POWER INTEGRATIONS INC

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. Certain prior period amounts have been reclassified to conform to current year presentation. These reclassifications had no effect on the reported results of operations.

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, 2025, included in its Form 10-K filed on February 6, 2026, 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, of the Company’s financial statements set forth in Item 8 of the Company’s Annual Report on Form 10-K, filed on February 6, 2026, for the year ended December 31, 2025.

Recent Accounting Pronouncements

In November 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40) which requires additional disclosure of certain costs and expenses, including inventory purchases, employee compensation, selling expense, and depreciation expense within the notes to financial statements. The guidance is effective for annual periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. The Company is currently evaluating the impact that the updated standard will have on its financial statement disclosures.

In September 2025, the FASB issued ASU 2025-06, Intangibles–Goodwill and Other–Internal-Use Software (Subtopic 350-40) which amends certain aspects of the accounting for and disclosure of software costs. The guidance is effective for annual reporting periods beginning after December 15, 2027, and interim periods within fiscal years beginning after December 15, 2027. The Company is currently evaluating the impact that the updated standard will have on its financial statement disclosures.

3. CONDENSED CONSOLIDATED BALANCE SHEET COMPONENTS AND OTHER INFORMATION:

Accounts Receivable, net

Inventories

Other non-current assets

Accumulated Other Comprehensive Income

Changes in accumulated other comprehensive income (loss) for the three and six months ended June 30, 2026 and 2025, were as follows:

(1)This component of accumulated other comprehensive income is included in the computation of net periodic pension cost for the three months ended June 30, 2026 and 2025.

(1)This component of accumulated other comprehensive income is included in the computation of net periodic pension cost for the six months ended June 30, 2026 and 2025.

4. REVENUE:

Customer Concentration

The Company’s top ten customers accounted for approximately 82% and 81% of net revenue in the three and six months ended June 30, 2026 and approximately 81% in both of the corresponding periods of 2025. A significant portion of revenue is attributable to sales of the Company’s products to distributors of electronic components. These distributors sell the Company’s products to a broad, diverse range of end users, including original equipment manufacturers (“OEMs”) and merchant power-supply contract manufacturers (“CMs”). Similarly, merchant power-supply manufacturers sell power supplies incorporating the Company’s products to a broad range of OEMs.

Sales to distributors and direct sales to OEMs and power-supply CMs contributed to the Company’s net revenue as follows:

During the three and six months ended June 30, 2026 and 2025, approximately 16% of net revenue in each period presented related to an OEM fulfilling its purchases through the Company’s CM customers.

The following customers represented 10% or more of the Company’s net revenue for the respective periods:

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

No other customers accounted for 10% or more of the Company’s net revenue in the periods presented.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash investments and trade receivables. The Company does not have any off-balance-sheet credit exposure related to its customers.

As of June 30, 2026 and December 31, 2025,90% and 89% of accounts receivable were concentrated in the Company’s top ten customers.

The following customers represented 10% or more of accounts receivable at June 30, 2026 and December 31, 2025:

*Total customer accounts receivable was less than 10% of accounts receivable.

No other customers accounted for 10% or more of the Company’s accounts receivable in the periods presented.

Net Revenue by Geography

The Company markets its products globally through its sales personnel and a worldwide network of independent sales representatives and distributors. Net revenue by region and country with 10% or more of the Company’s revenue during any of the periods presented, based on “bill to” customer locations were as follows:

5. 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 investments 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 short-term investments at June 30, 2026 and December 31, 2025, was as follows:

The Company did not transfer any investments between Level 1 and Level 2 of the fair-value hierarchy in the three and six months ended June 30, 2026 and the twelve months ended December 31, 2025.

6. INVESTMENTS:

Amortized cost and estimated fair market value of investments classified as available-for-sale (excluding cash equivalents) at June 30, 2026, were as follows:

Accrued interest receivable was $2.3 million at June 30, 2026, and was recorded within prepaid expenses and other current assets on the condensed consolidated balance sheet.

Amortized cost and estimated fair market value of investments classified as available-for-sale (excluding cash equivalents) at December 31, 2025, were as follows:

Accrued interest receivable was $2.3 million at December 31, 2025, and was recorded within prepaid expenses and other current assets on the condensed consolidated balance sheet.

