I know in the past, the prior leadership had talked about this being a multiyear kind of a strategy. But I feel like maybe your strategy is helping drive penetration and you're certainly building product road maps towards your customers. And I guess maybe how do you think about automotive and how that is developing for you? And how should we think about that maybe revenues over the next 12 to 24 months from that auto segment?

Yes. I mean I think we are making good progress with that. We're winning designs. As you know, we've talked about winning designs in the inverter emergency power supply. That's not huge revenue, right? But we are seeing engagement with that. What we're looking at is expanding into other parts of the automobile and expanding our BOM content.

So it's been slow. I think the market has been slow. And so we've talked a little bit about a pushout. I think we've mentioned this in previous calls that, that revenue for us is going to push out. But as we build up additional sockets that will accelerate that growth. So we're -- we put a $100 million target out there for 2029, and we still feel like we're making good progress towards that.

[Operator Instructions] Your next question comes from the line of Tore Svanberg with Stifel.

Congrats on the progress. I guess my first question is on the restructuring and moving some people from marketing to engineering. I just want to understand that a little bit better, Jen, because I assume these are probably more technical sales or marketing people. And you did obviously talk about you want to improve the time to market by actually being closer to customers with the R&D. So yes, if you could just explain the changes, that would be great.

Sure, Tore. Thanks for the question. Yes, those are technical resources. And I'm going to let Nancy talk about it if that was it.

Yes, sure. So we talked about this in the last call, right? As part of the restructuring, we really are going line by line and evaluating our resources, how do we shift to be more customer focused. And as part of that, there were certain -- these are application engineers that were previously sitting in marketing. And when Chris Jacobs joined and is really emphasizing how do we get closer to the customer and bring that customer input in, we found that those resources really should be more prioritized and more focused towards the product development piece of their work. And so we, at the time of the restructuring, made that move. So it was effective February 1 with the rest of the restructuring activity, and we'll continue that forward.

The other piece of that is that as we think about where those resources are focused, which products they're focused on, making sure that we're prioritizing those dollars to the most important markets that we serve and to the products that are going to give us the highest ROI. So there's a lot of work behind the scenes that's happening to make sure that, that portfolio is really tightly aligned to what we're hearing from our customers and what we need to deliver to the market over the coming years.

Very good. And I want to follow up on the inventory topic, both internal and the channel, obviously, you're trying to get it down to 200 internally. You're trying to get it to 8 weeks in the channel. And obviously, demand is what's going to eventually get you there. But are you doing anything else proactively to perhaps get to those types of targets, I guess, especially on the channel side? And when could we potentially think about POWI being back to those types of numbers?

We're not doing anything unnatural in the channel. I mean the demand is good. The first half demand is -- we're very pleased to see it, and it's across the board as we talked about. So nothing unnatural there. As we see revenue progress through the second half, we would expect to exit at that 8 week, potentially a little below there. It will just depend upon the demand environment at the time.

On the inventory that we hold on our balance sheet, we are putting a very concerted effort on that. That is cash, the way I look at it. And we're making sure that we're reviewing that. We have now an ongoing cadence looking at that inventory and the approval process to bring anything new in, right, goes through the same ROI rigor that we're putting across the company, whether that be in OpEx, inventory, CapEx. It's been -- and the team has really responded well, and we're seeing great execution there. So expect the inventory on our balance sheet to also continue to step down as we move through the year.

There are no further questions at this time. I will now turn the call back to Jen Lloyd for closing remarks.

Thank you, everyone, for joining us today. I'm really optimistic about the opportunities ahead of us. Electrification, AI and the rapidly transforming power grid are set to drive demand for advanced high-voltage semiconductors for many years to come, and PI is well positioned to capitalize with a strong technology foundation and a deep well of expertise in high voltage. In just a matter of months, we've assembled a transformational leadership team capable of translating innovation into sustainable, profitable growth. I want to thank our investors, our customers, and suppliers for partnering with the PI team. Thank you, and good afternoon.

This concludes today's call. Thank you for attending. You may now disconnect.

Hello, everyone. Thank you for joining us, and welcome to the Power Integrations Q4 Earnings Call. [Operator Instructions] I will now hand the call over to Joe Shiffler, Senior Director of Investor Relations. Please go ahead.

Thank you, Chelsea. Good afternoon, everyone. Thanks for joining us. With me on the call are Jen Lloyd, our CEO; and Nancy Erba, who joined Power Integrations last month as CFO. After Jen and Nancy's prepared remarks, we'll open it up for questions.

Our discussion today will include forward-looking statements denoted by words like will, expect, should, outlook, forecast and similar expressions that look toward future events or performance. Such statements are subject to risks that may cause actual results to differ 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 7, 2025. During this call, we will refer to financial measures not calculated according to GAAP. Non-GAAP measures in the fourth quarter exclude stock-based compensation expenses, amortization of acquisition-related intangible assets, expenses associated with an employment litigation matter and the tax effects of these items. A reconciliation of non-GAAP measures to our GAAP results is included in today's press release. 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 Jen.

Thanks, Joe, and good afternoon, everybody. Overall, our fourth quarter results were largely in line with our expectations with a revenue of $103 million and non-GAAP earnings of $0.23 per share. I'm also pleased to report that we returned to growth in 2025. Full year revenue was up 6%. Non-GAAP EPS grew by 8% and we generated $112 million of cash flow from operations, up $30 million from the prior year.

Last quarter, I shared that OpEx control would be an immediate priority and we demonstrated that in Q4, reducing non-GAAP expenses by more than $2 million from the prior quarter. We are announcing today that we carried out a restructuring earlier this week, reducing our global workforce by about 7%. While such decisions are difficult, we took this action to better align expenses with revenue, this creates flexibility to invest in products, people and markets that will create long-term value for shareholders.

Looking at recent business trends, Bookings improved significantly in Q4 after slowing in the prior quarter, partly as a result of excess appliance inventory shipped into the U.S. last year ahead of the tariffs. Encouragingly, the largest U.S. appliance OEM reported last week that this preloaded inventory has largely dissipated. Part of the recent improvement in orders relates to appliances, and we expect sequential growth in our consumer category in Q1. However, our broader view is that appliance demand continues to face headwinds, including low existing home sales in the U.S., the effective tariffs on appliance prices and ongoing softness in China housing.

The industrial market has been a key driver of the recent uptick in bookings, and we expect Industrial to be our fastest-growing market again in 2026, starting with a strong Q1.

