10-Q 1 powi-20220331x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

 

(Mark One)

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2022

or

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ______  to  ______

Commission File Number 000-23441

 

POWER INTEGRATIONS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

94-3065014

(State or Other Jurisdiction of Incorporation or Organization)

 

(I.R.S. Employer Identification No.)

5245 Hellyer Avenue

San Jose,

California

 

95138

(Address of Principal Executive Offices)

 

(Zip Code)

(408) 414-9200

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

   

Trading Symbol(s)

   

Name of each exchange on which registered

Common Stock

POWI

The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes      No 

Indicate by check mark whether the registrant submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes     No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large Accelerated Filer

Accelerated Filer 

Non-accelerated Filer

Smaller Reporting Company 

Emerging Growth Company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes      No  

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class

Shares Outstanding at April 25, 2022

Common Stock, $0.001 par value

58,307,620

POWER INTEGRATIONS, INC.

TABLE OF CONTENTS

Page

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021 (Unaudited)

4

Condensed Consolidated Statements of Income for the three months ended March 31, 2022 and 2021 (Unaudited)

5

Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2022 and 2021 (Unaudited)

6

Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2022 and 2021 (Unaudited)

7

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021 (Unaudited)

8

Notes to Unaudited Condensed Consolidated Financial Statements

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

28

Item 4.

Controls and Procedures

29

PART II. OTHER INFORMATION

29

Item 1.

Legal Proceedings

29

Item 1A.

Risk Factors

29

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

30

Item 6.

Exhibits

31

SIGNATURES

33

2

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q includes a number of forward-looking statements that involve many risks and uncertainties. Forward-looking statements are identified by the use of the words “would,” “could,” “will,” “may,” “expect,” “believe,” “should,” “anticipate,” “if,” “future,” “intend,” “plan,” “estimate,” “potential,” “target,” “seek,” or “continue” and similar words and phrases, including the negatives of these terms, or other variations of these terms, that denote future events. These statements reflect our current views with respect to future events and our potential financial performance and are subject to risks and uncertainties that could cause our actual results and financial position to differ materially and/or adversely from what is projected or implied in any forward-looking statements included in this Quarterly Report on Form 10-Q. These factors include, but are not limited to: the novel coronavirus pandemic (COVID-19), which has disrupted and may again disrupt our operations, including our manufacturing, research and development, and sales and marketing activities, which in turn could have a material adverse impact on our business and has or could exacerbate the risks discussed below; if demand for our products declines in our major end markets, our net revenues will decrease; our products are sold through distributors, which limits our direct interaction with our end customers, therefore reducing our ability to forecast sales and increasing the complexity of our business; we depend on third-party suppliers to provide us with wafers for our products, and if they fail to provide us sufficient quantities of wafers, our business may suffer; intense competition in the high-voltage power supply industry may lead to a decrease in our average selling price and reduced sales volume of our products; if our products do not penetrate additional markets, our business will not grow as we expect; we do not have long-term contracts with any of our customers and if they fail to place, or if they cancel or reschedule orders for our products, our operating results and our business may suffer; if we are unable to adequately protect or enforce our intellectual property rights, we could lose market share, incur costly litigation expenses, suffer incremental price erosion or lose valuable assets, any of which could harm our operations and negatively impact our profitability; and the other risk factors described under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, and in Part I, Item 2 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q. We make these forward-looking statements based upon information available on the date of this Quarterly Report on Form 10-Q, and we expressly disclaim any obligation to update or alter any forward-looking statements, whether as a result of new information or otherwise, except as required by laws.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

3

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

POWER INTEGRATIONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands)

March 31, 2022

December 31, 2021

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$

170,624

$

158,117

Short-term marketable securities

 

273,419

 

372,235

Accounts receivable, net

 

30,658

 

41,393

Inventories

 

103,115

 

99,266

Prepaid expenses and other current assets

 

14,685

 

15,804

Total current assets

 

592,501

 

686,815

PROPERTY AND EQUIPMENT, net

 

180,073

 

179,824

INTANGIBLE ASSETS, net

 

8,288

 

9,012

GOODWILL

 

91,849

 

91,849

DEFERRED TAX ASSETS

 

17,371

 

16,433

OTHER ASSETS

 

