Q2 2024 Power Integrations Inc Earnings Call
Operator: Please stand by; we're about to begin. Good afternoon, ladies and gentlemen.
Unknown Shareholder: Standby. We're about to begin.
Please standby we're about to begin.
Unknown Shareholder: Good afternoon, ladies and gentlemen. Welcome to the Power Integrations Q2 2024 earnings conference call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. You may register to ask a question at any time by pressing star one on your telephone keypad, and you may withdraw yourself from the queue by pressing star two. Also, today's call is being recorded. And if you should need any assistance during the call today, please press star zero.
Operator: Welcome to the Power Integrations Q2 2024 Earnings Conference call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing star 1 on your telephone keypad, and you may withdraw yourself from the queue by pressing star 2. Also, today's call is being recorded, and if you should need any assistance during the call today, please press star 0. And now, at this time, I would like to turn things over to Mr. Joe Shiffler, director of investor relations. Please go ahead, sir.
Speaker Change: Good afternoon, ladies and gentlemen, and welcome to the power Integrations Q2, 2024 earnings conference call.
Speaker Change: At this time all participants are in a listen only mode. Later, you will have the opportunity to ask questions. During the question and answer session. You may registered to ask a question at any time by pressing star one on your telephone keypad and you may withdraw yourself from the queue by pressing star too also.
Speaker Change: Also today's call is being recorded and if you should need any assistance during the call today. Please press star zero and now at this time I would like to turn things over to Mr. Joe Shiffler Director of Investor Relations. Please go ahead Sir.
Joe Shiffler: And now, at this time, I would like to turn things over to Mr. Joe Shiffler, Director of Investor Relations. Please go ahead, sir.
Joe Shiffler: Thank you, Bo.
Joe Shiffler: Thank you, Bo. Good afternoon, everyone. Thanks for joining us.
Joe Shiffler: Thank you Bo.
Joe Shiffler: Good afternoon, everyone. Thanks for joining us.
Joe Shiffler: Good afternoon, everyone. Thanks for joining us with me on the call today are bothered by the Krishnan, Chairman and CEO of power integrations, and Sandeep Nayyar, our Chief Financial Officer.
Joe Shiffler: With me on the call today are Balu Balakrishnan, Chairman and CEO of Power Integrations. And Sandeep Nayyar, our Chief Financial Officer.
Joe Shiffler: During this call, we will refer to financial measures not calculated according to GAAP. Non-GAAP measures exclude stock-based compensation expenses, amortization of acquisition-related intangible assets, and the tax effects of these items. A reconciliation of non-GAAP measures to our GAAP results is included in today's press release.
Joe Shiffler: With me on the call today are Balu Balakrishnan, Chairman and CEO of Power Integrations, and Sandeep Nayyar, our Chief Financial Officer. During this call, we will refer to financial measures not calculated according to GAAP. Non-GAAP measures exclude stock-based compensation expenses, amortization of acquisition-related intangible assets, and the tax effects of these items. A reconciliation of non-GAAP measures to our GAAP results is included in today's press, Our discussion today, including the Q&A session, will include forward-looking statements denoted by words like will, would, believe, should, expect, outlook, forecast, estimate, anticipate, and similar expressions that look toward future events or performance.
During this call we will refer to financial measures not calculated according to GAAP.
Sandeep Nayyar: non-GAAP measures exclude stock based compensation expenses amortization of acquisition related intangible assets and the tax effects of these items.
Sandeep Nayyar: A reconciliation of non-GAAP measures to our GAAP results is included in today's press release.
Joe Shiffler: Our discussion today, including the Q&A session, will include forward-looking statements denoted by words like will, would, believe, should, expect, outlook, forecast, estimate, anticipate, and similar expressions that look toward future events or performance. Such statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected or implied. Such risks are discussed in today's press release and in our most recent Form 10-K, filed with the SEC on February 12, 2024.
Sandeep Nayyar: Our discussion today, including the Q&A session will include forward looking statements denoted by words like will would believe should expect outlook forecast estimate anticipate and similar expressions that look toward future events or performance.
Joe Shiffler: Such statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected or implied. Such risks are discussed in today's press release and in our most recent Form 10-K filed with the SEC on February 12, 2024. This call is the property of Power Integrations, and any recording or rebroadcast is expressly prohibited without the written consent of Power Integrations. Now, I'll turn it over to Balu.
Sandeep Nayyar: Such statements are subject to risks and uncertainties.
Sandeep Nayyar: That may cause actual results to differ materially from those projected or implied such.
Sandeep Nayyar: Such risks are discussed in today's press release and in our most recent Form 10-K filed with the SEC on February 12 2024.
Joe Shiffler: This call is the property of Power Integrations, and any recording or re-broadcast is expressly prohibited without the written consent of Power Integrations.
