# Power Integrations Inc: Form 10-Q for the period ended Jun 30, 2023

- Company: [Power Integrations Inc](/companies/powi.md) (CIK 833640)
- Form: 10-Q
- Filed: 2023-08-03
- Accepted by EDGAR: Aug 3, 2023, 16:08 ET
- Period: 2023-06-30
- Accession: 0000833640-23-000169
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/833640/000083364023000169/powi-20230630x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/833640/000083364023000169/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-04-01 to 2023-06-30 | $123.2m | us-gaap:Revenues |
| Revenue | 6 months, 2023-01-01 to 2023-06-30 | $229.5m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2023-04-01 to 2023-06-30 | $60.4m | us-gaap:CostOfRevenue |
| Cost of revenue | 6 months, 2023-01-01 to 2023-06-30 | $112.7m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2023-04-01 to 2023-06-30 | $62.8m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2023-01-01 to 2023-06-30 | $116.8m | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-04-01 to 2023-06-30 | $24.5m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2023-01-01 to 2023-06-30 | $48.5m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2023-04-01 to 2023-06-30 | $12.6m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2023-01-01 to 2023-06-30 | $18.4m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-04-01 to 2023-06-30 | $562.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2023-01-01 to 2023-06-30 | $1.2m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-04-01 to 2023-06-30 | $14.8m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-01-01 to 2023-06-30 | $21.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-04-01 to 2023-06-30 | $0.26 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2023-01-01 to 2023-06-30 | $0.38 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-04-01 to 2023-06-30 | $0.26 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2023-01-01 to 2023-06-30 | $0.38 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-04-01 to 2023-06-30 | 57,669,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-01-01 to 2023-06-30 | 57,654,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2023-01-01 to 2023-06-30 | $22.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2023-01-01 to 2023-06-30 | $7.2m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months, 2023-04-01 to 2023-06-30 | $10.9m | us-gaap:PaymentsOfDividends |
| Dividends paid | 6 months, 2023-01-01 to 2023-06-30 | $21.8m | us-gaap:PaymentsOfDividends |
| Share repurchases | 6 months, 2023-01-01 to 2023-06-30 | $6.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-06-30 | $84.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-06-30 | $551.0m | us-gaap:AssetsCurrent |
| Total assets | at 2023-06-30 | $859.5m | us-gaap:Assets |
| Current liabilities | at 2023-06-30 | $64.8m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-06-30 | $91.5m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-06-30 | $767.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 36,257 characters.

*The following discussion and analysis has been prepared as an aid to understanding our financial condition and results of operations. It should be read in conjunction with the condensed consolidated financial statements and the notes to those statements included elsewhere in this Quarterly Report on Form 10-Q, and with the consolidated financial statements and management’s discussion and analysis of our financial condition and results of operations in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 7, 2023. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended* December 31, 2022*, and in Part II, Item 1A - “Risk Factors” and elsewhere in this report. See also “Cautionary Note Regarding Forward-Looking Statements” at the beginning of this report.*

### Overview

We design, develop and market analog and mixed-signal integrated circuits (“ICs”) and other electronic components and circuitry used in high-voltage power conversion. Our products are used in power converters that convert electricity from a high-voltage source to the type of power required for a specified downstream use. In most cases, this conversion entails, among other functions, converting alternating current (“AC”) to direct current (“DC”) or vice versa, reducing or increasing the voltage, and regulating the output voltage and/or current according to the customer’s specifications.

A large percentage of our products are ICs used in AC-DC power supplies, which convert the high-voltage AC from a wall outlet to the low-voltage DC required by most electronic devices. Power supplies incorporating our products are used with all manner of electronic products including mobile phones, computing and networking equipment, appliances, electronic utility meters, battery-powered tools, industrial controls, and “home-automation,” or “internet of things” applications such as networked thermostats, power strips and security devices. We also supply high-voltage LED drivers, which are AC-DC ICs specifically designed for lighting applications that utilize light-emitting diodes, and motor-driver ICs addressing brushless DC (“BLDC”) motors used in refrigerators, HVAC systems, ceiling fans and other consumer-appliance and light commercial applications.