29,113

 

30,554

Total assets

$

919,195

$

1,014,487

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

CURRENT LIABILITIES:

 

 

Accounts payable

$

36,175

$

43,721

Accrued payroll and related expenses

 

13,459

 

15,492

Taxes payable

 

5,601

 

1,210

Other accrued liabilities

 

13,999

 

11,898

Total current liabilities

 

69,234

 

72,321

LONG-TERM INCOME TAXES PAYABLE

 

15,384

 

15,280

OTHER LIABILITIES

 

14,004

 

14,854

Total liabilities

 

98,622

 

102,455

COMMITMENTS AND CONTINGENCIES (Notes 11, 12 and 13)

 

  

 

  

STOCKHOLDERS’ EQUITY:

 

  

 

  

Common stock

 

26

 

28

Additional paid-in capital

 

39,684

 

162,301

Accumulated other comprehensive loss

 

(8,169)

 

(3,737)

Retained earnings

 

789,032

 

753,440

Total stockholders’ equity

 

820,573

 

912,032

Total liabilities and stockholders’ equity

$

919,195

$

1,014,487

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4

POWER INTEGRATIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

Three Months Ended

    

March 31, 

(In thousands, except per share amounts)

2022

    

2021

NET REVENUES

$

182,149

$

173,737

COST OF REVENUES

 

81,474

 

89,326

GROSS PROFIT

 

100,675

 

84,411

OPERATING EXPENSES:

 

  

 

  

Research and development

 

23,678

 

20,027

Sales and marketing

 

16,336

 

14,123

General and administrative

 

9,614

 

10,075

Total operating expenses

 

49,628

 

44,225

INCOME FROM OPERATIONS

 

51,047

 

40,186

OTHER INCOME

 

554

 

597

INCOME BEFORE INCOME TAXES

 

51,601

 

40,783

PROVISION FOR INCOME TAXES

 

5,353

 

985

NET INCOME

$

46,248

$

39,798

EARNINGS PER SHARE:

 

  

 

  

Basic

$

0.78

$

0.66

Diluted

$

0.77

$

0.65

SHARES USED IN PER SHARE CALCULATION:

 

  

 

  

Basic

 

59,238

60,184

Diluted

 

60,107

61,451

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5

POWER INTEGRATIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

Three Months Ended

March 31, 

(In thousands)

    

2022

    

2021

Net income

$

46,248

$

39,798

Other comprehensive income (loss), net of tax:

 

  

 

  

Foreign currency translation adjustments, net of $0 tax in each of the three months ended March 31, 2022 and 2021

(269)

(18)

Unrealized loss on marketable securities, net of $0 tax in each of the three months ended March 31, 2022 and 2021

(4,181)

(580)

Amortization of defined benefit pension items, net of tax of $3 and $135 in the three months ended March 31, 2022 and 2021, respectively

18

(75)

Total other comprehensive loss

 

(4,432)

 

(673)

TOTAL COMPREHENSIVE INCOME

$

41,816

$

39,125

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6

POWER INTEGRATIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

Three Months Ended

March 31, 

(In thousands)

    

2022

    

2021

Common stock

 

Beginning balance

 

$

28

$

28

Common stock issued under employee stock plans

 

 

1

Repurchase of common stock

 

(2)

 

Ending balance

 

26

 

29

 

 

Additional paid-in capital

 

 

Beginning balance

 

162,301

 

190,920

Common stock issued under employee stock plans

 

3,057

 

3,651

Repurchase of common stock

 

(134,687)

 

Stock-based compensation

 

9,013

 

8,480

Ending balance

 

39,684

 

203,051

 

 

Accumulated other comprehensive loss

 

 

Beginning balance

 

(3,737)

 

(2,163)

Other comprehensive loss

 

(4,432)

 

(673)

Ending balance

 

(8,169)

 

(2,836)

 

 

Retained earnings

 

 

Beginning balance

 

753,440

 

621,626

Net income

 

46,248

 

39,798

Payment of dividends to stockholders

(10,656)

(7,845)

Ending balance

789,032

653,579

Total stockholders’ equity

 

$

820,573

$

853,823

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

7

POWER INTEGRATIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Three Months Ended

March 31, 

(In thousands)