Overall, we generated 10% growth in design win value in 2025 with particular strength in GaN and high-power products. We are also encouraged by customers' response to our new Tiny switch 5 ICs with a healthy pipeline of design scheduled to begin production in the second half of 2026. Additionally, our multi-output GaN-based [ INOMEX ] 2 integrated circuits are seeing strong design traction in the TV market. These and other upcoming products will enable us to sustain and grow our core IC business even as we shift our investment priorities towards markets like AI data center, industrial and automotive, where our expertise is helping customers solve their toughest power challenges.

Advanced high-voltage technologies are essential to the emerging power ecosystem. Our solutions span from the generation of renewable energy to long-distance DC transmission to battery storage to smart meters at the edge of the grid to the efficient use of power in homes, factories, data centers and vehicles.

While it will take time to fully align our R&D and go-to-market efforts with our long-term strategic plan, recent results demonstrate that we have already built momentum in some of the markets we are targeting for long-term growth. For example, revenue outside of cell phone applications has averaged 12% growth over the past 2 years. And in 2025, Industrial revenue grew 15% and driven by the big picture themes that are integral to our growth strategy, electrification, renewable energy and grid modernization. These things are especially relevant in our high-power industrial business, which had a record year with double-digit growth, driven by electric rail where we have a very strong position in the India locomotive market and by high-voltage DC transmission projects, delivering renewable energy to the grid.

We expect recent design wins to drive continued growth for high power in 2026 and beyond. Some Q4 customer wins included a leading European maker of inverters for utility scale solar and battery storage, commuter trains and street cars in Europe and Africa and multiple wins for power grid projects in India. In our industrial IC business, we saw double-digit growth in metering last year due to our leading position in deployments of smart meters in markets such as India and Japan. Our ICs enable compact, reliable designs with low standby consumption, making them ideal for meters, and we're now seeing customers migrate to our 91250-volt GaN products for additional protection against the voltage swings common on India's grid.

Another area of growth in our Industrial business last year was power tools as lawn equipment and other tools continue to migrate to battery power. In automotive, we continue to make steady progress penetrating the EV market with our auto qualified InnoSwitch products for inverter emergency power supplies. We secured a design win in Q4 at a top Chinese Tier 1 supplying a leading EV maker and began production just this week on a design of the #1 European EV carmaker.

Another highlight of our 2025 results was the continued success of our [indiscernible] GaN technology in the power supply market. Revenue from PowiGaN products grew more than 40% for the year. Notable GaN design wins in Q4 included a dual USBC charging port. Charging ports integrated with AC outlets require both high-power density and low standby consumption making them an ideal application for our highly integrated GaN solutions.

Also in Q4, we began production on a new server auxiliary design for a U.S. cloud services provider using a GaN-based InnoSwitch. As we discussed on last quarter's call, auxiliary power is a key aspect of our engagements with data center customers, including with NVIDIA on their next-gen 800-volt DC architecture where our 1,700 volt GaN solutions offer a compelling alternative to silicon carbide.

As I've met with shareholders during my first 6 months as CEO, I've been clear about the fact that we need to reorient our organization to ensure that our strong technology foundation translates to success in the market. That means a more customer-focused approach to product development and faster time to market. Changes like these take time, but we are moving with urgency. We are streamlining our R&D pipeline to focus on delivering our highest priority and highest value products in time to intersect the market.

We've also moved quickly to strengthen the team to better leverage our unique capabilities in high voltage and deliver the right products for the evolving power ecosystem. New members of our team include Chris Jacobs, who joined us last month for Micron Technology to head up marketing and product strategy. We welcomed Julie Curry, our new Head of People and Culture Transformation and Nancy Erba as CFO, who you'll hear from in a moment.

We have also bolstered our strong innovation capabilities with targeted hires and key technical roles. I'm very excited about the depth and breadth of experience in our team, and I'm confident in our ability to serve customers and create long-term sustainable value for shareholders.

With that, I'll turn the call over to Nancy, who joined us 1 month ago as CFO. Nancy is a seasoned public company CFO, having served in the role for 6 years at Infinera until its sale to Nokia last year, and previously as CFO at Immersion. Those CFO roles followed a long round of senior leadership positions at Seagate Technology. So I'm thrilled to have her as part of our executive leadership team. Nancy?

Thanks, Jen, and good afternoon, everyone. I'm excited to be part of the POWI team, and I look forward to meeting many of our investors and analysts in the weeks and months ahead. I'll share a few observations from my first month in the CFO role and after a brief review of the results and the outlook.

Today, I'll focus primarily on the non-GAAP numbers, which are reconciled to GAAP in the tables included with our press release and 8-K. Power Integrations had a solid year in 2025, returning to top and bottom line growth and generating healthy cash flow. Revenue fluctuated more than usual over the course of the year as tariffs disrupted the appliance market, and we experienced some lumpiness in our industrial business. But ultimately, revenue increased by 6% for the year, with 3 of the 4 end market categories increasing year-over-year and industrial positioned for continued strong growth in 2026.

Fourth quarter revenue was $103 million, down 13% from the prior quarter. On a sell-through basis, sales were down only 3% from the prior quarter as sell-through exceeded sell-in and we worked down channel inventory built in Q3. Channel inventory for Q4 fell by about half a week to 9.4 weeks.

Looking at the end market categories. Industrial revenue was down 23% sequentially after 2 very strong quarters, reflecting recent seasonality and variability in customer order patterns. Overall, though, our industrial business had an outstanding year with growth of 15%. Consumer revenue, which is predominantly from appliances, was down 13% sequentially in Q4, largely reflecting the overhang of appliance inventories shipped in the U.S. in the first half of 2025 ahead of the tariffs. That effect can be seen clearly in the first half over second half comparison with consumer revenue falling by more than 15% half-over-half.

In spite of that volatility, consumer revenue was slightly up for the full year. Revenue from the computer category was down 5% in Q4, on lower tablet revenue, offset by higher sales for notebooks. For the year, computer revenue was down 2%. Communications revenue grew 15% sequentially in Q4 on new design ramps in cell phone and the India 5G broadband business and for the year, grew 6%.

In summary, revenue mix for the quarter was 37% Industrial, 34% consumer, 15% communications and 14% computer. This mix was less favorable than the assumptions behind the Q4 gross margin guidance. And as a result, non-GAAP gross margins came in slightly below the range set at 53.3%. However, non-GAAP operating expenses of $45 million came in well below the outlook of $47 million, primarily driven by lower hiring and discretionary expense control efforts. Curtailing OpEx growth to a level well below revenue growth is a priority for the company and a key area of focus for me this year. Our Q4 results and the restructuring we carried out this week are important steps in that direction.