This call is the property of power integrations and any recording or rebroadcast is expressly prohibited without the written consent of power integrations now I'll turn it over to Bob.
Balu Balakrishnan: Now, I'll turn it over to Balu. Thank you, Joe, and good afternoon. As expected, Q2 mob the beginning of our recovery with revenues up 16% sequentially, and another increase expected in the third quarter. Like many of our peers, our near-term outlook reflects limited visibility and challenging micro-conditions. Customers are behaving cautiously, and our short lead times enable customers to order products only when needed. All these factors make the slow-pop recovery highly uncertain. Nevertheless, inventory-related headwinds have less than considerably clearing the way for a rebound off the bottom. We consider 7 to 8 weeks a desirable range for channel inventory, and while pockets of excess remain at few distributors, we ended June at 7.8 weeks overall.
Balu Balakrishnan: Thank you, Joe, and good afternoon. As expected, Q2 marked the beginning of our recovery, with revenues up 16% sequentially and another increase expected in the third quarter. Like many of our peers, our near-term outlook reflects limited visibility and challenging macro conditions. Customers are behaving cautiously and our short lead times enable customers to order products only when needed. All these factors make the slope of recovery highly uncertain. Nevertheless, inventory-related headwinds have lessened considerably. Clearing the way for a rebound off the bottom.
Speaker Change: Thank you Joe and good afternoon it.
Bob: As expected Q2 marked the beginning of a recovery with revenues up 16% sequentially and another increase expected in the third quarter.
Speaker Change: Like many F O B S. Our near term outlook reflects limited visibility and challenging macro conditions macro conditions.
Speaker Change: That's kind of sad behaving cautiously and our short lead times enable customers to order products only when needed.
Speaker Change: All of these factors made the slope of recovery are highly uncertain.
Speaker Change: Nevertheless, inventory related headwinds have lessened considerably.
Speaker Change: Clearing the way for a rebound off the bottom.
Balu Balakrishnan: We consider seven to eight weeks a desirable range for channel inventory, and while pockets of excess remain at a few distributors, we ended June at 7.8 weeks overall. That's down a week from the prior quarter and well below the peak of 13.6 weeks in Q3 of 2022. The recovery is being led by our consumer category, where revenues are up 70% over the past two quarters after falling all the way back to 2009 levels in Q4 of last year.
Speaker Change: We considered a seven to eight weeks it desirable range for channel inventory.
Speaker Change: And while pockets of excess the main at few distributors.
We ended June at seven eight weeks all at all.
Balu Balakrishnan: That's down a week from the prior quarter, and well below the peak of 13.6 weeks in Q3 of 2022. The recovery is being led by our consumer category, where revenues are up 70% over the past two quarters after falling all the way back to 2009 levels in Q4 of last year. Just as the supply chain had bulked up on inventory after the shortages of the prior year, demand for appliances fell shortly due to a confluence of factors, including the collapse of China real estate. and, more broadly, higher interest rates, slower home sales, and the hangover from the accelerated purchases during the COVID times.
Speaker Change: That's down a week from the prior quarter and well below the peak of $13 six weeks in Q3 of 2022.
Speaker Change: The recovery is being led by our consumer category, where revenues are up 70% over the past two quarters. After falling all the way back to 2009 levels in Q4 of last year.
Balu Balakrishnan: Just as the supply chain had bulked up on inventory after the shortages of the prior year, demand for appliances fell shortly due to a confluence of factors, including the collapse of China Real Estate, and more broadly, higher interest rates, slower home sales, and the hangover from the accelerated purchase purchases during the COVID time. The resulting correction had an outsized impact on power integrations with about a third of our revenue coming from the appliance market in 2022. As often happens, the supply chain over-corrected, drawing inventories down to unsustainable levels, and then replenishing throughout the first half of the year.
Speaker Change: Yes, the supply chain had bulked up on inventory after the shortages of the prior year demand for appliances fell sharply due to a confluence of factors, including the collapse of China real estate.
Speaker Change: And more broadly higher interest rates slower home sales and the hangover from the accelerated purchase.
Speaker Change: During the Covid times.
Balu Balakrishnan: The resulting correction had an outsized impact on Power Integrations, with about a third of our revenue coming from the appliance market in 2022. As often happens, the supply chain over-corrected, drawing inventories down to unsustainable levels and then replenishing throughout the first half of the year. Looking ahead, appliance demand remains soft, and we expect seasonally lower air-conditioning sales in the September quarter. However, we have continued to win market share and grow our dollar counted in appliances through the downturn, and we look forward to the fundamental strength of our consumer business coming back to the forefront. Now that cyclical factors are no longer dominant.
Speaker Change: The resulting correction.
Speaker Change: Had outsized impact on power integrations with about a third of our revenue coming from that plant market in 2022.