We also offer high-voltage gate drivers—either standalone ICs or circuit boards containing ICs, electrical isolation components and other circuitry—used to operate high-voltage switches such as insulated-gate bipolar transistors (“IGBTs”) and silicon-carbide (“SiC”) MOSFETs. These combinations of switches and drivers are used for power conversion in high-power applications (i.e., power levels ranging from a few kilowatts up to gigawatts) such as industrial motors, solar- and wind-power systems, electric vehicles (“EVs”) and high-voltage DC transmission systems.

Our products bring a number of important benefits to the power-conversion market compared with less advanced alternatives, including reduced component count and design complexity, smaller size, higher reliability and reduced time-to-market. Our products also reduce the energy consumption of power converters during normal use and in “standby” operation, when the end product is not in use. In addition to the environmental benefits of reduced energy usage, our energy-saving technologies provide a number of benefits to our customers; these include helping them meet the increasingly stringent efficiency standards now in effect for many electronic products, and enabling the elimination of bulky heatsinks used to dissipate the heat produced by wasted electricity.

While the size of our addressable market fluctuates with changes in macroeconomic and industry conditions, the market has generally exhibited a modest growth rate over time as growth in the unit volume of power converters has been offset to a large degree by reductions in the average selling price of components in this market. Therefore, the growth of our business depends largely on increasing our penetration of the markets that we serve and on further expanding our addressable market. Our growth strategy includes the following elements:

- *Increase our penetration of the markets we serve.* We currently address AC-DC applications with power outputs up to approximately 500 watts, gate-driver applications ranging from a few kilowatts up to gigawatts, and motor-drive applications up to approximately 400 watts. Through our research and development efforts, we seek to introduce more advanced products for these markets offering higher levels of integration and performance compared to earlier products. We also continue to expand our sales

and application-engineering staff and our network of distributors, as well as our offerings of technical documentation and design-support tools and services to help customers use our products. These tools and services include our PI Expert™ design software, which we offer free of charge, and our transformer-sample service. In 2022 we launched PowerPros℠, a live online video support service that enables power-supply designers to talk directly with members of our applications engineering team 24 hours a day, six days a week, anywhere in the world.

Our market-penetration strategy also includes capitalizing on the importance of energy efficiency and renewable energy in the power conversion market. For example, our EcoSmart™ technology drastically reduces the amount of energy consumed by electronic products when they are not in use, helping our customers comply with regulations that seek to curb this so-called “standby” energy consumption. Also, our gate-driver products are critical components in energy-efficient DC motor drives, high-voltage DC transmission systems, solar and wind energy systems and electric transportation applications.

- *Increase the size of our addressable market.* Prior to 2010 our addressable market consisted of AC-DC applications with up to about 50 watts of output, a served available market (“SAM”) opportunity of approximately $1.5 billion. Since that time we have expanded our SAM to approximately $4 billion through a variety of means. These include the introduction of products that enable us to address higher-power AC-DC applications (such as our Hiper™ product families), the introduction of LED-driver products, and our entry into the gate-driver market through the acquisition of CT-Concept Technologie AG in 2012. In 2016 we introduced the SCALE-iDriverTM family of ICs, broadening the range of gate-driver applications we can address, and in 2018 we introduced our BridgeSwitch™ motor-driver ICs, addressing BLDC motors, as described above. We have recently introduced a series of automotive-qualified versions of our products, including SCALE-iDriver, InnoSwitch™ and LinkSwitch™ ICs, targeting the EV market; we expect to introduce additional products targeting EVs in the future, and expect automotive applications to become a significant portion of our SAM over time.

Also contributing to our SAM expansion has been the emergence of new applications within the power ranges that our products can address. For example, applications such as “smart” utility meters, battery-powered lawn equipment and bicycles, and USB power receptacles (often installed alongside traditional AC wall outlets) can incorporate our products. The increased use of connectivity, LED lighting and other power-consuming electronic features in consumer appliances has also enhanced our SAM.

Finally, we have expanded our SAM through the development of new technologies that increase the value (and therefore the average selling prices) of our products. For example, our InnoSwitch™ ICs integrate circuitry from the secondary, or low-voltage, side of AC-DC power supplies, whereas earlier product families integrated circuitry only on the primary, or high-voltage side. In 2019 we began incorporating proprietary gallium-nitride (“GaN”) transistors in some our products, enabling a higher level of energy efficiency than ICs with silicon transistors. Since then, we have introduced a variety of new products utilizing GaN technology and we expect to address a wider range of applications with GaN-based products in the years ahead.

