POWI earnings call transcript, November 4, 2026

Good afternoon, everyone.

Thanks 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. 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 non-GAAP income statement measures exclude stock-based compensation expenses, amortization of acquisition-related intangible assets, accruals 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 provided. prohibited without the written consent of power integrations. Now I'll turn it over to Jen.

And thanks everyone for joining us. We delivered solid Q3 results with revenue up 5% sequentially. Led by strong growth from GAN products. We beat our outlook on gross margin and expenses, reflecting our continued emphasis on profitability. Our non-GAAP operating margin was up more than six points year over year in Q3. While non-GAAP EPS rose by 28%. These results demonstrate that we are executing well across our end markets. Industrial demand remains healthy with particular strength in energy. Infrastructure and rail. In fact, we currently have more demand than we can satisfy in our gate driver business due to certain supply constraints. In personal electronics and computing, we saw strong sequential growth in Q3. Driven by new GAN design wins and seasonal ramps. While memory shortages are a factor in these markets, the impact on our business is mitigated by our customer mix and new design wins. In the consumer market, which makes up a third of our... sales, demand continues to be soft due largely to stagnant housing markets and higher prices for appliances, driven by tariffs and rising raw material costs. Against this uneven backdrop, we are on track to achieve our key financial... ...and operational priorities for 26. These include revenue growth, improved profitability in the markets we serve today, advancement of our GAN technology roadmap, and progress in our strategic pivot.

...to the data center, EV, and energy markets to drive faster growth in the years ahead. I'm excited about our progress in each of these areas, and I'll provide an update on each, starting with our core business work. Growth is being led by penetration of GAN across our end markets. We are on track for a record year of GAN revenue and had another strong quarter of design wins as customers look to our GAN products to improve efficiency and reliability. That includes our first design wins with top switch GAN, which we introduced earlier this year, winning three major appliance designs at top tier OEMs. Other wins include a recently announced smart home product. For a major US OEM and a TV design for a major Korean OEM using a GAN chip set addressing both AC to DC conversion and power factor correction. Now I'll turn to data center where our. High voltage GAN continues to open doors at customers designing 800 volt systems at last month's OCP summit we met with hyperscalers XPU suppliers power supply and server ODM and suppliers of energy. Infrastructure our discussions reinforced the demand for technologies that maximize power density and efficiency in 800 volt data centers engagement span applications from grid to rack ranging from solid state trans. Formers and renewable energy to high power sockets in the rack and power sidecar as well as a diverse range of ox power sockets throughout the data center.

For high power sockets customers continue to show strong interest in our 1250 volt GAN. to optimize power density both by collapsing stacked power stages to reduce board area and by taking advantage of GAN's high switching frequency to shrink magnetic components. We are developing a range of high voltage GAN products for the main power path. Reflecting customer interest in a variety of integration levels and package configurations. These products are expected to sample to customers in 27 and then roll out in the 28-29 time frame. Auxiliary power represents our most immediate opportunity to penetrate 800-volt architectures. We are seeing strong growth this year in Auxpower for existing server architectures, including five new design wins in Q3, and we have four design ends for 800-volt sockets scheduled to begin production in 26. seven. Our opportunity pipeline has more than tripled since the start of the year and now includes a wide variety of 800-volt designs, including Aux supplies for compute trays, IT racks and sidecars, as well as now. network switches, fan power modules, and solid-state circuit breakers. In conjunction with the OCP summit, we announced a collaboration with Ideal Power on a solution for solid-state circuit breakers. The collaboration addresses the need for innovative approaches to circuit protection in high-power, high-voltage data center environments where mechanical circuit breakers are too slow to protect the valuable rack equipment. Existing electronic breakers introduce losses into the system.

Both from the protection device itself and the surrounding control electronics. So as rack power levels rise to hundreds of kilowatts and higher, any drain-on system efficiency is a significant problem. The challenge is that electronic breakers must be powered and in 800-volt systems the power source is usually the 800-volt bus itself. That means the AUK supply must be capable of handling an 800-volt input.

We power the intelligence that controls the ideal protection switch, which in turn protects the power path to the compute load. The result is an efficient, self-powered breaker that meets the needs of 800-volt data centers, and we're excited to partner with Ideal Power on this innovative solution. Customer engagements for data centers involve not just rack-level power conversion and protection, but also solutions for beyond the walls of the data center. Attachments. Crates of battery storage systems to data centers are projected to rise rapidly in the years ahead, and we are well-positioned to capitalize with our successful high-power gate drivers. One of our top high-power customers is now supplying battery storage inverters to a top U.S. hyperscaler with plans to ramp... with multiple new customers in 27. We added to our position in battery storage in Q3 with a high-value design win at a new customer, a major U.S. supplier of energy infrastructure. We are also expanding our customer engagements on solid-state transformers being developed for later phases of the 800-volt transition. Our high-power gate drivers are an attractive solution for driving switching modules in silicon carbine. SSTs, while GAN-based SSTs are an emerging application for our high-voltage GAN technology. Finally, turning to automotive, we won 10 new designs in Q3, including an inverter emergency. Power supply for a top German automaker, and our pipeline has increased by more than 40% since the start of the year.