Moving to tax. We received credits in Q4 and related to new solar generating capacity we've recently turned on at our San Jose headquarters. These credits plus a higher-than-expected R&D tax credit, brought our full year non-GAAP tax rate down to 2%. The resulting in a negative 3% tax rate for the fourth quarter. Non-GAAP net income for the quarter was $12.7 million or $0.23 per diluted share including a benefit of about $0.02 from the lower-than-expected tax rate.

I will mention 1 item in the GAAP results. Stock-based compensation expense was negative in the fourth quarter reflecting a reduction in the expected vesting of short- and long-term performance-based shares. As a result, GAAP EPS for the quarter was $0.24, $0.01 higher than the non-GAAP number.

Turning to the balance sheet and cash flow. Cash flow from operations was $26 million for the quarter and CapEx was $7 million. Inventories on the balance sheet increased by $2 million during the quarter, while days of inventory on hand rose to 313, reflecting the lower revenue number. Importantly, wafer inventory came down in 2025 and we expect that along with revenue growth to contribute to a reduction in overall inventory days over the course of 2026.

Moving now to the full year results. Revenue was up 6% for the year. Non-GAAP gross margin was 55.1%, up 70 basis points from the prior year, mainly driven by higher industrial revenues as a percentage of our mix with some additional benefit from higher back-end manufacturing volumes. Non-GAAP OpEx increased by 5% and non-GAAP operating margin increased by 100 basis points to 13.9%. Non-GAAP EPS was $1.25 was up 8% for the year.

The strength of POWI's balance sheet and cash flow generation continues to be compelling. In 2025, cash flow from operations was $112 million, while CapEx was $24 million, resulting in free cash flow of $87 million demonstrating that our business continues to generate healthy cash flow. For the year, we returned $145 million to shareholders via buybacks and dividends or 167% of our free cash flow.

Next, I'll review the first quarter outlook. We expect first quarter revenue to be between $104 million and $109 million. I expect non-GAAP gross margin to be between 53% and 54%. Mix should be favorable relative to Q4 with higher industrial and consumer revenue as a percentage of the total. Non-GAAP operating expenses for Q1 should be in the range of $46 million plus or minus $0.5 million. The increase from Q1 reflects the resumption of FICA payments, offset by a partial quarter of impact of the restructuring, which reduced our global workforce by about 7%.

Our GAAP results for the first quarter will include a restructuring charge of between $3.5 million and $4 million. Our effective tax rate steps up in 2026 as the benefit of solar credits is nonrecurring and more significantly, the tax rate on foreign earnings increases as specified in the 2017 tax reform. I expect our effective tax rate for the quarter and for the year to be in the range of 7% to 8%.

Before we open it up for Q&A, I'll offer a few thoughts on my first month in the CFO role. I'm excited to join POWI's management team under Jen's leadership at this very pivotal time for the company. Our technology is creating increasing value for our customers and giving us access to expanding new markets like automotive and AI data center. I see a clear opportunity to translate that into profitable growth for our shareholders. As CFO, my initial focus will be on establishing rigorous operating cadences and strengthening processes and leveraging automation to drive operational efficiency and scalability. And of course, I also want to recognize the Power Integrations finance team. They are a highly capable, disciplined team and an important asset to the organization. For our analysts and shareholders on the phone, I look forward to meeting you in the coming weeks and months.

And now Chelsea, let's begin the Q&A session.

[Operator Instructions] Your first question comes from the line of Ross Seymore with Deutsche Bank.

A couple of questions. I guess first, welcome to Nancy. And then I guess my first question, 1 near term and then the follow-up would be a longer-term one. In the near-term side of things, you talked, Jen, about the bookings increasing significantly in the fourth quarter. It's good to see you returning to growth in your first quarter guide, but it still seems like the channel inventory is a little bit high. Can you just talk about the plans that you have to burn that and then what it might mean to the subsegment guides for the first quarter and maybe expectations of the growth rate for the year?

Yes. Ross, this is Nancy. I'll start and then Jen can jump in. Certainly, we're glad to see the inventory come down a bit, as you mentioned. As we look forward to the full year of '26. Part of the action plan that I laid out in terms of my areas of focus are really on these, I'll say, rigorous cadences. We'll be looking at inventory, both in terms of weeks in the channel, but absolute value of inventory on the balance sheet and driving those plans through the year. We do expect, based on our plan today to see that come down to a, I'll say, a healthier level. But certainly, it's dependent upon the Q1 and the first half bookings, the mix of those bookings and the timing and how much of the turn is that we have to get each quarter. But net-net, it is absolutely on our list of key objectives to be able to bring that overall level of inventory and the weeks on hand back to a more healthy level in the channel.

Great. And I guess as my follow-up question more on a longer-term basis. You talked about high-power business, auto, data center, et cetera, and you mentioned GaN going up 40%. As you look over the next couple of years, when do you think those items are going to be meaningful enough in size to start moving the aggregate revenues and accelerating the growth?

Yes. So you mentioned 4 high-power auto data center in GaN. I think again, I'll just start backwards. GaN is pretty meaningful today. And we mentioned in the call, growing 40% year-over-year this year. So it's becoming meaningful. High power is a very meaningful driver of our industrial business. I think we're already there, and we see continued acceleration of that next year, and that will support the industrial growth. Automotive and data center are going to take more time. I think we're doing well there. In automotive, we're seeing the wins. We mentioned some earlier. We are seeing that the market is a bit slower than we would have liked. And we're also seeing some design ramps push out, but we still see that we continue to win designs. And so that's going to take a little bit of time to materialize. And then data center, I think we're making good progress. I think we're engaging well across multiple customers and opportunities. We're developing our products and demonstrating capabilities to those customers and moving with urgency there. But as we have talked about, that's probably our longest term play. So that -- we won't see that be material for a couple of years.

Your next question comes from David Williams with Benchmark.

Let me offer my welcome to Nancy. I guess maybe first, as you guys kind of look across the landscape and just kind of how things are developing here, it feels like overall, the demand environment is generally improving, just kind of depending on where you're positioned. But I guess if you look across all of your segments, how do you think -- and where do you think we are in the cycle in terms of -- are we at the bottom coming off the top at the bottom turning here? Or are we still some time away just kind of given the inventory digestion that needs to happen?