We intend to continue expanding our SAM in the years ahead through all of the means described above.

Our quarterly operating results are difficult to predict and subject to significant fluctuations. We plan our production and inventory levels based on internal forecasts of projected customer demand, which are highly unpredictable and can fluctuate substantially. Customers typically may cancel or reschedule orders on short notice without significant penalty and, conversely, often place orders with very short lead times to delivery. Also, external factors such as supply-chain dynamics, widespread health emergencies like the COVID-19 pandemic, and macroeconomic conditions including inflation, fluctuations in interest and exchange rates and bank failures, have caused and can continue to cause our operating results to be volatile. Furthermore, because our industry is intensely price-sensitive, our gross margin (gross profit divided by net revenues) is subject to change based on the relative pricing of solutions that compete with ours. Variations in product mix, end-market mix and customer mix can also cause our gross margin to fluctuate. Because we purchase a large percentage of our silicon wafers from foundries located in Japan, our gross margin is influenced by fluctuations in the exchange rate between the U.S. dollar and the Japanese yen. Changes in the prices of raw materials used in our products, such as copper and gold, can also affect our gross margin. Although our wafer fabrication and assembly operations are outsourced, as are most of our test operations, a portion of our production costs are fixed in nature. As a result, our unit costs and gross margin are impacted by the volume of units we produce.

#### Recent Results

Our net revenues were $123.2 million and $184.0 million for the three months ended June 30, 2023 and 2022, respectively, and $229.5 million and $366.1 million for the six months ended June 30, 2023 and 2022, respectively. We believe that demand for our products has been negatively affected by an array of macroeconomic and geopolitical factors including reduced consumer spending in response to inflation and higher interest rates, softer housing markets, restrictions on economic activity in China driven by the COVID-19 pandemic, and a shift in consumer spending toward travel and services following a period of elevated spending on goods during the pandemic. We believe these factors have exacerbated the effects of an ongoing cyclical downturn in the semiconductor industry; such downturns are commonly experienced in our industry following periods of strong growth during which supply-chain participants tend to accumulate excess inventories.

Our top ten customers, including distributors that resell to original equipment manufacturers (“OEMs”) and merchant power supply manufacturers, accounted for 82% and 79% of net revenues for the three and six months ended June 30, 2023, respectively and 77% of net revenues in both the three and six months ended June 30, 2022. International sales accounted for 98% of our net revenues in both the three and six months ended June 30, 2023, and 96% of our net revenues in both the three and six months ended June 30, 2022.

Our gross margin was 51% and 58% in the three months ended June 30, 2023 and 2022, respectively, and 51% and 57% for the six months ended June 30, 2023 and 2022, respectively. The decrease was primarily due to unfavorable end-market mix and lower manufacturing volume slightly offset by the favorable impact of the dollar/yen exchange rate on our wafer costs.

Total operating expenses were $50.2 million and $46.7 million in the three months ended June 30, 2023 and 2022, respectively, and $98.4 million and $96.4 million for the six months ended June 30, 2023 and 2022, respectively. The increase in operating expenses for the three- and six-month periods were due primarily to higher stock-based compensation expense related to performance-based awards, increased salary and related expenses, and increased travel-related expenses.

### Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate our estimates, including those listed below. We base our estimates on historical facts and various other assumptions that we believe to be reasonable at the time the estimates are made. Actual results could differ from those estimates.

Critical accounting policies are important to the portrayal of our financial condition and results of operations, and require us to make judgments and estimates about matters that are inherently uncertain. There have been no material changes to our critical accounting policies and estimates disclosed in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” and Note 2, *Significant Accounting Policies and Recent Accounting Pronouncements*, in each case in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 7, 2023. Currently, our only critical accounting policy relates to revenue recognition.