    

2022

    

2021

CASH FLOWS FROM OPERATING ACTIVITIES:

 

  

 

  

Net income

$

46,248

$

39,798

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

Depreciation

 

8,408

 

7,453

Amortization of intangibles

 

724

 

1,032

Loss on disposal of property and equipment

 

75

 

17

Stock-based compensation expense

 

9,013

 

8,480

Amortization of premium on marketable securities

 

937

 

176

Deferred income taxes

 

(936)

 

1,445

Increase (decrease) in accounts receivable allowance for credit losses

 

75

 

(2)

Change in operating assets and liabilities:

 

  

 

Accounts receivable

 

10,660

 

(6,345)

Inventories

 

(3,849)

 

12,369

Prepaid expenses and other assets

 

1,552

 

(3,253)

Accounts payable

 

(1,709)

 

3,281

Taxes payable and accrued liabilities

 

3,399

 

(6,329)

Net cash provided by operating activities

 

74,597

 

58,122

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

Purchases of property and equipment

 

(14,700)

 

(11,051)

Proceeds from sale of property and equipment

1,202

25

Purchases of marketable securities

 

(15,121)

 

(21,971)

Proceeds from sales and maturities of marketable securities

 

108,817

 

63,466

Net cash provided by investing activities

 

80,198

 

30,469

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

Issuance of common stock under employee stock plans

 

3,057

 

3,652

Repurchase of common stock

 

(134,689)

 

Payments of dividends to stockholders

 

(10,656)

 

(7,845)

Net cash used in financing activities

 

(142,288)

 

(4,193)

NET INCREASE IN CASH AND CASH EQUIVALENTS

 

12,507

 

84,398

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

 

158,117

 

258,874

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$

170,624

$

343,272

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

 

  

 

Unpaid property and equipment

$

5,042

$

6,116

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

Cash paid for income taxes, net

$

1,163

$

1,512

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

8

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION:

The condensed consolidated financial statements include the accounts of Power Integrations, Inc., a Delaware corporation (the “Company”), and its wholly owned subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation.

While the financial information furnished is unaudited, the condensed consolidated financial statements included in this report reflect all adjustments (consisting only of normal recurring adjustments) that the Company considers necessary for the fair presentation of the results of operations for the interim periods covered and the financial condition of the Company at the date of the interim balance sheet in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The results for interim periods are not necessarily indicative of the results for the entire year. The condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and the notes thereto for the year ended December 31, 2021, included in its Form 10-K filed on February 7, 2022, with the Securities and Exchange Commission.

2. SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS:

Significant Accounting Policies and Estimates

No material changes have been made to the Company’s significant accounting policies disclosed in Note 2, Significant Accounting Policies and Recent Accounting Pronouncements, in its Annual Report on Form 10-K, filed on February 7, 2022, for the year ended December 31, 2021.

Recent Accounting Pronouncements

The Company has considered all recent accounting pronouncements issued, but not yet effective, and does not expect any to have a material effect on the Company’s condensed consolidated financial statements.

3. COMPONENTS OF THE COMPANY’S CONDENSED CONSOLIDATED BALANCE SHEETS:

Accounts Receivable

    

March 31, 

    

December 31, 

(In thousands)

2022

2021

Accounts receivable trade

$

82,463

$

87,503

Allowance for ship and debit

 

(47,690)

 

(41,599)

Allowance for stock rotation and rebate

 

(3,595)

 

(4,066)

Allowance for credit losses

(520)

(445)

Total

$

30,658

$

41,393

The Company maintains an allowance for estimated credit losses resulting from the inability of customers to make required payments. This allowance is established using estimates formulated by the Company’s management based upon factors such as the composition of the accounts receivable aging, historical losses, changes in payment patterns, customer creditworthiness and current economic trends. Receivables determined to be uncollectible are written off and deducted from the allowance.