Yes. Maybe I'll start, and then Nancy can add. I mean, I think I do think the 1 area that is still we're being conservative on is in the consumer business with appliances. And we have seen improvement there. But we are also well aware there's still quite a few headwinds there. So the way we were looking at it is that will -- if things like the housing market takes off, interest rates come down, that would be upside for us. Nancy, you want to add anything to that?

Yes. I think we're really glad to have returned to growth in 2025. I think for '26, we're planning on, I'll say, similar growth levels year-over-year. As Jen said, though, it is very early in the year. We're going to have to see how demand plays out in the first half. It has been lumpy in certain areas to date. But net-net, we're going to be planning for similar growth. However, I will say we're going to be cautious in our investments until we see those bookings really taking form and the step-up that we expect to see, making sure that they are happening before we dive in deeper to certain investment areas. So you're going to see us be cautious on that as we are in '26 but we are optimistic over, as Jen said, over the next couple of years, the markets that we're entering have great opportunity for us to step up that growth rate in the outer years.

Okay. Great. And then maybe just some color around your reorganization. And I know you talked about reprioritizing R&D efforts and accelerating that time to market. But if we kind of look at it, it feels like maybe we're starting to see some of that already take hold. Can you talk maybe about how we should see this unfold over the next couple of quarters and maybe the next year in terms of how this repositioning is helping.

Yes, a couple of things. I mean some of it is the restructuring and it's giving us the flexibility to strengthen. So that will continue to play out. And everything there is good. In terms of the R&D, we also are bringing some real focus into the team. And acting with greater urgency and more agility, and that's a key part of how we're expecting to accelerate growth going forward. So I think a good example of that actually is in the data center space where we're working with NVIDIA, we've got much more openness in terms of our road maps and our product development discussions. And we're pivoting our focus areas so that we can address the opportunities and really intersect where the customer needs are. So there's the restructuring piece of it, but there's also driving the change in terms of how we behave and bring a customer-centric view into the product development organization.

Your next question comes from Tore Svanberg of Stifel.

Yes. Let me add my welcome to Nancy as well. I guess my first question is on automotive. It sounds like it's finally starting to contribute to some revenues. I think maybe there's been some talk on maybe this being sort of like low tens of millions of revenues at least in the beginning. I mean is that a number we can expect this year? Or given what you said before about some potential delays, that's more of a 2027 target at this point?

Yes. I think the latter is there.

Yes. I think it has the potential, right? But again, we need to see these wins start transpiring into the volumes that are needed. But there have been some delays in the EV market. We are pleased with the traction and the customer wins that we've seen. We're going to do everything we can to drive to that level. But whether it's 12 months or 18 months, I think, that's the window we're thinking about.

Very good. And on the OpEx, I think you mentioned the sort of only a half a quarter benefit from the restructuring. So you gave guidance obviously for the March quarter. So should we expect OpEx to come down by a few more million dollars in the June quarter then?

I would think for the year, right, I'll frame it this way, right? If you look at revenue growth historically and OpEx growth, they've been fairly close we're trying to cut that to get to about half. So for the year, I would think in the, call it, $3 million to $5 million range. And again, it was 7% of employees that were impacted. And we are continuing, though, to do work around the full business model and understanding, right, where we have leverage that perhaps could be better utilized to focus on the areas that we are expanding into that we think long term, drive the greatest shareholder value. So in addition to the actions that we took we are going to be assessing really all of the programs, all of the new programs, as Jen mentioned, with Chris coming on board and really making sure that those prioritizations are exactly where we need to be. and that the return on those investments are measured and we hold ourselves accountable to them as we are running the operation.

The other piece of that in terms of customer centricity and really focusing on the customers' needs is the mix in terms of our go-to-market investments versus R&D and G&A and making sure that we are properly supporting our customers as we are out trying to move into these new opportunities for the company.

Good. And just my last question, maybe related to what you just discussed there. So I mean, the consumer segment seems to have been soft for a while now. I mean I'm glad to see the bookings coming back and maybe the inventory being adjusted. But as you continue to do this restructuring and thinking about your end market, are there certain areas within consumer that you would perhaps consider exiting? Or do you still see that as an important growth segment for the company.

I don't think there's anywhere right now that we've identified in terms of exiting. It will still be a growth segment for us. And -- as we consider the whole portfolio of our investments, we are looking at what's the appropriate investment based on the growth rate that we're -- that we expect for that. So over time, we'll be pivoting towards the highest growth segments. For now, it's an important business for us to make sure that we support.

[Operator Instructions] Your next question comes from the line of Christopher Rolland with Susquehanna.

I guess for me, first of all, if you could maybe talk a little bit more about the cloud provider win for Ox Power? And then AI more generally, can you talk about broadening this portfolio into other applications beyond DOX Power and what you think that might mean for the top line overall.

Okay. So the first question was about the Ox power wind cloud provider. So as you know, I think we've talked about before, Ox it's a socket for us that we see across a number of applications. And that win is an important validation of the latest products that we have. OX Power in general, isn't the largest opportunity. Typically, as you talk about data center type systems. So over time, we hope to use that as an entry point with customers, but expect to expand our footprint. So it's kind of a -- it's a good entry socket across a number of applications.

Yes, I guess I was just asking what sockets might be next, like, yes, if you want to hit that, and then I do have a follow-up.

What sockets might be next for OX Power...

No, no, no, what sockets and applications for your products, GaN and/or silicon in the data center, 800-volt at NVIDIA or XPU infrastructure.

Yes. Got it. Got it. Yes. No, I mean, OX Power is just a small part of the system. So we are looking to intersect the main power supplies where you'd expect a much more significant SAM there, and that's in development now.

Okay. Understood. And then maybe industrial, I think you talked about '26, that being your fastest area of growth. Perhaps talk about the underpinnings there why -- what do you think is going to drive that market-leading growth for you guys? Does it have anything to do with a clean channel and/or channel fill. Any other details underpinning that optimism would be great.

Yes. I mean I think really a lot of the optimism comes from our high-power business that grew really well this year. I think our go-to-market efforts there are strong, and we are expecting that to be a significant driver for next year. So we talked about that earlier. We've seen really good growth in our metering business. We're still expecting that to drive growth next year. So really, all of the industrial growth areas this year, we're expecting that to continue, and we have the win growth to support that.

There are no further questions at this time. I will now turn the call back to Joe Shiffler for closing remarks.