### Results of Operations

The following table sets forth certain operating data as a percentage of net revenues for the periods indicated:

| ​ ​ ​ ​ | ​ ​ ​ | ​ ​ Three Months Ended June 30, 2023 | ​ ​ | ​ ​ 2022 | ​ ​ ​ ​ | ​ ​ Six Months Ended June 30, 2023 | ​ ​ | ​ ​ 2022 |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Net revenues | ​ | 100.0% | ​ | 100.0% | ​ | 100.0% | ​ | 100.0% |
| Cost of revenues |  | 49.0 | ​ | 41.9 | ​ | 49.1 | ​ | 43.3 |
| Gross profit |  | 51.0 | ​ | 58.1 | ​ | 50.9 | ​ | 56.7 |
| Operating expenses: |  |  | ​ |  | ​ | ​ | ​ | ​ |
| Research and development |  | 19.9 | ​ | 12.8 | ​ | 21.1 | ​ | 12.9 |
| Sales and marketing |  | 13.8 | ​ | 8.7 | ​ | 14.4 | ​ | 8.8 |
| General and administrative |  | 7.0 | ​ | 3.3 | ​ | 7.4 | ​ | 4.3 |
| Other operating expenses, net |  | — | ​ | 0.6 | ​ | — | ​ | 0.3 |
| Total operating expenses |  | 40.7 | ​ | 25.4 | ​ | 42.9 | ​ | 26.3 |
| Income from operations |  | 10.3 | ​ | 32.7 | ​ | 8.0 | ​ | 30.4 |
| Other income |  | 2.2 | ​ | 0.3 | ​ | 1.9 | ​ | 0.3 |
| Income before income taxes |  | 12.5 | ​ | 33.0 | ​ | 9.9 | ​ | 30.7 |
| Provision for income taxes |  | 0.5 | ​ | 2.7 | ​ | 0.5 | ​ | 2.8 |
| Net income |  | 12.0% | ​ | 30.3% | ​ | 9.4% | ​ | 27.9% |

#### Comparison of the three and six months ended June 30, 2023 and 2022

*Net revenues.* Net revenues consist of revenues from product sales, which are calculated net of returns and allowances. Net revenues for the three and six months ended June 30, 2023 were $123.2 million and $229.5 million, respectively, and $184.0 million and $366.1 million for the three and six months ended June 30, 2022, respectively.

The decrease in revenue for the three-month period ended June 30, 2023 was driven primarily by the consumer and industrial end-markets, reflecting reduced demand and elevated inventories related to consumer-appliances and a broad range of industrial applications. Revenues from the communications and computer markets increased slightly compared to the prior-year period. For the six-month period, revenues for all four end-market categories decreased compared to the corresponding prior-year period. We believe that demand for our products in recent periods has been negatively affected by an array of macroeconomic and geopolitical factors including reduced consumer spending in response to inflation and higher interest rates, softer housing markets, restrictions on economic activity in China driven by the COVID-19 pandemic, and a shift in consumer spending toward travel and services following a period of elevated spending on goods during the pandemic. We believe these factors have exacerbated the effects of an ongoing cyclical downturn in the semiconductor industry; such downturns are commonly experienced in our industry following periods of strong growth during which supply-chain participants tend to accumulate excess inventories.

Our revenue mix by end market for the three and six months ended June 30, 2023 and 2022 was as follows:

| ​ ​ ​ End Market | ​ ​ | ​ ​ Three Months Ended June 30, 2023 | ​ ​ | ​ ​ 2022 | ​ ​ ​ ​ | ​ ​ Six Months Ended June 30, 2023 | ​ ​ | ​ ​ 2022 |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Communications | ​ | 28% | ​ | 18% | ​ | 28% | ​ | 22% |
| Computer |  | 14% | ​ | 9% |  | 14% | ​ | 10% |
| Consumer |  | 29% | ​ | 38% |  | 27% | ​ | 36% |
| Industrial |  | 29% | ​ | 35% |  | 31% | ​ | 32% |

International sales, consisting of sales outside of the United States of America based on “bill to” customer locations, were $121.1 million and $224.8 million in the three and six months ended June 30, 2023, respectively, and $176.4 million and $351.7 million in the three and six months ended June 30, 2022, respectively. Although power converters using our products are distributed to end markets worldwide, most are manufactured in Asia. As a result, sales to this region represented 86% and 83% of our net revenues in the three and six months ended June 30, 2023, respectively, and 80% and 82%, in the three and six months ended June 30, 2022, respectively. We expect international sales, and sales to the Asia region in particular, to continue to account for a large portion of our net revenues in the future.

Sales to distributors accounted for 64% and 63% in the three and six months ended June 30, 2023, respectively, and 73% and 74%, in the three and six months ended June 30, 2022, respectively. Direct sales to OEMs and power-supply manufacturers accounted for the remainder.