The following table summarizes investments 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 June 30, 2026:

In the three and six months ended June 30, 2026 and 2025, no unrealized losses on investments were recognized in the condensed consolidated statements of income. The Company does not intend to sell, and it is unlikely that it will be required to sell the securities held prior to their anticipated recovery. The issuers are high-quality (investment grade) and the decline in fair value is largely due to changes in interest rates. Additionally, the issuers continue to make timely interest payments on the investments with the fair value expected to recover as they reach maturity.

7. BANK LINES OF CREDIT:

In 2016, the Company entered into a credit agreement with Wells Fargo Bank, National Association (the "Prior Credit Agreement") that provided the Company with a $75.0 million revolving line of credit to use for general corporate purposes and a $20.0 million sub-limit for the issuance of standby and trade letters of credit with an interest rate based on the Secured Overnight Financing Rates (“SOFR”). The Prior Credit Agreement had a term which originally extended to June 7, 2026, but was terminated by the Company on April 10, 2026. The Company was compliant with all covenants and had no advances outstanding under the Prior Credit Agreement at termination.

On February 24, 2026, the Company entered into a new unsecured loan agreement with PNC Bank, National Association (the "PNC Loan Agreement"), in part, to replace the Prior Credit Agreement. The PNC Loan Agreement became effective and available for use on April 10, 2026 when the Company terminated the Prior Credit Agreement. The PNC Loan Agreement provides the Company with a $100.0 million revolving line of credit with a $25.0 million sub-limit for the issuance of standby and trade letters of credit. The interest rate on outstanding borrowings under the PNC Loan Agreement is based on SOFR plus 1.60%. The PNC Loan Agreement term extends through February 24, 2031. All advances under the PNC Loan Agreement, together with all accrued and unpaid interest, fees, and other obligations owing thereon, will become due and payable on such date, or earlier upon the occurrence of an Event of Default as defined in the PNC Loan Agreement.

The PNC Loan Agreement requires the Company to maintain a Minimum Liquidity of at least $50.0 million as of the last day of each fiscal quarter and a ratio of Funded Indebtedness to Adjusted EBITDA, each as defined in the PNC Loan Agreement, of less than 2.00 to 1.00 as of the last day of each fiscal quarter and determined on a rolling four-quarter basis.

The PNC Loan Agreement contains representations and warranties, affirmative covenants, and conditions precedent to borrowings that are usual and customary for credit agreements of this type. The PNC Loan Agreement contains certain limited covenants that restrict, subject to certain exceptions, the Company’s ability to incur additional indebtedness or liens, issue guarantees or become liable for obligations of other persons or entities, liquidate, dissolve, merge, or consolidate with any other entity, or convey, transfer, or lease the Company's properties or assets to another person, which, in each case, are subject to certain qualifications and exceptions.

The Company was compliant with all covenants and hadno advances outstanding under the PNC Loan Agreement as of June 30, 2026.

8. STOCKHOLDERS’ EQUITY:

Cash Dividends

In October 2024, the Company’s board of directors declared dividends of $0.21 per share to be paid to stockholders of record at the end of each quarter in 2025. In October 2025, the Company’s board of directors raised the quarterly cash dividend and declared cash dividends of $0.215 per share to be paid at the end of each quarter in 2026.

For the three and six months ended June 30, 2026 and 2025, cash dividends declared and paid were as follows:

Common Stock Repurchases

From time to time, the Company’sboard of directors has authorized the use of funds to repurchase shares of the Company’s common stock. As of June 30, 2026, the Company didnot have any amount authorized to repurchase shares of its common stock.

Employee Stock Incentive Plans

The following table summarizes the stock-based compensation expense recognized in accordance with ASC 718 for the three and six months ended June 30, 2026 and 2025:

Other Operating Expenses

In connection with his retirement in July 2025, the Company’s former chief executive officer, Balu Balakrishnan, entered into a transition agreement and a consulting agreement with the Company. Pursuant to these agreements, Mr. Balakrishnan’s outstanding equity awards continue to vest subject to his continuous service and the applicable award agreements. The majority of these awards are subject to performance criteria established at the time of grant and will only be earned to the extent that the Company’s performance satisfies such criteria at the conclusion of the applicable performance periods. As the services to be performed by Mr. Balakrishnan under the transition agreement and the consulting agreement do not qualify as “substantive services” under ASC 718, Compensation–Stock Compensation, the continued vesting of the outstanding equity awards represents a modification of the original awards. Consequently, in the year ended December 31, 2025, the Company recognized stock-based compensation in the amount of $8.4 million in other operating expenses. In the three months ended June 30, 2026, the Company recorded an expense of $0.5 million in other operating expenses on its condensed consolidated statements of income, adjusting a portion of the previously recognized stock-based compensation expenses. The corresponding amount for the six-month period was a credit of $0.9 million. The adjustment reflects our revised estimate of the portion of the awards that will ultimately vest based on the Company's forecasted performance. Subsequent changes in our estimates could result in further adjustments in future periods until the vesting of these equity awards.