All right. Thank you, Chelsea. Thanks, everyone, for listening. I know it's a busy afternoon of earnings. So we appreciate you tuning in. There will be a replay of this call available on our website, that's investors.power.com. Thank you again, and good afternoon.

This concludes today's call. Thank you for attending. You may now disconnect.

Hello, and welcome to the Power Integrations Q3 Earnings Call. [Operator Instructions] I would now like to turn the call over to Joe Shiffler, Director of Investor Relations. Please go ahead.

Thank you, Hayden. Good morning, everyone. Thanks for joining us. With me on the call today are our CEO, Jen Lloyd; and Interim CFO, Eric Verity.

We're doing a premarket earnings release this morning since we'll be traveling later today to Chicago, where we'll be attending the Stifel Midwest 1x1 Conference tomorrow. We look forward to seeing some of you there.

Later this quarter, we'll also be attending the UBS Technology and AI Conference in Arizona on December 3 and the Virtual Northland Securities Growth Conference on December 16.

Our discussion today will include forward-looking statements denoted by words like will, expect, should, outlook, forecast and similar expressions look towards future events or performance. Such statements are subject to risks that may cause actual results to differ 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 7, 2025. During this call, we will refer to financial measures not calculated according to GAAP. Non-GAAP measures in the third quarter exclude stock-based compensation expenses, amortization of acquisition-related intangible assets, expenses associated with an employment litigation matter and the tax effects of these items. A reconciliation of non-GAAP measures to our GAAP results is included in today's press release.

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 Jen.

Thank you, Joe, and good morning, everyone. I'm going to cover 3 topics in my remarks today.

First, I'll review current business trends and the Q3 results. Next, I'll expand on the opportunity for Power Integrations in data center following the announcement last month of our collaboration with NVIDIA on their 800-volt DC power architecture. And finally, I'll offer some thoughts on my first 100 days in the CEO role and priorities for the months ahead.

Starting with recent trends, we said on the Q2 call that we had seen a slowdown in orders in July with bookings down about 20% compared to the monthly run rate of the first half of the year. The lower run rate continued through the third quarter, accompanied by a weaker distribution sell-through.

Appliances are by far the largest driver of the slowdown with orders down about 40% in Q3 compared to the first half. Appliances make up the bulk of our consumer category, which accounted for about 40% of our sales in the first half.

Throughout the year, we have called out the sensitivity of white goods and other appliances to tariffs owing to their high dollar value and their steel content. We've talked about the unusually strong growth in our appliance business in the first half and we've highlighted commentary from the largest U.S. appliance OEM regarding what they've called "extensive preloading" of imports from Asia in the first half.

This was a key topic again on their Q3 earnings call last week. All of this is to say that the softness we're seeing in the second half is not a surprise. Appliances are a great business for us and typically generate a steady and fairly predictable revenue stream.

But tariffs have severely disrupted that industry, adding to the difficulties caused by stagnant home sales in the U.S. and China's weak housing market. And because it's such an important part of our business, we are seeing volatility in our revenues.

We expect fourth quarter revenues of $100 million to $105 million with the consumer category driving a large portion of the decrease compared to the third quarter. We also expect industrial to be sequentially lower, directionally consistent with recent Q4 seasonality.

But our industrial business continues to be strong with revenues up nearly 20% for the first 3 quarters of 2025. That growth is coming from a broad range of applications where we are capitalizing on big picture trends like electrification and grid modernization, encompassing renewables, energy storage, high-voltage DC transmission and smart meters.

Our high-power gate driver business sits squarely in line with these trends and continues to gain momentum with revenues up more than 30% year-to-date.

In Q3, we built on our already strong position in the growing Indian rail business, adding a major new customer with our first design win at one of India's largest suppliers of systems for electric locomotives. We also won our largest design yet with our scale EV automotive driver boards at a major German manufacturer of drive systems for heavy vehicles.

In low power, we continued our progress in passenger cars with 6 more design wins in Q3, adding to the 40-plus EV models now on the road using our products.

We continue to win a robust share of inverter emergency power supplies and are using that foothold to go after other high-voltage sockets like auxiliary power supplies for battery management and onboard charging. We see strong interest in our GaN-based solutions helping to drive the market to higher power micro DC to DC converter architectures.

We have a strong pipeline of design activity in these applications and expect a healthy revenue ramp over the next several years.

Eric will cover the finer details of the quarterly numbers, but I do want to highlight our cash generation and return to stockholders. We generated $30 million in cash from operations in Q3 and are on track for more than $80 million in free cash flow this year.

We naturally expect free cash flow and free cash flow margins to rise as revenues recover and that confidence is reflected in our cash returns.

Including our fourth quarter dividend, we will return nearly $150 million to stockholders this year through buybacks and dividends. Our Board has also declared a $0.005 per share dividend increase effective in Q1 of 2026.

Turning now to data center. At last month's OCP Global Summit, we published a paper demonstrating the advantages of our 1,250 and 1,700-volt GaN technologies in 800-volt DC AI data centers. We also announced our collaboration with NVIDIA to help realize the potential of the new architecture to improve efficiency, use less copper and reduce the amount of data center space consumed by power infrastructure.

The white paper is available on our website and I encourage you to take a look at it. In short, our proprietary 1,250-volt GaN accommodates an 800-volt input in a conventional power supply topology, while standard 650-volt GaN requires stacking of multiple devices, compromising power density and reliability while adding complexity.

Another alternative silicon carbide can handle 800 volts but has significant limitations in terms of power density due to its slower switching speed.

The paper also explains why our 1,700-volt InnoMuX2 is an excellent fit for the auxiliary power socket in the 800-volt architecture. The white paper includes reliability data comparing PowiGaN to other GaN technologies.

Reliability has been an obstacle to GaN adoption in the data center as well as the automotive market and the fact that we're seeing traction in both these markets speaks to the superior reliability of our unique GaN technology.

In fact, one of the key attributes of our technology that NVIDIA and others in the data center ecosystem have found attractive is the fact that it is automotive qualified and already shipping into the automotive market.

While we're excited about the 800-volt opportunity, GaN can also bring significant improvements in power density to existing AI data center architectures, which are expected to remain prevalent for years to come. By the end of this year, we expect to deliver early samples of our system-level GaN product for rack-level AC to DC converters with production release planned for late 2026.

And now I'll conclude with a few thoughts on my first 100 days in the CEO role. As I said on our call last quarter, just after I joined, that I was excited about our unique technologies and the depth of our expertise in high-voltage processes, packaging and systems.