The following customers represented 10% or more of our net revenues for the respective periods:

| ​ ​ ​ Customer | ​ ​ ​ | ​ ​ Three Months Ended June 30, 2023 | ​ ​ | ​ ​ 2022 | ​ ​ ​ ​ | ​ ​ Six Months Ended June 30, 2023 | ​ ​ | ​ ​ 2022 |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Avnet |  | 25% | ​ | 30% |  | 25% | ​ | 31% |
| Honestar Technologies Co., Ltd. | ​ | 15% | ​ | 11% | ​ | 14% | ​ | 13% |
| Salcomp Group | ​ | 14% | ​ | \* | ​ | 13% | ​ | \* |
| Flextronics Group |  | 12% | ​ | \* |  | 11% | ​ | \* |

\*Total customer revenue was less than 10% of net revenues.

No other customers accounted for 10% or more of our net revenues in these periods.

*Gross profit.* Gross profit is net revenues less cost of revenues. Our cost of revenues consists primarily of costs associated with the purchase of wafers from our contracted foundries, the assembly, packaging and testing of our products by sub-contractors, product testing performed in our own facilities, amortization of acquired intangible assets, and overhead associated with the management of our supply chain. Gross margin is gross profit divided by net revenues. The table below compares gross profit and gross margin for the three and six months ended June 30, 2023 and 2022:

*(dollars in millions)*

| ​ ​ ​ | ​ ​ ​ | ​ ​ ​ Three Months Ended June 30, 2023 | ​ | ​ ​ ​ 2022 | ​ ​ ​ | ​ ​ ​ Six Months Ended June 30, 2023 | ​ | ​ ​ ​ 2022 |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Net revenues | **​** | $123.2 **​** | **​** | $184.0 ​ | **​** | $229.5 **​** | **​** | $366.1 ​ |
| Gross profit |  | $62.8 | ​ | $106.8 |  | $116.8 | ​ | $207.5 |
| Gross margin | ​ | 51.0% | ​ | 58.1% | ​ | 50.9% | ​ | 56.7% |

The decrease in our gross margin was primarily due to unfavorable end-market mix and lower manufacturing volume slightly offset by the favorable impact of the dollar/yen exchange rate on our wafer costs.

*Research and development expenses.* Research and development (“R&D”) expenses consist primarily of employee-related expenses, including stock-based compensation, and expensed material and facility costs associated with the development of new technologies and new products. We also record R&D expenses for prototype wafers related to new products until such products are released to production. The table below compares R&D expenses for the three and six months ended June 30, 2023 and 2022:

*(dollars in millions)*

| ​ ​ ​ | ​ ​ ​ ​ | ​ ​ Three Months Ended June 30, 2023 | ​ | ​ ​ 2022 | ​ ​ ​ ​ | ​ ​ Six Months Ended June 30, 2023 | ​ ​ | ​ ​ 2022 |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| R&D expenses | ​ | $24.5 | ​ | $23.5 | **​** | $48.5 | **​** | $47.2 |
| Headcount (at period end) | **​** | ​ 283 | ​ | ​ 306 | ​ | ​ 283 | ​ | ​ 306 |

R&D expenses increased for the three and six months ended June 30, 2023, as compared to the three and six months ended June 30, 2022, primarily due to increased product development costs and equipment-related expenses.

*Sales and marketing expenses.* Sales and marketing (“S&M”) expenses consist primarily of employee-related expenses, including stock-based compensation, commissions to sales representatives, amortization of intangible assets and facilities expenses, including expenses associated with our regional sales and support offices. The table below compares S&M expenses for the three and six months ended June 30, 2023 and 2022:

*(dollars in millions)*

| ​ ​ ​ | ​ ​ ​ | ​ ​ Three Months Ended June 30, 2023 | ​ | ​ ​ 2022 | ​ ​ ​ ​ | ​ ​ Six Months Ended June 30, 2023 | ​ ​ | ​ ​ 2022 |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Sales and marketing expenses | ​ | $17.0 | ​ | $16.0 | ​ | $32.9 | ​ | $32.4 |
| Headcount (at period end) | ​ | 320 | ​ | ​ 298 | ​ | 320 | ​ | ​ 298 |

S&M expenses increased in the three and six months ended June 30, 2023, as compared to the three and six months ended June 30, 2022, due to higher stock-based compensation expenses, higher salary and related expenses stemming from higher headcount and increased travel-related expenses.