Speaker Change: As often happens the supply chain overcorrected, drawing inventories down to unsustainable levels and then replenishing throughout the first half of the year.
Balu Balakrishnan: Looking ahead, appliance demand remains soft, and we expect seasonally lower air conditioning sales in the September quarter. However, we have continued to win market share and grow our dollar content in appliances through the downturn, and we look forward to the fundamental strength of our consumer business coming back to the forefront now that cyclical factors are no longer dominant. Power Integrations is number one in the world in appliance power supplies thanks to the reliability and energy efficiency benefits of our products.
Speaker Change: Looking ahead, our plans demand remains soft and we expect seasonally lower air conditioning sales in the September quarter.
Speaker Change: However, we have continued to win market share and grow our dollar content in appliances through the downturn and we look forward to the fund fundamental strength of our consumer business coming back to the forefront now that cyclical factors no longer dominant.
Balu Balakrishnan: Power Integrations is number one in the world in appliance power supplies thanks to our reliability and energy efficiency benefits of our products. As the market leader, we have the inside track on incremental content from the additional features such as connectivity, displays, and LED lighting. Even as designers work to meet tighter efficiency standards, such as new EU limits on standby power supplies. These conflicting design challenges are driving greater adoption of higher performance, higher value products, such as our GAN-based inner switch and Enomax-2 products and our Bridge Switch motor drive HICs. In June, we introduced Bridge Switch 2, raising our addressable power range for BLDC motors to one horsepower.
Speaker Change: Power integrations is number one in the world in appliance appliance power supplies, thanks to our reliability and energy efficiency benefits of our products.
Balu Balakrishnan: As the market leader, we have the inside track on incremental content from additional features such as connectivity, displays, and LED lighting, even as designers work to meet tighter efficiency standards such as new EU limits on standby power supply. These conflicting design challenges are driving greater adoption of higher performance, higher value products such as our GaN-based InnoSwitch and InnoMUX2 products and our BridgeSwitch motor drive IC. In June, we introduced Bridge Switch 2, raising our addressable power range for BLDC motors to 1 horsepower. The expanded power range encompasses applications such as washing machine drums, heat pumps for clothes dryers, and kitchen mixers and blenders, and doubles our addressable market for motor drive to a billion dollars.
Speaker Change: As the market leader, we have the inside track on incremental content from the additional features such as connectivity displays and led lighting.
Speaker Change: Even as designers work to meet tighter efficiency centers, such as new EU limits on standby power supply.
Speaker Change: Okay.
Speaker Change: These conflicting design challenges are driving greater adoption of higher performance higher value products, such as our Gan based in a switch and <unk> products and our bridge switch motor driver Ics.
Speaker Change: In June we introduced big switch to raising our addressable power range for VLCC motors to one horsepower.
Balu Balakrishnan: The expanded power range encompasses applications such as washing machine drums, heat pumps for closed dryers, and kitchen mixers and blenders, and double our addressable market for motor drive or billion dollars. Bridge Switch 2 is the most efficient BLDC driver solution available, with standby consumption of less than 10 mW and inverter efficiency up to 99%, which eliminates the need for heat sinks. We have received our first purchase orders for Bridge Switch 2 in recent weeks, including two from air conditioning customers in China and another for a dishwasher pump at a major European appliance OEM. We also continue to build new programs with the first generation Bridge Switch, with recent events including a range hood fan for the India market.
Speaker Change: The expanded power encompasses applications, such as washing machine drums heat pumps for clothes, dryers and kitchen mixes and blenders.
Speaker Change: And double our addressable market for motor drive a $1 billion.
Speaker Change: <unk> is the most efficient <unk> driver solution available with standby consumption of less than 10, milliwatt and inventory efficiency up to 99%, which eliminates the need for <unk>.
Speaker Change: We have received our first purchase orders for our bridge switch to in recent weeks, including two from air conditioning customers in China and another for a dishwasher pump at a major European appliance Oems.
Speaker Change: We also continue to win new programs with the first generation bridge switch.
Speaker Change: With the recent wins, including a range would fans for the India market.
Balu Balakrishnan: We are equally excited about the market perception for Enomax-2, which we introduce in March. Enomax-2 is a new architecture for products with multiple DC outputs, eliminating the need for separate DC-DC conversion stages by providing up to three independently regulated DC outputs. This not only simplifies the designs, but also increases the efficiency by eliminating the compounded losses over multiple conversion stages. I know much to also incorporate our proprietary power began switches for the boosting efficiency. Our first high volume design began production earlier this quarter in a 24 inch monitor for a top tier PC OEM, and we have a range of designs in progress across the computing PV and appliance markets.
Speaker Change: We are equally excited about the market perception, but in a much too.
Speaker Change: Which we introduced in March.
Speaker Change: <unk> is a new architecture.
Speaker Change: Products with multiple DC outputs.