I could also see that the need for innovative high-voltage technology is growing because of the global trends that we've talked about, grid modernization, electrification, decarbonization and of course, AI.

A 100 days in, I'm just as excited about the opportunities ahead of us and developing a clearer picture of the steps we need to take to best capitalize on them. As I said last quarter, our core power supply business is back on a growth trajectory with a mix moving toward higher-margin industrial applications.

The growth in our high-power and automotive businesses shows that our products and expertise has significant value in those markets, while our collaboration with NVIDIA validates the unique capabilities of our GaN technology. We continue to receive encouraging feedback in our conversations with other key participants in the AI ecosystem.

I'm confident we have a lot of what we need in terms of technology and engineering talent, though it's clear to me that we need to adapt our organization and our processes to increase the ROI on our R&D spending and better match the needs of the markets that we expect to drive our longer-term growth.

Data center, auto and high power have different requirements and a different geographic footprint than the mass market power supply business and we'll be taking steps in the months ahead to better align our R&D and go-to-market resources with those markets.

And while we need to reallocate some resources, I don't believe we need to spend more to accomplish what we need to do. We have important hires to make, including some at the senior level, but are limiting hiring to critical needs and I'm pushing the team to tighten up on OpEx and capital spending.

Our top priority is to drive shareholder value by growing our cash flow. While revenue growth is really the key to that, disciplined spending will enable us to expand cash flow margins faster as we grow our revenues. So it's something I'm emphasizing as we plan for 2026.

And now for a review of the financial details, I'll turn it over to Eric Verity.

Eric has been with Power Integrations for more than 15 years, serving as Senior Director of Finance for most of that time and we're very pleased to have him step into the interim CFO role. Eric?

Thanks, Jen, and good morning, everyone. I'll focus my remarks on the non-GAAP results, which are reconciled to GAAP in our press release.

Third quarter revenues were up 3% sequentially to $119 million. Looking at the sequential changes, Industrial was up high single digits on strength and traction in high-voltage DC transmission in our high-power business as well as growth in metering and automotive.

Communications was up high single digits, driven by strength in cell phones due in part to a design win that we announced earlier in the year for a GaN accessory charger recently launched by a major device OEM. The computer category was up mid-single digits, driven by tablets and aftermarket chargers.

Consumer revenues were down mid-single digits, driven by softness in major appliances as well as seasonality in air conditioning, offset by strength in gaming. Revenue mix for the quarter was 42% industrial, 34% consumer, 13% computer and 11% communications.

Non-GAAP gross margin for the third quarter was 55.1%, in line with our guidance and down 70 basis points from the prior quarter, driven by higher input costs flowing through our inventory as well as smaller benefit from the dollar and exchange rate.

Non-GAAP operating expenses were $47.4 million, in line with our guidance and up sequentially due mainly to higher legal expenses. The non-GAAP effective tax rate was 2%, resulting in non-GAAP earnings of $0.36 per diluted share.

Diluted share count was 56.2 million, down about 200,000 from the prior quarter, driven by repurchases. Inventories on the balance sheet fell by 18 days to 278 days. As Jen noted, we saw lower distribution sell-through in the quarter, which resulted in higher channel inventory of 9.8 weeks at quarter end.

Sell-through has exceeded sell-in thus far in the fourth quarter, drawing down a significant portion of the channel inventory that accumulated in Q3.

Cash flow from operations was $30 million for the quarter, while CapEx was $6 million. We used $42 million for the buybacks during the quarter, repurchasing 919,000 shares and completing our buyback authorization.

We also returned $11.8 million during the quarter in the form of dividends. As Jen noted, the Board has increased the dividend by $0.005 to $0.215 per share effective in the first quarter of 2026.

Turning to the Q4 outlook. We expect revenues of $100 million to $105 million. We expect significantly lower consumer revenues driven by the softness in appliances as well as somewhat lower industrial revenues. At the midpoint of the Q4 range, full year revenue growth would be about 6%.

We expect non-GAAP gross margin for the fourth quarter to be between 53.5% and 54%. The decrease in Q3 reflects a less favorable end market mix with appliances and industrial driving the sequential revenue decline.

Lower back-end production volumes will also contribute along with the increase in the yen versus the dollar that took place in September of last year.

As a reminder, at our current level of inventory, changes in the yen-dollar exchange rate take roughly a year to affect our gross margin. We expect gross margin to rebound from the Q4 level in the first half of 2026 as mix swings back toward industrial and appliances and the impact of the yen moves back in a favorable direction.

The yen has weakened considerably against the dollar of late, which should provide further support for our gross margin towards the end of 2026.

Non-GAAP operating expenses for Q4 should be around $47 million, down slightly from Q3. The effective tax rate for the fourth quarter should be around 3% before rising to high single digits in 2026, driven by a lower exemption for overseas income, a provision of the 2017 tax reform legislation.

Finally, I expect share count to come down by 400,000 to 500,000 shares compared to Q3, bringing our share count below 56 million. On a split adjusted basis that's significantly below the share count at the time of our IPO in 1997.

And now operator, let's begin the Q&A session.

[Operator Instructions] Your first question comes from the line of Tore Svanberg with Stifel.

Yes. Jen, I was hoping you could talk a little bit more about the consumer business directionally here. Obviously, there was some pull-ins into the first half that are now being digested in the second half.

But it does sound like you expect consumer to bounce back in the first half of next year, at least based on Eric's gross margin comments there. So help us understand some of the dynamics there. And maybe also you could include what the -- what this would mean for the channel inventory, whether it's going to be back sort of to that 8-week level as you exit the year?

Sure. Yes. So first, maybe let me talk about the decline that we saw what we're expecting and then maybe talk a little bit about slightly longer term. So we knew that the appliance decline was happening.

We knew that Q4 was going to be sequentially lower. It was difficult to forecast just because of the lack of visibility. And the inventory situation there is really finished goods that were shipped into the U.S. and we have very limited visibility to that.

But what we did see at our distributors is they did bulk up in Q3. So as you said, the sell-through ended up being somewhat soft.

But we are already seeing that channel inventory coming down right now where we are in the fourth quarter. So we are expecting that to bounce back. We're just not 100% sure where the timing is going to be when that comes back.

But we have heard from, for example, Whirlpool said in 2026, they're expecting that to normalize as that preloaded inventory clears out at the end of this year. So we are expecting our consumer business to get back to growth in 2026. Just it's a little bit hard to predict the timing of that. I don't know if Joe or Eric wants to add to that.

