Power Integrations Inc 2026 Q2 Earnings Call

Good afternoon. Thanks everyone for joining us. With me on the call today are Jen Lloyd, our CEO, and our CFO, Nancy Erba. After Jen and Nancy's prepared remarks, we will open it up for questions. Slides accompanying today's earnings release and conference call can be found on our investor website at investors.power.com. Our discussion today will include forward-looking statements denoted by words like will, expect, should, outlook, forecast, and similar expressions that look toward future events or performance. Such statements are subject to risks that may cause actual results to differ from those projected or implied. Such risks are discussed in today's press release, in our most recent annual report on Form 10-K, and in subsequent quarterly reports on Form 10-Q. During this call, we will refer to financial measures not calculated according to GAAP.

Non-GAAP income statement measures exclude stock-based compensation expenses, amortization of acquisition-related intangible assets, accrual for a judgment in a legal matter, a restructuring charge recognized in the first quarter of 2026, and the tax effects of these items. A reconciliation of non-GAAP measures to our GAAP results is included in today's press release and in the accompanying slides. This call is the property of Power Integrations. Any recording or rebroadcast is expressly prohibited without the written consent of Power Integrations. Now I'll turn it over to Jen.

Thank you, Joe. Thanks everyone for joining us. I'm excited to share more about our strong Q2 results, progress on our strategic objectives, and new wins in our growth markets. We reported Q2 revenue of $119 million, up 10% from the prior quarter, with sequential improvement in all 4 end market categories. Non-GAAP operating margin expanded by more than five percentage points to 17.1%, and we generated $22 million in operating cash flow. It was a strong quarter. Nancy will cover more of the details in a few minutes. These results demonstrate our ability to deliver profitable growth in the near term as we pivot our long-term focus toward markets like energy infrastructure, rail, data center, and automotive. These markets are characterized by rising voltage and power levels, along with high uptime requirements, creating a need for high voltage solutions which maximize efficiency, power density, reliability, and safety.

Our technology and system expertise add the greatest value in these markets. We are orienting our investments and our organization around these long-term opportunities. Our commitment to innovation and investment in high voltage GaN took another step forward today with the demonstration of our 2,200 volt PowiGaN technology. This milestone extends PowiGaN into application spaces traditionally served by silicon carbide, while reinforcing Power Integrations' leadership in high voltage GaN. Unlike conventional GaN on silicon, which faces practical voltage limitations, PowiGaN continues to scale to higher voltages while preserving the efficiency and power density advantages of GaN. Another advantage of PowiGaN versus GaN on silicon is reliability. Because PowiGaN is a platform technology, our new 2,200 volt technology uses the same proven architecture as prior voltage nodes at 750, 900, 1,250, and 1,700 volts.

That means customers can expect the same reliable performance that we've demonstrated over eight years in the market. PowiGaN offers a long-term pathway for data center customers, giving them confidence that they can incorporate GaN today without fear of being boxed in and forced to change technologies on next gen designs. With 1,500 volt architectures already in view, customers can adopt GaN knowing that the technology roadmap extends well beyond current requirements. Rather than relying on complex stacked device approaches, future high voltage systems can leverage a single technology platform that combines high reliability, high switching frequency, and exceptional power density. We're excited to demonstrate 2,200 volt GaN and share our roadmap for even higher voltage nodes to come. Today, we have a broad range of ongoing customer engagements addressing 800 volt data centers.

Recent discussions with hyperscalers confirm that power continues to be a major challenge for them. We're excited about the opportunities for Power Integrations technology to be a key part of the solution. The biggest component of our projected billion-dollar data center SAM is the main power path to the GPU. We are working closely with customers to define and develop solutions using our unique 1,250 volt GaN, which offers a high density alternative to stacked 650 volt designs. The second track in our data center engagements is auxiliary power, where we see an expanding range of opportunities in and around the data center rack, including switch trays, power sidecars, and other high voltage sockets. We have a healthy roster of design-ins and a strong pipeline of ongoing design activity with our 1,700 volt products for 800 volt data centers.