Three Months Ended

March 31, 

(In thousands)

2022

    

2021

Beginning balance

$

(445)

$

(427)

Provision for credit loss expense

 

(400)

 

(217)

Receivables written off

 

 

Recoveries collected

 

325

 

219

Ending balance

$

(520)

$

(425)

9

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POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Inventories

    

March 31, 

    

December 31, 

(In thousands)

2022

2021

Raw materials

$

27,527

$

24,131

Work-in-process

 

28,001

 

31,788

Finished goods

 

47,587

 

43,347

Total

$

103,115

$

99,266

Intangible Assets

March 31, 2022

December 31, 2021

    

    

Accumulated

    

    

    

Accumulated

    

(In thousands)

Gross

Amortization

Net

Gross

Amortization

Net

Domain name

$

1,261

$

$

1,261

$

1,261

$

$

1,261

Developed technology

 

37,960

 

(32,085)

 

5,875

 

37,960

 

(31,603)

 

6,357

Customer relationships

 

16,700

 

(16,639)

 

61

 

16,700

 

(16,458)

 

242

Technology licenses

 

1,926

 

(835)

 

1,091

 

1,926

 

(774)

 

1,152

Total intangible assets

$

57,847

$

(49,559)

$

8,288

$

57,847

$

(48,835)

$

9,012

The estimated future amortization expense related to finite-lived intangible assets at March 31, 2022, is as follows:

    

Estimated 

Amortization

Fiscal Year

(In thousands)

2022 (remaining nine months)

$

1,691

2023

 

2,173

2024

 

1,279

2025

 

832

2026

 

687

Thereafter

 

365

Total

$

7,027

Accumulated Other Comprehensive Loss

Changes in accumulated other comprehensive loss for the three months ended March 31, 2022 and 2021, were as follows:

Unrealized Gains

and Losses on

Defined Benefit

Foreign Currency

Marketable Securities

Pension Items

Items

Total

Three Months Ended

Three Months Ended

Three Months Ended

Three Months Ended

March 31, 

March 31, 

March 31, 

March 31, 

(In thousands)

2022

    

2021

    

2022

    

2021

    

2022

    

2021

    

2022

    

2021

Beginning balance

$

(1,165)

$

890

$

(674)

$

(1,641)

$

(1,898)

$

(1,412)

$

(3,737)

$

(2,163)

Other comprehensive income (loss) before reclassifications

 

(4,181)

 

(580)

 

 

 

(269)

 

(18)

 

(4,450)

 

(598)

Amounts reclassified from accumulated other comprehensive loss

 

 

 

18

(1)

 

(75)

(1)

 

 

 

18

 

(75)

Net-current period other comprehensive income (loss)

 

(4,181)

 

(580)

 

18

 

(75)

 

(269)

 

(18)

 

(4,432)

 

(673)

Ending balance

$

(5,346)

$

310

$

(656)

$

(1,716)

$

(2,167)

$

(1,430)

$

(8,169)

$

(2,836)

(1)This component of accumulated other comprehensive income (loss) is included in the computation of net periodic pension cost for the three months ended March 31, 2022 and 2021.

10

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POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. FAIR VALUE MEASUREMENTS:

The FASB established a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices for identical assets in active markets; (Level 2) inputs other than the quoted prices in active markets that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which requires the Company to develop its own assumptions. This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.

The Company’s cash equivalents and short-term marketable securities are classified within Level 1 or Level 2 of the fair-value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency.

The fair-value hierarchy of the Company’s cash equivalents and marketable securities at March 31, 2022, and December 31, 2021, was as follows:

Fair Value Measurement at

March 31, 2022

    

    

Quoted Prices in

    

Active Markets for

Significant Other

Identical Assets

Observable Inputs

(In thousands)

Total Fair Value

(Level 1)

(Level 2)

Commercial paper

$

85,233

$

$

85,233

Corporate securities

267,899

267,899

Money market funds

 

22,658

 

22,658

 

Total

$

375,790

$

22,658

$

353,132

Fair Value Measurement at

December 31, 2021

    

    

Quoted Prices in

    

Active Markets for

Significant Other

Identical Assets

Observable Inputs

(In thousands)

Total Fair Value

(Level 1)

(Level 2)

Commercial paper

$

172,237

$

$

172,237

Corporate securities

282,540

282,540

Money market funds

 

29,793

 

29,793

 

Total

$

484,570

$

29,793

$

454,777

The Company did not transfer any investments between Level 1 and Level 2 of the fair-value hierarchy in the three months ended March 31, 2022, and the twelve months ended December 31, 2021.