Yes. We did see a significant sell-through in October to take down that inventory that you are mentioning. And we do see it normalizing next year and we're expecting moderate growth in appliances for 2026.

One more point on that, Tore. The consumer business typically has some positive seasonality in the first half of the year because the air conditioning builds are going on for the summer. So that should -- that piece of the business should grow sequentially in Q1.

The bigger question mark, obviously, is around major appliances, which is the biggest component of the consumer category. And as Jen noted, the world expects the preloaded inventory to be largely cleared out by the end of this year.

The bigger question really for 2026 is just what happens with consumer demand for appliances. As you know, housing has been a challenge, certainly in China, but also in the U.S. There's not a lot of turnover in existing homes, which is a pretty big driver of major appliance sales. So with rates coming down, that could potentially help with demand for major appliances.

Maybe I'll add one last comment on that is that we still do see a great future for appliances. It's a great business for us. And I just wanted to reemphasize some of the growth drivers for that are really efficiency standards and the GaN adoption, which means more dollar content.

So we do think there's going to be growth in units. And yes, on top of these macro and cyclical factors, the growth drivers are there.

Very good. That's very helpful. As my follow-up, I had a sort of longer-term question. And I think, Jen, you mentioned a little bit of this on the call where it does sound like data center, automotive and high power are going to be a big focus for the company.

So I'm just wondering, does that mean you're going to change a little bit how you go to market, how you're structured internally? Obviously, today, you have the 4 main end markets and you've got tons of applications within each one.

But yes, just wondering if that's going to cause a reorg and sort of the focus being more on data center, auto and high power?

Yes. Yes, maybe 2 comments there. The first one is you're correct, we are going to be focusing more on those markets, both in terms of our R&D investment, but also in terms of our go-to-market approach.

And we've already taken some steps realigning our project spend to accelerate some of the developments that are in those areas. But I did want to comment that we still have a very strong core business and we will still be investing to drive that business.

We're just being -- we are going to be pivoting more towards the data center, automotive and high power.

Your next question comes from the line of Christopher Rolland with Susquehanna.

I guess, first, if we could maybe talk about next quarter and how you see things playing out in terms of strength or weakness between comms, computer, consumer and industrial, that would be very helpful for us.

You mean Q4, Chris?

Yes. Yes.

Yes. I think the -- as we indicated in the script, consumer, we expect to be down pretty significantly after the accumulation of the channel inventory in Q3 that took place when the sell-through there didn't quite match what the distributors were buying for.

And this is very consistent with what we've heard from Whirlpool about the pull-ins that happened in the first half, shipments coming and being preloaded from Asia. So there's clearly one more quarter there of inventory burn in the finished goods and that needs to happen. So consumer makes up the biggest part of the decline.

Industrial also down sequentially. That's really just kind of a function of some seasonality in parts of the market like tools, some of the electrified or battery-powered lawn equipment and other tools that have a seasonal aspect to them.

Also, some of the other parts of the business, high power has just some kind of normal lumpiness in order patterns. These are big project-driven. It's a project-driven business.

So the timing of orders in high power and also metering, which is driven by government tenders in India. So it's really just a timing of orders thing there. But as Jen said, the industrial business is still doing very well.

So those 2 are really going to drive the sequential decline. I think computer and comms are probably closer to flat, maybe slightly down, but the bulk of the decline comes from consumer and industrial.

And then Jennifer, maybe a data center question for you. So as I understand it, you're doing -- I believe it would be the main power conversion in the PSU for data center AI power supplies. And I think originally, this is silicon, I believe most think this is going to move to silicon carbide.

Of course, you have this unique high-voltage GaN product. And so it does seem like maybe there could be a debate here, silicon carbide versus high-power GaN. How are your engagements going with the PSU OEMs? How do you guys ultimately view share shaking out? And do you think you will be the primary here or the backup here?

It seems like GaN would have some cost advantages over [ SEC ]. So I'm curious if you have any prognostications as to how share shakes out between these 2 technologies longer term.

Okay. Let me try to address that. Maybe I can address that by talking about where we think the opportunities are for GaN. I can talk a little bit about silicon carbide.

I think it will be difficult to say how the share is going to shake out. There are, as you know, a lot of players going after this market. But what we talked about recently is about what we think is the future opportunity as the data centers move to higher voltage like 800-volt DC.

So the first opportunity there really for Powis and the aux supplies. And that's an application we already address in existing data center architectures. But in the 800-volt DC architecture, that really requires a 1,700-volt switch.

And that is where the other option would be silicon carbide, but we think the 1,700-volt GaN provides some advantages. So that remains to be seen, but we believe that the power density achieved by the GaN will be stronger and make that a better choice.

There's also opportunity for POWI in the 800-volt DC to DC conversion and that's where we think the 1,250-volt technology will come in and we talked about advantages there. That technology is shipping into other markets, but now we're working to build products for it -- sorry, for the 800-volt data centers.

And we're engaged there with NVIDIA, but others as well at the architectural level to build products that will best suit their specs and just add that that product we expect to be released in 2027.

We also think there's other opportunities, the high-power AC to DC converter that sits at the front end of the data center. We have gate driver boards there that are a good fit for that. And we have drivers for the silicon carbide modules that will be used there.

So that's a place where silicon carbide will show up. So I think it depends socket to socket, whether you're going to see GaN or silicon carbide, but we believe that the GaN -- the high-voltage GaN will prevail in the aux supplies and the main DC to DC conversion.

And Jennifer, do you have wins at the power supply OEMs or through the supply chain? Or is it too early given the 2027?

We do have wins in the OEMs, yes, with the aux supply.

Your next question comes from the line of Ross Seymore with Deutsche Bank.

Why don't I just stick with the long-term question first, which is, Jen, what do you view to be the TAM opportunity for where POWI is playing in the AI data center side of things? And roughly speaking, what's the kind of time to revenue?

What sort of slope are you looking at? And it was great that you guys got added to the collaboration list, definitely a positive, but you are just 1 of 13 other companies. So it seems like it is going to be a competitive field.

Yes, definitely. There are quite a few involved. And as far as the TAM, I think we think it's -- for us, it's too early to know. I mean, I think it's too early for everybody to know how fast the 800-volt DC market will take off.

So it is really hard to estimate the size of the market. What we focused on is looking at what our content would be in the AI server rack. So we feel like at this point that our content is probably somewhere around 1,000, but higher in the 800-volt DC. So that's a little bit about -- you can size based on what our rack content is.