*General and administrative expenses.* General and administrative (“G&A”) expenses consist primarily of employee-related expenses, including stock-based compensation expenses, for administration, finance, human resources and general management, as well as consulting, professional services, legal and audit expenses. The table below compares G&A expenses for the three and six months ended June 30, 2023 and 2022:

*(dollars in millions)*

| ​ ​ ​ | ​ ​ ​ | ​ ​ Three Months Ended June 30, 2023 | ​ | ​ ​ 2022 | ​ ​ ​ ​ | ​ ​ Six Months Ended June 30, 2023 | ​ ​ | ​ ​ 2022 |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| G&A expenses |  | $8.7 |  | $6.1 | ​ | $17.0 | ​ | $15.7 |
| Headcount (at period end) | ​ | 79 | ​ | ​ 76 | ​ | 79 | ​ | ​ 76 |

G&A expenses increased for the three and six months ended June 30, 2023 as compared to the three and six months ended June 30, 2022, due to higher stock-based compensation expense related to performance-based awards, increased salary and related expenses driven by increased headcount, and increased professional services; these increases were partially offset by decreased patent-litigation expenses and, for the six months ended June 30, 2023, recovery of bad debt.

*Other operating expenses, net.* Other operating expenses, net were $1.1 million in the three and six months ended June 30, 2022. This amount consisted of a $2.9 million expense resulting from the settlement of our litigation with Opticurrent LLC on May 16, 2022, in which we agreed to pay Opticurrent $2.9 million to end all outstanding legal disputes, partially offset by receipt of a $1.7 million distribution related to the bankruptcy liquidation of SemiSouth Laboratories, Inc., of which we were a creditor as a result of investments made in SemiSouth in 2011.

*Other income*. Other income consists primarily of interest income earned on cash and cash equivalents, marketable securities and other investments, and the impact of foreign exchange gains or losses. The table below compares other income for the three and six months ended June 30, 2023 and 2022:

*(dollars in millions)*

| ​ ​ ​ ​ ​ ​ | ​ ​ Three Months Ended June 30, 2023 | ​ ​ ​ 2022 | ​ ​ ​ ​ | ​ ​ Six Months Ended June 30, 2023 | ​ ​ | ​ ​ 2022 |
| --- | ---: | ---: | --- | ---: | --- | ---: |
| Other income | $2.7 | $0.7 | ​ | $4.4 | ​ | $1.2 |

Other income increased for the three and six months ended June 30, 2023 as compared to the three and six months ended June 30, 2022, primarily due to higher interest income.

*Provision for income taxes*. Provision for income taxes represents federal, state and foreign taxes. The table below compares income-tax expense for the three and six months ended June 30, 2023 and 2022:

*(dollars in millions)*

| ​ ​ ​ | ​ ​ ​ | ​ ​ ​ Three Months Ended June 30, 2023 | ​ | ​ ​ ​ 2022 | ​ ​ ​ | ​ ​ ​ Six Months Ended June 30, 2023 | ​ | ​ ​ ​ 2022 |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Provision for income taxes |  | $0.6 |  | $5.0 |  | $1.2 |  | $10.3 |
| Effective tax rate | ​ | 3.7% | ​ | 8.1% | ​ | 5.1% | ​ | 9.2% |

Income-tax expense includes a provision for federal, state and foreign taxes based on the annual estimated effective tax rate applicable to us and our subsidiaries, adjusted for certain discrete items which are fully recognized in the period in which they occur. Accordingly, the interim effective tax rate may not be reflective of the annual estimated effective tax rate.

Our effective tax rates for the three and six months ended June 30, 2023 were 3.7% and 5.1%, respectively, and 8.1% and 9.2%, in the three and six months ended June 30, 2022, respectively. The effective tax rate in these periods was lower than the statutory federal income-tax rate of 21% due to the geographic distribution of our world-wide earnings in lower-tax jurisdictions and the impact of federal research tax credits. Additionally, in the three months ended June 30, 2023, our effective tax rate was favorably impacted by a discrete item associated with recognition of excess tax benefits related to share-based payments. In the six months ended June 30, 2023, our effective tax rate was favorably impacted by discrete items associated with the release of unrecognized tax benefits and recognition of excess tax benefits related to share-based payments. This benefit was partially offset by U.S. tax on foreign income, known as global intangible low-taxed income. The primary jurisdiction from which our foreign earnings are derived is the Cayman Islands, which is a non-taxing jurisdiction. Income earned in other foreign jurisdictions was not material. We have not been granted any incentivized tax rates and do not operate under any tax holidays in any jurisdiction.