Speaker Change: Eliminating the need for a separate DC to DC conversion stages by providing up to three independently regulated DC outputs.
Speaker Change: This not only simplifies the designs, but also increases the efficiency by eliminating the compounded losses over the multiple commercial stages.
Speaker Change: You don't want still also incorporates our proprietary power began switches further boosting efficiency.
Speaker Change: Our first high volume designs began production earlier this quarter and a 24 inch monitor for a top tier PC OEM and we have a range of designs in progress across the computing television and appliance markets.
Balu Balakrishnan: We also won a wide range of designs in Q2 with our GAN Inoswitch and Hyper-FFS products, including multi port USB PD chargers ranging from 65 to 140 watts at brands like Anker, U Green, and G Power. OEM notebook design means and India's 5G fixed wireless rollout should also contribute meaningful revenues next year. Overall, we expect 2025 to be an inflection point in the growth of GAN, reflecting the continued migration of our product portfolio from Silicon to GAN, as well as broader customer awareness and adoption across all end markets. This includes a notable uptake in opportunities for GAN as industrial customers, reflecting greater awareness of GAN in general and our highly integrated products in particular.
Speaker Change: We also won a wide range of designs in Q2 with our Gan in a switch and HIFU.
Speaker Change: <unk> products.
Speaker Change: Including multi port USB PD charges, ranging from 65 to 140 watts at brands like anchor Ukraine and GE power.
Speaker Change: OEM notebook design wins, and India's five <unk> fixed wireless rollout should also contribute meaningful revenues next year.
Speaker Change: Overall, we expect 2025 to be an inflection point in the growth of Gan, reflecting the continued migration of our product portfolio from silicon to again as well as broader customer awareness and adoption across all end markets.
Speaker Change: This includes a notable uptick in opportunities for Gan products at industrial customers, reflecting greater awareness of Gan in general and our highly integrated products in particular.
Balu Balakrishnan: Because of the relatively low volumes over which the engineering costs are spread, industrial customers value ease of design and are less inclined to devote resources to solving the challenges of discrete GAN solutions. We strip away the complexity from the customer's perspective by incorporating power GAN switches into our system-level products. So the customer doesn't have to invest the time learning about GAN to take advantage of its superior performance. Our 91250 volt GAN Inoswitch products are essentially well suited, especially well suited for industrial applications such as utility meters, which are directly connected to the grid and highly exposed to surges and spikes, especially in markets like India where the grid voltages fluctuate widely.
Speaker Change: Because of the relatively low volumes over which that engineering costs are spread industrial customers value ease of design and are less inclined to devote resources to solving the challenges of discrete Gan solutions.
Speaker Change: We strip away the complexity from the customer's perspective by incorporating probably gan switches into our system level products. So the customers the customer doesn't have to invest the time learning about Gan to take advantage of its superior performance.
Speaker Change: Our 902 hundred 50 volt Gan switch products.
Speaker Change: Essentially well suited, especially well suited for our industrial applications, such as utility meters, which are directly connected to the grid.
Speaker Change: And highly exposed to surges in spikes, especially in markets like India, where the goodwill to just fluctuate wildly.
Balu Balakrishnan: We have a leading position in the India metering market, and we are encouraged by the level of interest in higher voltage GaN products as India proceeds with its plan to deploy 250 million new meters over the next several years. Automotive customers also value the ease of use, reliability, efficiency, and space savings of our products, including our higher voltage GaN ICs. We expect to be in production with about 20 electric vehicle OEMs by the end of this year and at least 10 more slated to begin production next year. We are adding dozens of design opportunities to our funnel every quarter, with the range of applications including emergency power supplies, 12 volt battery replacement, micro DC-DC converters, and compressors for battery and cabin cooling.
Speaker Change: We have a leading position in India metering market and we are encouraged by the level of interest in higher voltage Gan products as India proceeds with its plan to deploy 215 million new meters over the next several years.
Speaker Change: Automotive customers also value the ease of use.
Speaker Change: Liability efficiency and space savings of our products, including our higher voltage Gan Ics.
Speaker Change: We expect to be in production with about 20 electric vehicle Oems by the end of this year and at least 10 more.
Speaker Change: More slated to begin production next year.
Speaker Change: We are adding dozens of design opportunities opportunities to our funnel every quarter with a range of applications, including emergency power supply.
Speaker Change: Volt battery replacement micro DC to DC converters, and compressors for a battery and cabin cooling.
Balu Balakrishnan: We believe automotive will be a billion-dollar addressable market in the years ahead, with the potential to go much higher as we develop high current GaN technology to address higher power levels.
Speaker Change: We believe automotive will be a $1 billion addressable market in the years ahead.
Speaker Change: With the potential to go much higher as we develop high current Gan technology to address higher power levels.