In June, we published two reference designs targeting NVIDIA 800 volt racks with our 1,700 volt InnoMux products. These aux supplies will sit on the compute tray in a native 800-volt system, powering components such as MCUs, gate drivers, and op-amps, delivering space savings of about 30% compared to discrete silicon carbide designs. Higher voltages are an important trend, not just in the context of data centers, but across the entire power ecosystem that will support AI infrastructure, as well as electric vehicles and the modernization of power grids around the world. This evolving landscape includes renewable energy, high-voltage DC transmission, solid-state transformers, and battery storage. We address these applications today with our high-powered gate drivers, and our GaN roadmap will enable us to offer an even broader range of solutions for customers over time.

I'd like to say a few words specifically about battery storage systems, which are a critical part of modern power infrastructure, with deployments expected to grow at a double-digit CAGR through 2035. Battery storage makes electrical systems more resilient, flexible, and efficient by storing energy and delivering it when needed to smooth fluctuations, balance supply and demand, or provide backup power. Energy storage is becoming a foundational element of renewable energy systems, industrial power infrastructure, and power for AI data centers. Power conversion in large-scale battery systems is typically performed by high-voltage, silicon-based switching modules paired with gate drivers, like our SCALE-2 driver boards. However, rising power demands are driving a shift towards higher voltage architectures and greater adoption of silicon carbide. While silicon carbide can deliver significant gains in efficiency and power density, it introduces new challenges requiring more advanced gate driver technology. This trend plays to our strengths.

Our advanced gate drivers provide the precise switching performance required for silicon carbide systems, enabling our customers to confidently deploy the next generation of energy storage infrastructure. We are currently shipping gate drivers into battery storage systems used alongside renewable energy installations. We added an important new customer in Q2, winning a utility scale design at a top supplier of batteries for energy storage systems and EVs. We also have a number of customer engagements underway for battery storage, specifically targeting AI data centers, another element of our projected billion-dollar data center SAM in 2030. Having touched on some of our longer-term growth opportunities, I'll now comment on the appliance and low-power industrial markets, which will continue to be the main drivers of revenue and cash flow as we pivot towards higher-power markets.

We are calibrating our investments to maintain strong competitive positioning in these markets, even as we allocate more R&D and go-to-market resources toward our longer-term priorities. Recent product releases like TOPSwitchGaN and TinySwitch-5 are emblematic of this approach, building on existing IP, brand equity, and customer familiarity with proven architectures. TOPSwitchGaN now has a strong pipeline of designs underway as customers look to bring the efficiency and power density of GaN to appliances, power tools, and more. TinySwitch-5 now has designs in production and should contribute meaningful revenue in the second half of 2026, particularly at appliance customers where we've had a number of recent wins. Tiny5's flexible operating frequency helped one of our top appliance customers meet a tight time-to-market schedule because they could reuse an existing transformer design.

In addition, its excellent cross-regulation performance easily enabled separate outputs for the main motor, control panel, and MCU, all while meeting a stringent standby power spec. Driven largely by Tiny5 and Top GaN, our pipeline of appliance designs is healthy, keeping us in position to benefit when demand improves in the appliance market. Our industrial revenue is up 16% year-to-date, driven by broad-based growth across high and low-power applications, including renewable energy, home and building automation, tools, and metering. Automotive revenue, which is included in our industrial category, is on track to double this year and ramp up in the years ahead as we leverage our strong position in emergency power supplies and drive further GaN penetration in EVs.

Much like data centers, EV power architectures are evolving in ways that create greater need for advanced high-voltage technology. Our GaN roadmap aligns with rising main battery voltages, while our highly integrated products are ideal for micro DC-DC converters. These power supplies represent the next layer of automotive content for Power Integrations as EV architectures move towards distributed high-voltage power conversion and away from low-voltage batteries for powering subsystems. In Q2, we won a design at a major tier 1 supplier for a GaN-based micro DC-DC converter scheduled for production next year. This win represents another important endorsement of PowiGaN in the auto market, where other high-voltage GaN offerings have struggled to break through, but customers are increasingly impressed by the documented reliability performance of our GaN.

In closing, our Q2 results demonstrate solid progress on our near-term priorities as we continue to invest for long-term growth in data center, energy infrastructure, automotive, and high-power industrial. We're excited about the direction markets are heading. The way the world generates, distributes, stores, and uses electrical energy is changing in ways that will demand more advanced high-voltage semiconductor technology. Power Integrations is a pure play high-voltage company with differentiated technology and a roadmap increasingly well aligned with the long-term needs of the market. Our team is intently focused on converting those advantages into sustainable growth and shareholder value. Now I'll turn it over to Nancy for a review of the financial highlights.