9. EARNINGS PER SHARE:

Basic earnings per share are calculated by dividing net income by the weighted-average shares of common stock outstanding during the period. Diluted earnings per share are calculated by dividing net income by the weighted-average shares of common stock and dilutive common equivalent shares outstanding during the period. Dilutive common equivalent shares included in this calculation consist of the assumed vesting of outstanding restricted stock units, the assumed issuance of awards under the stock purchase plan, and contingently issuable performance-based awards, as computed using the treasury stock method.

A summary of the earnings per share calculation is as follows:

(1)The Company includes the shares underlying performance-based awards in the calculation of diluted earnings per share if the performance conditions have been satisfied as of the end of the reporting period and excludes such shares when the necessary conditions have not been met. The Company has excluded the shares underlying the outstanding performance-based awards in the 2026 and 2025 calculations as the shares were not contingently issuable as of the end of the reporting period.

10. INCOME TAXES:

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

The Company’s effective tax rate for the three and six months ended June 30, 2026, was 12.5% and 13.3%, respectively, and (1.8%) and 9.5% in the corresponding period of 2025. The effective tax rate in these periods were lower than the statutory federal income tax rate of 21% due to the geographic distribution of the Company’s worldwide earnings in lower tax jurisdictions and federal tax credits. For the three months ended June 30, 2026, our effective tax rate benefited from a tax accounting windfall related to share-based payments. For the six months ended June 30, 2026, our effective tax rate was adversely affected by a tax accounting shortfall related to share-based payments. Additionally, in thethree and six months ended June 30, 2025, the Company’s effective tax rate was unfavorably affected by the recognition of share-based payments and foreign income subject to U.S. tax. The Company has not been granted any incentivized tax rates and does not operate under any tax holidays in any jurisdiction.

11. COMMITMENTS AND CONTINGENCIES:

Supplier Agreements

Under the terms of the Company’s wafer supply agreements with various foundries located in Japan, the parties periodically review and negotiate pricing; the wafer purchases thereunder are denominated in U.S. dollars. To mitigate the impact of future fluctuations in the exchange rate between the Japanese yen and the U.S. dollar, these agreements contain provisions for the parties to share in that risk.

Warranty

The Company generally warrants that its products will substantially conform to its published specifications for 12 months from the date of shipment. Under the terms and conditions of sale, the Company’s liability is generally limited to either a credit equal to the purchase price or replacement of the part.

Legal Proceedings

From time to time in the ordinary course of business, the Company becomes involved in lawsuits, or customers and distributors may make claims against the Company. In accordance with ASC 450-10, Contingencies, the Company makes a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated.

In 2019, a third party caused a patent infringement matter to be filed against a customer of the Company related to that customer's use of Company products. The third party also caused a follow-on claim to be filed against the same customer in the first quarter of 2025. The Company intervened on behalf of the customer and sought a declaration of non-infringement with respect to the customer's use of the Company’s products. In the second half of 2025, the Company obtained a verdict of non-infringement and invalidity as to all claims asserted against the customer. The third party appealed the judgment. In April 2026, during the pendency of the appeal, the Company entered into an agreement with the third party which resolved all matters between the parties, including a dismissal of the appeal and granted to the Company a full release and covenant by the third party not to assert any claims against the Company or its customers based on any of the third party's patents, including those upon which the original lawsuit was based. The Company did not provide any payment to the claimant in exchange for the resolution of the dispute. Pursuant to the settlement, all pending motions in the case have been terminated and the matter is now closed.

In 2021, the Company was named in a wrongful termination lawsuit by a former employee. The matter went to trial in 2025 and resulted in a jury verdict adverse to the Company of approximately $11.3 million; the Company reserved this amount. The Company disagrees with the jury’s verdict and has appealed the judgment. The charges associated with the established reserve were recognized in other operating expenses in the accompanying condensed consolidated statements of income as of December 31, 2025.