Balu Balakrishnan: On July 1st, we closed our acquisition of the assets of Odyssey Semiconductor, adding expertise in vertical GAN technology, which supports much higher current than today's lateral devices. The acquisition also includes a clean room to enable quick turnaround of vapors and significantly shorten overall development times. While success is not guaranteed, we believe we can achieve the necessary breakthroughs to make high power GAN a reality in the next three to five years and ultimately to introduce GAN products that compete with Silicon Carbide in high power applications, such as EV drive train inverters. We are excited to have the Odyssey team on board to support those efforts.
Speaker Change: On July one we closed our acquisition of the assets of Odyssey semiconductor adding.
Speaker Change: Adding expertise in vertical Gan technology, which supports much higher than today's lateral devices.
Speaker Change: The acquisition also includes a clean room to enable quick turnaround of wafers and significantly shorten overall development time.
Speaker Change: While Texas is not guaranteed.
Speaker Change: We believe we can achieve the necessary breakthroughs to make high powered Gan a reality in the next three to five years.
Speaker Change: And ultimately it introduced Gan products that compete with silicon carbide in high power applications, such as EV drivetrain in waters.
Speaker Change: We are excited to have the Odyssey team on board to support those efforts.
Sandeep Nayyar: With that, I will turn it over to Sandeep for a review of the financial. Thanks, Balu, and good afternoon. Our Q2 results are straightforward, so I will just quickly recap the numbers and the outlook, and then we will open it up for questions. As usual, I will focus my remarks on the non-GAAP results, which are reconciled to GAAP in our press release. Second quarter revenues $106 million, just above the midpoint of our guidance, while non-GAAP earnings were 28 cents per delugered share, above the level employed in our guidance as we came in slightly better on both gross margin and operating expenses.
Speaker Change: With that I will turn it over to Sandeep for a review of the financials.
Sandeep Nayyar: Thanks, <unk> and good afternoon. Our Q2 results are straightforward. So I will just quickly recap the numbers and the outlook and then we will open it up for questions.
Sandeep Nayyar: As usual I will focus my remarks on the non-GAAP non-GAAP results, which are reconciled to GAAP in our press release.
Sandeep Nayyar: Second quarter revenues were $106 million just above the midpoint of our guidance, while non-GAAP earnings were <unk> 28 per diluted share.
Sandeep Nayyar: Bob the level implied in our guidance as we came in slightly better on both gross margin and operating expenses.
Sandeep Nayyar: Revenues were up 16 percent compared to the prior quarter, with increases in all four end market categories. Consumer our largest category was up high teen sequentially. We saw strength across the board in major and smaller appliances, as well as their conditioning, which typically reaches a seasonal peak in the June quarter. In the industrial category, channel inventory remains slightly elevated but continued its gradual improvement in Q2. Revenues are up mid single digits sequentially driven by improved inventory as well as design winds across a range of applications, including metering, where we are seeing growth in India, as Balu noted.
Sandeep Nayyar: Revenues were up 16% compared to the prior quarter with increases in all four end market categories.
Speaker Change: Consumer our largest category was up high teens sequentially, we saw strength across the board in major and small appliances as well as air conditioning, which typically reaches a seasonal peak in the June quarter.
Sandeep Nayyar: In the industrial category channel inventory remains slightly elevated but continued its gradual improvement in Q2.
Sandeep Nayyar: Revenues were up mid single digits sequentially, driven by improved inventories as well as new design wins across a range of applications, including metering, where we are seeing growth in India as Bob noted.
Sandeep Nayyar: The computer category was up more than 40 percent sequentially, driven largely by tablets as the key end customer has worked through excess inventory. We also saw strength in aftermarket notebook charges and in monitors. The communication category was up 10 percent sequentially, driven by the clearance of inventory at a key handset customer. Revenue mix for the quarter was 42 percent consumer, 33 percent industrial, 14 percent computer, and 11 percent communication. As Balu noted, distribution inventory ended the quarter at 7.8 weeks, down a full week from the prior quarter, as sell through once again exceeded selling. In terms of dollar value, channel inventory reached its lowest level in three years.
Speaker Change: The computer category was up more than 40% sequentially.
Sandeep Nayyar: Driven largely by tablets as a key end customer has worked through excess inventory.
Sandeep Nayyar: We also saw strength in after market notebook Chargers and and monitors.
Sandeep Nayyar: The communication category was up 10% sequentially driven by the clearance of inventory at our key handset customer.
Sandeep Nayyar: Revenue mix for the quarter was 42% consumer, 33% industrial 14% computer and 11% communication.
Speaker Change: As <unk> noted distribution inventory ended the quarter at seven eight weeks down a full week from the prior quarter as sell through.
Speaker Change: Once again exceeded sell it.
Speaker Change: In terms of dollar value channel inventory reached its lowest level in three years.