### Liquidity and Capital Resources

As of June 30, 2023, we had $346.3 million in cash, cash equivalents and short-term marketable securities, a decrease of $7.5 million from $353.8 million as of December 31, 2022. As of June 30, 2023, we had working capital, defined as current assets less current liabilities, of $486.2 million, an increase of approximately $19.5 million from $466.7 million as of December 31, 2022.

We have a Credit Agreement with Wells Fargo Bank, National Association (the "Credit Agreement") that provides us with a $75.0 million revolving line of credit to use for general corporate purposes with a $20.0 million sub-limit for the issuance of standby and trade letters of credit. The Credit Agreement was amended on June 7, 2021, to provide an alternate borrowing rate as a replacement for LIBOR and extend the termination date from April 30, 2022, to June 7, 2026, with all other terms remaining the same. The Credit Agreement was amended with an effective date of June 28, 2023 to include the Secured Overnight Financing Rates (“SOFR”) as interest rate benchmark rates, with all other terms remaining the same. Our ability to borrow under the revolving line of credit is conditioned upon our compliance with specified covenants, including reporting and financial covenants, primarily a minimum liquidity measure and a debt to earnings ratio, with which we are currently in compliance. The Credit Agreement terminates on June 7, 2026; all advances under the revolving line of credit will become due on such date, or earlier in the event of a default. No advances were outstanding under the agreement as of June 30, 2023.

#### Cash From Operating Activities

Operating activities generated $22.8 million of cash in the six months ended June 30, 2023. Net income for this period was $21.7 million; we also incurred depreciation, non-cash stock-based compensation expense, amortization of intangibles and amortization premiums on marketable securities of $17.7 million, $14.1 million, $1.1 million, and $0.4 million, respectively. Sources of cash also included a $8.8 million increase in accounts payable (excluding payables related to property and equipment) due to timing of payments. These sources of cash were partially offset by a $14.3 million increase in inventories, a $7.2 million increase in prepaid expenses and other assets primarily due to federal income tax prepayments, a $10.8 million increase in accounts receivable, a $5.4 million decrease in taxes payable and accrued liabilities primarily due to timing of customer rebate payments, and a $2.8 million increase in deferred income taxes.

Operating activities generated $141.4 million of cash in the six months ended June 30, 2022. Net income for this period was $102.1 million; we also incurred depreciation, non-cash stock-based compensation expense, premium amortization on marketable securities and intangibles amortization of $17.2 million, $12.7 million, $1.9 million and $1.3 million, respectively. Sources of cash also included a $13.2 million decrease in accounts receivable due to the timing of collections, a $5.6 million increase in accounts payable (excluding payables related to property and equipment) and a $4.1 million decrease in prepaid expenses and other assets. These sources of cash were partially offset by a $12.0 million increase in inventories and a $2.5 million decrease in taxes payable and accrued liabilities.

#### Cash From Investing Activities

Our investing activities in the six months ended June 30, 2023 resulted in a $19.4 million net use of cash, primarily consisting of $12.2 million used for purchases of marketable securities net of proceeds from sales and maturities, and $7.2 million used for purchases of property and equipment, primarily production-related machinery and equipment.

Our investing activities in the six months ended June 30, 2022 generated $78.1 million of cash, primarily consisting of $104.8 million from sales and maturities of marketable securities, net of purchases, offset by $27.9 million for purchases of property and equipment, primarily production-related machinery and equipment, partially offset by proceeds of $1.2 million from the sale of an office building.

#### Cash From Financing Activities

Our financing activities in the six months ended June 30, 2023 resulted in a $24.7 million net use of cash, consisting of $6.0 million for the repurchase of our common stock and $21.8 million for the payment of dividends to stockholders, partially offset by $3.1 million from the issuance of shares through our employee stock purchase plan.

Our financing activities in the six months ended June 30, 2022 resulted in a $310.2 million net use of cash, consisting of $292.3 million for the repurchase of our common stock and $20.9 million for the payment of dividends to stockholders, partially offset by $3.1 million from the issuance of shares through our employee stock purchase plan.