As far as time to revenue, I mean, we have products today that can serve the existing data center market. The content will go up, as I said, as it shifts to the 800-volt DC architecture, but meaningful revenue generation is going to be a few years out for us.

So I think 2027 is when we'll be releasing the first products that can go into the main supply of the data center architecture.

One more point, Ross. That list of 14, there are a lot of different sockets in play here and not every one of those 14 players is going after every one of those sockets. So in the 800-volt architecture, the 2 sockets that we're best positioned for are the auxiliary power supply with the InnoMuX2 products and the main converter, the 800-volt to either 12 or 54-volt socket.

And we think you really need high-voltage GaN for that socket. And not everybody on that list has high-voltage GaN. So it's not that we're competing against 14 other companies for these sockets. Everybody is going after different pieces of that market.

So -- and then just to add one more thing. We're talking here about the 800-volt opportunity. But the bigger piece of the AI data center market for the -- at least the near future is still going to be the existing architectures where you have rack-level AC/DC converters.

We have a product that's going to be sampling, as Jen mentioned in her prepared remarks, going to be sampling here before the end of this year and then be ready for release in the latter part of 2026. We've got a good lineup of customers interested in those early samples. And that's a product we can start to generate revenue sooner than the 800-volt opportunity.

And I guess the near-term question I have, I guess, it will be more on the consumer side. But just thinking about the channel inventory side of things, it seems like you guys are burning a ton in the December quarter.

As that normalizes, do you expect -- how big of a tailwind do you expect, I guess, the first half of the year in the consumer business? So whether you want to talk about what the revenues would be without the inventory burn in the fourth quarter guide or the size of that revenue on kind of a normalized consumer quarterly run rate?

Whatever is the easiest framework. I'm just trying to figure out how much pain you're taking now and when it bounces back to normal, what does that really mean?

Yes. Well, the -- we were at, I think, 7.6 weeks of inventory coming out of the third quarter. We added a couple of weeks here during the third quarter -- sorry, coming out of the second quarter, we were at 7.6, added a couple of weeks largely in the consumer category.

Based on what we're seeing so far through October, it looks like we'll burn off most, if not all, of the inventory that accumulated during Q3. Where that lands us in terms of weeks exactly, it's hard to say.

It kind of depends on the denominator a little bit, but we should be in a much cleaner position as we start the first quarter. And then from there, it really just depends on end demand in the appliance category as to what happens with consumer growth.

As I mentioned earlier, the air conditioning part of the business typically trends up in the first half. Major appliances, really more of a question mark.

Tariffs not only kind of disrupted order patterns with the pull-ins, but also there's a little bit of demand destruction aspect to them as well because you get -- it affects pricing for consumers. And there's -- some of the inflation data earlier this year showed some pretty significant increases in appliance prices.

So a lot of variables there. But what seems pretty clear is the preloaded inventory should be cleared out by the end of this year, at least that's according to Whirlpool and our own channel inventory should be in better shape as we exit the year. So from there, it will be a question of demand.

Your next question comes from the line of David Williams with The Benchmark Company.

Maybe first, if we're thinking about the PC market and potential adjacent opportunities there to expand the business, how do you think about maybe more of the -- on the PC side and compute, just where you think some additional opportunities could be for you guys?

So let me clarify the question. Are you talking about the data center, the server or more in the...

Yes. No. No, outside of the server, more on the PC, just more on the compute side, the more mainstream consumer-based type products.

Yes. David, I think the real opportunity in that -- in the PC market is really in GaN penetration in notebooks. I mean, that's the key opportunity for us. And that's an area we've been making kind of steady progress.

There hasn't really been a mass move yet by the PC OEMs towards GaN, but there have been some. We've had some good design wins and notebooks become a pretty meaningful part of our consumer category over the last couple of years.

So I think the story in PC for us is really just how quickly does GaN get adopted over the next few years. We have a lot of design activity going on. And it's really just a question of how quickly the PC OEMs who haven't gone towards GaN yet want to do that.

Great. And then maybe just on the automotive side, you mentioned some nice design wins there this quarter on top of the 40 that are already on. Can you talk maybe about the traction you're seeing there, what those opportunities look like? And do you see that as a large -- or I guess, how would you size the magnitude of that potential opportunity going forward?

Yes, I'll talk about the design win that we were referencing was for heavy vehicle win. So let me describe that a little bit. Basically, that was a win with a systems company that sells to vehicle manufacturers.

So kind of like a Tier 1 for passenger cars. And we believe that that design is for a mining vehicle. So the unit opportunity there, it's much smaller than what you'd see for passenger vehicles, maybe 15:1, but the content is higher.

So our content there is probably about 10x with current products. And that's where we're selling gate drivers for the traction inverters in addition to power supply chips.

So we think that's a good area where we can see more wins. But it is a bit fragmented of a business, so difficult to grow rapidly, but we do expect it to be part of the mix in our auto business over time.

Yes. And then on the passenger side, which is obviously going to be the bigger part of the automotive business for us. We talked a little bit about it in the scripts. It's an area we're seeing a lot of success.

The emergency power supply in the inverter is an application we're doing extremely well in, winning most of the opportunities that we go after. We just -- we have a very elegant, very effective solution for that with our automotive qualified InnoSwitch products.

And that's a socket that we're using as a foothold in the automotive space. And it's getting us on the group vendor list for a lot of these OEMs, getting us access to more sockets. The architectures in EVs are evolving in a way that's very favorable for us. More power supply sockets are being built into these evolving EV architectures, auxiliary power supplies for some of the subsystems.

We mentioned micro DC/DC converters, which are small power supplies that allow some of these ancillary systems to run more efficiently, handling things like over-the-air updates and video surveillance that the cars are doing when they're not being driven.

Those kinds of functions all need power and they all need efficiency because you don't want to be draining the battery while your car is in what you might call standby mode.

So a lot of opportunity in automotive. The SAM long term, of course, is going to depend on EV adoption. But it's going to be a very large -- continue to be a very large SAM for us and we're having a lot of success there.

[Operator Instructions] There are no further questions at this time. I will now hand it back to Joe Shiffler for closing remarks.

All right. Thanks, Hayden. Thanks, everyone, for joining. There will be a replay of this call available on our website, investors.power.com. We look forward to seeing some of you tomorrow in Chicago, and thanks again for listening.

This concludes today's call. Thank you for attending. You may now disconnect.