The Company is unable to predict the outcome of any legal proceedings with certainty, and there can be no assurance that the Company will prevail in any litigation or dispute. The Company evaluates, at least quarterly, developments in its legal matters that could affect the amount of any accrual, as well as any developments that would result in a loss contingency becoming both probable and reasonably estimable. These litigation matters, whether or not ultimately determined in the Company’s favor or settled, will be costly and will divert the efforts and attention of the Company’s management and technical personnel from normal business operations, potentially causing a material adverse effect on the business, financial condition, and operating results. In addition, adverse determinations in any patent litigation matter could result in the loss of proprietary rights, subject the Company to significant liabilities, require the Company to seek licenses from third parties or prevent the Company from licensing its technology, and incur monetary losses, any of which could have a material adverse effect on the Company’s business, financial condition, and operating results.

Indemnifications

The Company sells products to its distributors under agreements that generally include provisions for indemnification of the distributor against losses, expenses, and damages that may be awarded in the event the Company’s products are found to infringe upon a patent, copyright, trademark, or other proprietary right of a third party. The agreements generally limit the scope of and remedies for these obligations, including, but not limited to, limitations based on time and geography, and a right to replace an infringing product.

While the Company has on occasion been made aware of claims against its distributors or customers that may trigger an indemnification claim, to date, the Company has not had to reimburse any of its distributors or customers for any material losses related to these indemnification obligations and no material claims were outstanding as of June 30, 2026.

12. SEGMENT REPORTING:

The Company is organized and operates asone operating and reportable segment; the design, development, manufacture, and marketing of integrated circuits and related components for use primarily in high-voltage power conversion. This determination is based on the management approach which designates the internal information regularly available to the Chief Operating Decision Maker (“CODM”) for making decisions and assessing performance as the source of determination of the Company’s reportable segment. The Company’s CODM, the Chief Executive Officer, reviews financial information presented on a consolidated basis for the purpose of making operating decisions and assessing financial performance.

The CODM uses net income as the measure of profit or loss to allocate resources and assess performance. The CODM regularly reviews net income as reported on the Company’s consolidated statements of income. Financial forecasts and comparisons of budget to actual results are used by the CODM to assess performance and allocate resources. In addition, these forecasts and comparisons are used for strategic decisions related to making headcount and capital expenditure decisions, all of which are reviewed on a consolidated basis. The CODM considers the impact on net income of the significant segment expenses in the table below when deciding whether to reinvest profits, propose dividends or share repurchase, or pursue strategic mergers and acquisitions.

The measure of segment assets is reported on the balance sheet as total assets. The CODM does not review segment assets at a level other than that presented in the Company’s consolidated balance sheets.

The table below presents the Company’s consolidated operating results including significant segment expenses:

The table below presents other segment information:

13. RESTRUCTURING:

The Company continuously evaluates its operations to better align the organization with market opportunities, increase operational efficiency, decrease costs, and increase profitability. During the three months ended March 31, 2026, the Company undertook a restructuring plan, reducing its workforce by approximately 7% to better align expenses with revenue and create flexibility to invest in the products, people, and markets that are expected to drive long-term growth and profitability. In conjunction with this restructuring plan, restructuring charges of $6.6 million were recognized during the first quarter of 2026, primarily composed of severance costs. The restructuring plan was substantially completed in the first quarter of 2026. No restructuring charges were incurred in fiscal 2025. Restructuring liabilities are included in other accrued liabilities in the accompanying unaudited condensed consolidated balance sheets, and are summarized in the following table:

Cash severance charges of $0.4 million related to the departure of an executive officer are included in the table above. In addition, stock-based compensation expense of $1.8 million was recognized in the six months ended June 30, 2026 due to the acceleration of equity awards in accordance with the terms of the executive’s severance agreement.

The following table provides a summary of restructuring-related charges as presented in the unaudited condensed consolidated statements of income:

In conjunction with the restructuring actions taken in the first quarter of 2026, certain engineers were moved from sales and marketing projects to product development priorities. Accordingly, $3.0 million of related department costs have been classified as research and development expense in the accompanying condensed consolidated statement of income for the first quarter ended March 31, 2026 and will be accounted for as such going forward.