11

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POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. MARKETABLE SECURITIES:

Amortized cost and estimated fair market value of marketable securities classified as available-for-sale (excluding cash equivalents) at March 31, 2022, were as follows:

Amortized

Gross Unrealized

Estimated Fair

(In thousands)

    

Cost

    

Gains

    

Losses

    

Market Value

Investments due in 3 months or less:

 

  

 

  

 

  

 

  

Commercial paper

$

5,996

$

$

$

5,996

Corporate securities

1,953

(1)

1,952

Total

 

7,949

 

 

(1)

 

7,948

Investments due in 4-12 months:

 

  

 

  

 

  

 

  

Corporate securities

 

45,329

 

 

(484)

 

44,845

Total

 

45,329

 

 

(484)

 

44,845

Investments due in 12 months or greater:

 

  

 

  

 

  

 

  

Corporate securities

 

225,487

 

 

(4,861)

 

220,626

Total

225,487

 

(4,861)

 

220,626

Total marketable securities

$

278,765

$

$

(5,346)

$

273,419

Accrued interest receivable was $1.5 million at March 31, 2022 and was recorded within prepaid expenses and other current assets on the condensed consolidated balance sheet.

Amortized cost and estimated fair market value of marketable securities classified as available-for-sale (excluding cash equivalents) at December 31, 2021, were as follows:

Amortized

Gross Unrealized

Estimated Fair

(In thousands)

    

Cost

    

Gains

    

Losses

    

Market Value

Investments due in 3 months or less:

 

  

 

  

 

  

 

  

Commercial paper

$

89,965

$

$

$

89,965

Corporate securities

7,285

(3)

7,282

Total

 

97,250

 

 

(3)

 

97,247

Investments due in 4-12 months:

 

  

 

  

 

  

 

  

Corporate securities

 

25,054

 

 

(42)

 

25,012

Total

 

25,054

 

 

(42)

 

25,012

Investments due in 12 months or greater:

 

  

 

  

 

  

 

  

Corporate securities

251,096

 

21

 

(1,141)

 

249,976

Total

 

251,096

 

21

 

(1,141)

 

249,976

Total marketable securities

$

373,400

$

21

$

(1,186)

$

372,235

Accrued interest receivable was $1.5 million at December 31, 2021 and was recorded within prepaid expenses and other current assets on the condensed consolidated balance sheet.

The following table summarizes marketable securities classified as available-for-sale (excluding cash equivalents) in a continuous unrealized loss position for which an allowance for credit losses was not recorded at March 31, 2022:

Less Than 12 Months

12 Months or Longer

Total

    

Estimated

    

Gross

    

Estimated

    

Gross

    

Estimated

    

Gross

Fair Market

Unrealized

Fair Market

Unrealized

Fair Market

Unrealized

(In thousands)

Value

Losses

Value

Losses

Value

Losses

Corporate securities

$

266,473

$

(5,346)

$

$

$

266,473

$

(5,346)

Total marketable securities

$

266,473

$

(5,346)

$

$

$

266,473

$

(5,346)

In the three months ended March 31, 2022 and 2021, no unrealized losses on marketable securities were recognized in income.

The Company does not intend to sell and it is unlikely that it will be required to sell the securities prior to their anticipated recovery. The issuers are high quality (investment grade) and the decline in fair value is largely due to changes

12

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POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

in interest rates. Additionally, the issuers continue to make timely interest payments on the marketable securities with the fair value expected to recover as they reach maturity.

6. STOCK-BASED COMPENSATION:

The following table summarizes the stock-based compensation expense recognized in accordance with ASC 718-10 for the three months ended March 31, 2022 and 2021:

Three Months Ended

March 31, 

(In thousands)

    

2022

    

2021

Cost of revenues

$

320

$

631

Research and development

 

3,055

 

2,391

Sales and marketing

 

1,948

 

1,614

General and administrative

 

3,690

 

3,844

Total stock-based compensation expense

$

9,013

$

8,480

Stock-based compensation expense in the three months ended March 31, 2022, was approximately $9.0 million, comprising approximately $5.6 million related to restricted stock unit (RSU) awards, $3.0 million related to performance-based (PSU) awards and long-term performance-based (PRSU) awards and $0.4 million related to the Company’s employee stock purchase plan.