We believe the outlook for the EV market is promising, as higher gas prices have renewed consumer interest. And the pricing delta between EVs and ICE vehicles continues to shrink. OEMs are moving to distributed power architectures in which micro-DC to DC converters will power subsystems from the main battery instead of the lead-acid battery. One of our Chinese automotive customers recently announced its intention to eliminate the 12-volt battery, and we expect other OEMs to follow suit. Meanwhile, rising battery voltages are driving interest in our higher... ...voltage GAN, not only for low-power sockets, but also higher-powered DC-to-DC converters and onboard charging. Together, these two architectural trends have the potential to dramatically increase the number of... ...high-voltage sockets per vehicle, driving our available dollar content from single-digit dollars to nearly $100 over the next four to five years, and significantly expanding our SAM. In closing, we're excited about the opportunities... ...ahead of us in data center, energy infrastructure, and automotive. We expect these markets to drive rapid growth in our SAM, with a goal to double SAM by 2031. Our strategy for driving revenue growth in these markets is taking... ...shape, and I'm confident in our team's ability to execute the strategy. I'm delighted to announce a new addition to the team, Tony Stratikos, who will join us next week as our Chief Technology Officer and SVP of Engineering.

Tony is a noted thought leader in power semiconductors, having founded Volterra, served as CTO at Maxim Integrated, and later founded a company specializing in utility-scale battery storage systems. I'm pleased to have Tony joining the team and I look forward to introducing our executive team and providing an in-depth discussion of our strategy at an Investor Day in March 27th. Now I'll turn it over to Nancy for a review of the financial highlights.

Our Q3 results demonstrate continued progress on revenue growth, margin expansion, and cash generation. We reduced balance sheet inventory for the third consecutive quarter and announced an increase in our quarterly dividend. These results reflected disciplined execution across the company. Channel inventory increased during the quarter, reflecting both softer demand in certain markets and higher customer numbers. Buffer stock requirements, which I'll discuss in more detail. Revenue for Q3 was $125.5 million, up 6% from a year ago and 5% sequentially. The communications and computer categories each grew more than 20% sequentially. On a combination of seasonal strengths and recent GAN design wins. The industrial category continues to show healthy growth with a 6% sequential increase in Q3 and 13% growth year to date compared to last year. That strength, led by high power, has been fairly broad based within the industrial category. Consumer revenue was down 7% from the prior quarter, driven mainly by seasonally lower revenue from air conditioning. As Jen noted, we have seen continued softness in appliances as that market continues to fill the effects of higher retail prices and weak housing markets, especially in the U.S. and China. As previewed in my introduction, channel inventory rose by 4.5 weeks during the quarter to 11.8 weeks. Three factors drove this increase. The first is softness in appliances where we expect sell through to take

one to two quarters to improve. The second is project delays in metering, particularly in India. We are starting to see signs of improving sell through and metering in Q4 already and expect project launches to continue ramping through 2027. The third is channel partners building inventory to support and customers higher buffer stock requirements. Some replenishment was expected as we entered Q3 with below. normal channel inventory of 7.3 weeks, but the increase was higher than anticipated. Both our channel partners and end customers tell us that amid broader supply chain constraints, they are holding additional for stock. Channel inventory, therefore, is likely to remain above our 8-week target while these conditions persist. We will continue to monitor sell-through and customer requirements closely as we manage shipments. Turning to gross margin, non-GAAP gross margin was 55.2% for the quarter, above the high end of our outlook and up slightly from the prior quarter, benefiting from improved mix. And higher manufacturing volumes. Non-GAAP operating expenses in Q3 were $42.4 million, down $2.8 million from the prior quarter. Compared to the third quarter of last year, non-GAAP operating expenses were down more than 10%. We remain focused on disciplined expense management while protecting priority investments in GAN and our strategic growth markets. Our objective is to maintain ongoing profitability improvements.

While advancing the technology and customer programs that support longer-term growth. Non-GAAP operating margin for Q3 was 21.4%, up more than four points from the prior quarter and more than seven points higher than the full year 2025 figure. This improvement reflects the operating leverage in our business model that comes with revenue growth and disciplined expense management. Non-GAAP earnings for the quarter were 46 cents per diluted share of 24% sequentially and 28% from a year ago. During turning to the balance sheet and cash flow, cash flow from operations was $43 million for the quarter. While CapEx was $6 million, resulting in free cash flow of $37 million. Lower inventory was a significant contributor, falling by more than $7 million during the quarter. Days on hand fell. By 19 days to 246 days at quarter end. Cash and investments on the balance sheet increased by $25 million during the quarter to $288 million. Reflecting the strength of our. Balance sheet and confidence in our ability to grow cash flow going forward. Our board of directors has raised our quarterly dividend to 22 cents per share beginning in Q1 27. I'll now review the fourth quarter. Outlook. We expect revenue to be between 118 and 126 million dollars. At the midpoint, that would be an increase of 18 percent from the fourth quarter of last year and bring our full year growth rate to 7. Our outlook reflects continued industrial strength and contributions from recent design wins balanced against softer consumer demand, elevated channel inventory, and supply constraints.

Including packaging and PCBs. I expect non-GAAP gross margin for Q4 to be in the range of 55% plus or minus half a point. Non-GAAP operating expenses for Q4 should be in a range of 43 million. Plus or minus half a million. At the midpoint, that would be a slight increase from Q3, but once again lower than a year ago. We are on track for a full year reduction of about 4% as we continue to drive expense discipline while protecting... ...priority investments in our strategic growth markets and advancing our technology roadmap. Finally, I expect non-GAAP operating margin for Q4 to be between 19 and 21%. In summary... Q3 showed our ability to improve profitability and generate strong cash flow. We maintain measured in our near-term expectations for market growth while encouraged by our design-win momentum and longer-term opportunities. Our focus is on disciplined... ...investing selectively in our strategic priorities and translating growth into sustainable earnings and cash flow to drive shareholder value. We look forward to sharing more about our strategy and target business model at our upcoming Investor Day on March 8th.

Your first question from the line of David Williams of Needham & Co. Your line is open. Please go ahead.

your next question comes from the line of david williams of needham and co. your line.

is open please go ahead.