Sandeep Nayyar: Non-GAAP gross margin for the second quarter was 54.1%, up more than a percentage point from the prior quarter, driven by the favorable dollar-yen exchange rate and higher back-in manufacturing volumes. We are projecting another sequential improvement in Q3 as both these factors will continue to provide tailwinds. Non-Gab operating expenses for the quarter were $44.2 million, up sequentially as expected due mainly to annual salary increases, which took effect early in the quarter, and also due to head count growth. Non-Gab learning for the first quarter were 28 cents per diluted share. Deluded share count for the quarter was 57 million, down slightly from the prior quarter, driven by repurchases.
Sandeep Nayyar: non-GAAP gross margin for the second quarter was 54, 1% up more than a percentage point from the prior quarter driven by the favorable dollar yen exchange rate and higher backend manufacturing volumes.
Sandeep Nayyar: We are projecting another sequential improvement in Q3 as both these factors will continue to provide tailwind.
Sandeep Nayyar: non-GAAP operating expenses for the quarter were $44 $2 million up sequentially as expected due mainly to annual salary increases which took effect early in the quarter and also due to head count growth.
Sandeep Nayyar: non-GAAP earnings for the first quarter were 28 cents per diluted share.
Sandeep Nayyar: Diluted share count for the quarter was $57 million down slightly from the prior quarter driven by repurchases.
Sandeep Nayyar: We used 11 million dollars for repurchases during the quarter, buying back 164,000 shares. The other primary use of cash in the quarter was $11 million for dividends, with an additional $4 million for CAPEX. Cash flow from operations for the quarter was $18 million. Inventory days was 312 at quarter end, down 37 days from the prior quarter. Going forward, I expect inventory days to glide downward in conjunction with the recovery in revenues.
Sandeep Nayyar: We used $11 million for repurchases during the quarter buying back 164000 shares.
Sandeep Nayyar: The other primary use of cash in the quarter was $11 million for dividends with an additional $4 million for capex.
Sandeep Nayyar: Cash flow from operations for the quarter was $18 million.
Sandeep Nayyar: Inventory days were 312 at quarter end down 37 days from the prior quarter.
Sandeep Nayyar: Going forward I expect inventory days to glide downward in conjunction with the recovery in revenues.
Sandeep Nayyar: Turning to the Q3 outlook, we expect revenues to be $115 million plus or minus $5 million, a sequential increase of 8% at the midpoint. Non-Gab growth margins should be between 54 and a half and 55% with a sequential increase driven once again by higher manufacturing utilization and the end. This puts us on course for a fully agro margin north of 54%. Non-Gab operating expenses should be between 44 and a half and 45 million dollars, up modestly from the second quarter, driven mainly by the additions of Audacity. For the full year, non-Gab-OPEX is tracking towards an increase of about 5% versus the prior year.
Sandeep Nayyar: That's well below our original plan, even with Audacity adding about a million and a half dollars of OPEX in the second half of the year. Finally, I expect our Q3 effective approximately 4%.
Unknown Shareholder: Now, let's begin the Q&A. Thank you, Mr. Nair. Ladies and gentlemen, at this time, if you would like to ask a question, please press star one on your telephone keypad. If you find your question has been addressed, you may remove yourself from the queue by pressing star two.
Speaker Change: Let's begin the Q&A.
Speaker Change: Thank you Mr. Nye, our ladies and gentlemen at this time, if you would like to ask a question. Please press star one on your telephone keypad. If you find your question has been addressed you may remove yourself from the queue by pressing star to once again star one for questions well go first this afternoon too David Williams of benchmark.
David Williams: Once again, star one for questions. We'll go first this afternoon to David Williams of Benchmark. Hey, good afternoon, and thanks for letting me ask a question here.
David Williams: Hey, good afternoon, and thanks for letting me ask a question here.
David Williams: Would that be a little David? Yeah, I guess maybe the first question is maybe around how you're seeing things geographically, and trying to seem to be getting better in certain segments.
Speaker Change: Good afternoon, David.
Speaker Change: Yeah.
David Williams: I guess, maybe the first question is is maybe around how youre seeing things geographically in China seems to be getting better in certain segments. Just curious how you're seeing that in and just from some of your comments. It doesn't sound like maybe you are seeing that same thing, but just kind of curious how you're seeing that geography today.
Balu Balakrishnan: Just curious how you're seeing that, and just from some of your comments, it doesn't sound like maybe you're seeing that same thing. In China, our biggest exposure is appliances, and as we mentioned, we are not seeing a pickup in demand. The inventory situation has pretty much cleared out. So we are now seeing the current demand, which is actually much lower than what we would have expected. However, thanks to design wins and also our increase in ASP due to higher power levels. We are seeing a growth that is above demand, and I think that will continue through the second half and next year.