Stock-based compensation expense in the three months ended March 31, 2021, was approximately $8.5 million, comprising approximately $5.3 million related to RSUs,  $2.7 million related to PSUs and PRSUs and $0.5 million related to the Company’s employee stock purchase plan.

Stock Options

A summary of stock options outstanding as of March 31, 2022, and activity during the three months ended, is presented below:

Weighted-

Weighted-

Average

Average

Remaining

Aggregate

Shares

Exercise

Contractual Term

Intrinsic Value

    

(In thousands)

    

Price

    

(In years)

    

(In thousands)

Outstanding at January 1, 2022

 

12

$

21.44

 

 

Granted

 

 

  

 

  

Exercised

 

(12)

$

21.44

 

  

 

  

Forfeited or expired

 

 

  

 

  

Outstanding at March 31, 2022

 

$

 

$

Vested and exercisable at March 31, 2022

 

 

$

PSU Awards

Under the performance-based awards program, the Company grants awards in the performance year in an amount equal to twice the target number of shares to be issued if the maximum performance metrics are met. The number of shares that are released at the end of the performance year can range from zero to 200% of the target number depending on the Company’s performance. The performance metrics of this program are annual targets consisting of a combination of net revenue, non-GAAP operating income and strategic goals.

As the net revenue, non-GAAP operating income and strategic goals are considered performance conditions, expense associated with these awards, net of estimated forfeitures, is recognized over the service period based on an assessment of the expected achievement of the performance targets. The fair value of these PSUs is determined using the fair value of the Company’s common stock on the date of the grant, reduced by the discounted present value of dividends expected to be declared before the awards vest. If the performance conditions are not achieved, no compensation cost is recognized and any previously recognized compensation is reversed.

13

Table of Contents

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In February 2022, it was determined that approximately 104,000 shares subject to the PSUs granted in 2021 vested in aggregate; the shares were released to the Company’s employees and executives in the first quarter of 2022.

A summary of PSUs outstanding as of March 31, 2022, and activity during the three months ended, is presented below:

Weighted-

Weighted-

Average

Average

Remaining

Aggregate

Shares

Grant Date Fair

Contractual Term

Intrinsic Value

    

(In thousands)

    

Value Per Share

    

(In years)

    

(In thousands)

Outstanding at January 1, 2022

 

104

$

84.47

 

 

Granted

 

117

$

79.84

 

 

  

Vested

 

(104)

$

84.47

 

  

 

  

Forfeited

 

 

  

 

  

Outstanding at March 31, 2022

 

117

$

79.84

 

0.75

$

10,819

Outstanding and expected to vest at March 31, 2022

 

117

 

0.75

$

10,819

PRSU Awards

The Company’s PRSU program provides for the issuance of PRSUs which will vest based on the Company’s performance measured against the PRSU program’s established performance targets. PRSUs are granted in an amount equal to twice the target number of shares to be issued if the maximum performance metrics are met. The actual number of shares the recipient receives is determined at the end of a three-year performance period based on results achieved versus the Company’s performance goals, and may range from zero to 200% of the target number. The performance goals for PRSUs granted in fiscal 2020, 2021 and 2022 were based on the Company’s compound annual growth rate (“CAGR”) of revenue as measured against the revenue CAGR of the analog semiconductor industry, in each case over the respective three-year performance period. Expense associated with these awards, net of estimated forfeitures, is recorded throughout the year based on an assessment of the expected achievement of the performance targets. If the performance conditions are not achieved, no compensation cost is recognized and any previously recognized compensation is reversed.

In February 2022 it was determined that approximately 135,000 shares subject to the PRSUs granted in 2019 vested in aggregate; the shares were released to the Company’s executives in the first quarter of 2022.

A summary of PRSUs outstanding as of March 31, 2022, and activity during the three months ended, is presented below:

Weighted-Average

Aggregate

Weighted-Average

Remaining

Intrinsic

Shares

Grant Date Fair

Contractual Term

Value

    

(In thousands)

    

Value Per Share

    

(In years)

    

(In thousands)

Outstanding at January 1, 2022

 

383

$

53.14

 

 

Granted

 

110

$