#### Dividends

In January 2022, our board of directors declared dividends of $0.18 per share to be paid to stockholders of record at the end of each quarter in 2022. In February 2023, our board of directors declared dividends of $0.19 per share to be paid to stockholders of record at the end of each quarter in 2023.

Dividend payouts of $10.9 million occurred on each of March 31, 2023 and June 30, 2023. The declaration of any future cash dividend is at the discretion of the board of directors and will depend on our financial condition, results of operations, capital requirements, business conditions and other factors, as well as a determination that cash dividends are in the best interests of our stockholders.

#### Stock Repurchases

As of December 31, 2022, we had $81.3 million remaining under our stock-repurchase program. In the six months ended June 30, 2023, we repurchased approximately 80,000 shares of our common stock for $6.0 million, leaving $75.3 million remaining on the repurchase authorization as of June 30, 2023. Authorization of future repurchase programs is at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, business conditions and other factors; the program has no expiration date.

#### Contractual Commitments

As of June 30, 2023 we had a contractual obligation related to income tax, which consisted primarily of unrecognized tax benefits of approximately $23.7 million. A portion of the tax obligation is classified as long-term income taxes payable and a portion is recorded in deferred tax assets in our condensed consolidated balance sheet.

As of June 30, 2023, there were no material changes in our contractual commitments from those reported in our Annual Report on Form 10-K for the year ended December 31, 2022.

#### Other Information

Our cash, cash equivalents and investment balances may change in future periods due to changes in our planned cash outlays, including changes in incremental costs such as direct and integration costs related to future acquisitions. Current U.S. tax laws generally allow companies to repatriate accumulated foreign earnings without incurring additional U.S. federal taxes. Accordingly, as of June 30, 2023, our worldwide cash and marketable securities are available to fund capital allocation needs, including capital and internal investments, acquisitions, stock repurchases and/or dividends without incurring additional U.S. federal income taxes.

If our operating results deteriorate in future periods, either as a result of a decrease in customer demand, pricing and/or cost pressures, or for other reasons, our ability to generate positive cash flow from operations may be jeopardized. In that case, we may be forced to use our cash, cash equivalents and short-term investments, use our current financing or seek additional financing from third parties to fund our operations. We believe that cash generated from operations, together with existing sources of liquidity, will satisfy our projected working capital and other cash requirements for at least the next 12 months, and we anticipate that we will continue to be able to fund liquidity requirements through cash provided by our operations for the foreseeable future. However, we may experience reduced cash flow from operations as a result of the cyclical nature of our business along with other macroeconomic and geopolitical factors.

### Recent Accounting Pronouncements

Information with respect to this item may be found in Note 2, *Significant Accounting Policies and Recent Accounting Pronouncements,* in our Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1, of this Quarterly Report on Form 10-Q, which information is incorporated herein by reference.

## Market risk

As filed, 376 characters.

There have been no material changes to our interest rate risk and foreign currency exchange risk during the first six months of 2023. For a discussion of our exposure to interest rate risk and foreign currency exchange risk, refer to our market risk disclosures set forth in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of the 2022 Form 10-K.

## Controls and procedures

As filed, 2,408 characters.

#### Limitation on Effectiveness of Controls

Any control system, no matter how well designed and operated, can provide only reasonable assurance as to the tested objectives. The design of any control system is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. The inherent limitations in any control system include the realities that judgments related to decision-making can be faulty, and that reduced effectiveness in controls can occur because of simple errors or mistakes. Due to the inherent limitations in a cost-effective control system, misstatements due to error may occur and may not be detected.

#### Evaluation of Disclosure Controls and Procedures

Management is required to evaluate our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”). Disclosure controls and procedures are controls and other procedures designed to provide reasonable assurance that information required to be disclosed in our reports filed under the Exchange Act, such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include controls and procedures designed to provide reasonable assurance that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer as appropriate to allow timely decisions regarding required disclosure. Based on our management’s evaluation (with the participation of our principal executive officer and principal financial officer), our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective as of the end of the period covered by this report.

#### Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended June 30, 2023, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

## Risk factors

As filed, 384 characters.

As of the date of this filing, the risk factors have not changed substantively from those disclosed in Part I Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2022, which risk factors are incorporated herein by reference in this report from Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 7, 2023.

Filed Aug 3, 2023.
Source: SEC EDGAR, the filing index for accession 0000833640-23-000169. Last ingested by Listed: Nov 5, 2026, 16:31 ET. No prices; not investment advice.