Speaker Change: In China, our biggest exposure is appliances and as we mentioned we are not seeing a pickup in demand. The inventors attrition has pretty much cleared it out. So we are now seeing the current demand, which is actually much lower than them.
Speaker Change: We would have expected.
Speaker Change: However, thanks to design wins and also our increase in the ASP due to higher power levels.
Speaker Change: We are seeing a growth that is about demand.
Speaker Change: And I think that will continue through the second the second half and next year, but I think the actual raw demand is essentially.
Balu Balakrishnan: But I think the actual raw demand is essentially flat at this point because of all the challenges China has in terms of the real estate market. Now, the cell phone is a little bit different because they move more to low-end phones. Huawei is doing better on the high end. Obviously, we can't supply to Huawei, and they are taking share away from our customers on the higher end of the market. So that situation has not improved in China. But if you look at our overall performance, our cell phone has been down more than 50% this year.
Speaker Change: Essentially flat at this point because of all the challenges China has in terms of the real estate market.
Balu Balakrishnan: But the rest of the market, based on our projections, are internal modeling for this year. If we are up more than 15%. So we are doing really well; everybody else. The cell phone market, for reasons I mentioned, has shifted in China.
Balu Balakrishnan: We are doing very well outside of China. And David, one more thing, even in the high power business in China, the infrastructure, the grid, you know, projects have been delayed a bit. So that has also impacted, which is a reflection of what Balu is saying, what is happening in China.
David Williams: And I would add that, having said that, next year should be a very good growth for us, because all of this will be out of the picture. The cell phone situation in China, I think, has stabilized at this point, and we should see a nice growth next year in all of the areas. Great. Great color there.
David Williams: So I guess secondly, just if you're thinking about how you were viewing the second half, obviously it seems like things are a bit more tempered now than maybe last quarter. We were thinking about a stronger second half recovery. What do you think is different today than 90 days ago? Is it simply the macro deteriorating, or are there other maybe push and pulls that are kind of coming in here? Is it really just about the macro? Thank you. Actually, if you go back to our last call, what we said was that the inventory situation will come back to normal by the middle of this year, and that has pretty much happened.
Speaker Change: Is it simply the macro deteriorating or are there other maybe push and pulls that are kind of coming in here is it really just about the macro thank you.
Speaker Change: Actually if you if you go back to the last call what we said was.
Speaker Change: That the inventory situation will come back to normal by the middle of this year and that is pretty much happened and we also said that we will grow.
Balu Balakrishnan: And we also said that we will grow in the second half, but we didn't know the slope of the growth because we couldn't see the demand picture. The visibility is very poor. So you are correct. I think the growth in the second half is less than I would have anticipated, but that was not visible to us in the last quarter. So even now the visibility for Q4 is very, very low. People are ordering at the last minute because they can't. We have a lot of inventory. They have kittish about holding inventory after what has happened in the last couple of years.
Speaker Change: The second half, but we didn't know the slope of the growth because we don't we couldnt see the demand picture and the visibility is very poor. So you are correct I think the growth in the second half is.
Speaker Change: Less than.
Speaker Change: I would have anticipated.
Speaker Change: But that was not visible to us in the last quarter, even now the visibility for Q4 is very very low people are ordering.
Speaker Change: <unk>.
Speaker Change: At the last minute because they can we have a lot of inventory they are skittish about holding inventory.
Speaker Change: After what has happened in the last couple of years.
Balu Balakrishnan: So they order when they need the parts. So that makes it very difficult to look into the rest of Q3 and Q4.
Speaker Change: No.
Speaker Change: They are there when they need the parts so that makes it very difficult to look into.
Speaker Change: The rest of Q3 and Q4.
David Williams: So I would say your observation is time. Great. Thanks again for the time. Thank you.
Speaker Change: So I would say your observation is correct.
Unknown Shareholder: Just a reminder, ladies and gentlemen: Star One, please, for any questions.
Matt Ramsey: We go next now to Matt Ramsey at TD Cowan. Thank you very much. Good afternoon, everybody. A couple things I wanted to hit on. I guess my first question, and Balu, you guys mentioned in your prepared script lots of things about the movements of the end markets in the short term. But I think what caught my attention a little bit was your commentary about an inflection potentially for GAN across your end markets in 2025 and beyond.
Balu Balakrishnan: So maybe you could unpack that a little bit, like what you're seeing with design wins that give you that confidence, and then the second part I guess is what percentage of the business today is GAN, and if you look out two, three years, like where do you think that can get based on what you're seeing? So you know we've mentioned multiple times that the most of our new products will be using GAN, and they have been using GAN, and we got the best the first traction on cell phones because that has much shorter design cycles.
Balu Balakrishnan: So, you know, we have mentioned multiple times that most of our new products
Balu Balakrishnan: What we are seeing now is the proliferation of GAN into all of the other markets, and it's driven by our new products like you know, Mux2, you know, GAN, higher voltage, you know, you know, switches with GAN. All of these are going; we'll be going into production over time, and we see an inflection point starting in 2025. So just to give you a rough idea, you know, next year our GAN revenue could grow as much as 50 percent, and we see the growth rate, the slope of the growth rate shifting starting in 2025, and it's pretty much expected, and it's nice to see that it is happening right now.
Speaker Change: India.
Speaker Change: Next year, our Gan revenue could grow as much as 50% and we see the growth rate the slope of the growth rate shifting.
Speaker Change: In 2025.
Speaker Change: And it's a pretty much expected and it's nice to see that it is happening right now.
Balu Balakrishnan: As far as exact revenues, I would rather focus on what we have going for the future, and we think by 2028, GAN could be, GAN revenue could be $100 million in that range.
Speaker Change: As far as exact revenues I would rather focus on what we have going for the future and we think by 2028 Gan could be gander, when it could be $100 million.
Speaker Change: In that range.
Matt Ramsey: No, I've got it, really appreciate the color there. I guess my follow-up question, Cindy, was a little bit of a historic last 72 hours with the end.
Speaker Change: Oh got it really appreciate the color there I guess, Mike My follow up question Sandeep.
Speaker Change: It was a little bit of a historic last 72 hours with the yen.
Sandeep Nayyar: Maybe you could just give us a few comments about sort of variability there and how it affects the model, a remind us of the sort of rule of thumb and if there are currency fluctuations, is that something that hits sort of the manufacturing part of the business in the current quarter and how long would that take to show up in the P&L if there were sustained moves? Is that a quarter out? Is that two quarters out? Just trying to get a sense given when things manufacture versus when they sell. Thanks. Yeah.
Speaker Change: Maybe you could just give us a few.
Speaker Change: Comments about sort of variability there and how it affects the model I remind us of the sort of rule of thumb and if there is currency fluctuations is that something that.
Speaker Change: It's sort of the manufacturing part of the business.
Speaker Change: In the current quarter and how how long would that take to show up in the P&L. If there were sustained moves.
Speaker Change: About a quarter out is that two quarters I'll, just I'm, just trying to get a sense given when things manufacturer versus when they sell.
Speaker Change: Yes.
Sandeep Nayyar: So Matt, as we have said before, typically in the past, the end impact, a 10 percent change in the end would affect us about 120 basis points given tech, and it would flow out within six months into P&L. But things have changed with the level of inventory we are carrying. And so, if you look at what we are carrying today, it is significantly larger. As a result, it takes about, you know... So, three to four quarters for it before it flows into the P&L. So, I think the big change that you saw recently, if it hoards for a while, because, as you know, in our, it's not on a daily basis that we adjust, it's over a period of time, we have to end what we call an end-sharing arrangement with our manufacturing partners.
Sandeep Nayyar: So, my take is with the level of inventory we are paying, if this change that happened recently hoards, it'll probably impact us a little bit in the fourth quarter, or maybe in Q1 of 26. So, pretty much for next year, because of the level of inventory we have, the benefit of the end will flow. In fact, we still see, because the end had depreciated all this while, from this year to next year, we will still have a little more benefit from Yen in the PNL, but we'll have headwinds from input costs that we saw increasing this way.
Sandeep Nayyar: But, we'll also get favorability into next year from mix, if the cell phone was, the growth comes from non-cell phone areas. So, if you remember what we said on the annual of the day, we had kept our model; we had said is, even when yen normalizes, which for us means it goes back to 120, we had said that the mix will go favorable. The Yen could become a headwind going ahead, but yet, and the mix would go favorable, but we would still stay in the higher end of the model, and it's kind of playing out pretty much to what we said earlier.
Sandeep Nayyar: Now, the input cost continue to be a challenge, and at least from what we have got this year as high cost, we'll impact the PNL next year. But having said all that, we still feel good, even for next year, that our margin will be at the higher end of the model.
Matt Ramsey: No, all right. Like I said, a lot of moving pieces there, but I think we got most of them. So, thanks, Andy. I really appreciate that. Thanks, guys. Sure. Thanks, Beth. Thank you.
Speaker Change: Both of them. So thanks, Sandeep I really appreciate that thanks guys.
Matt: Sure. Thanks, Matt.
Speaker Change: Thank you and just a final reminder, ladies and gentlemen star one please for any questions or follow up questions. This afternoon.
Unknown Shareholder: And just to find a reminder, ladies and gentlemen, star one, please, for any questions or follow-up questions this afternoon. All right. Well, it looks like we have no further questions. Shall I group today, I guess?
Matt: Okay.
Speaker Change: Alright, so it looks like we have no further questions shy group today I guess so.
Unknown Shareholder: So, we'll leave it there. Thanks, everybody, for dialing in today, and there will be a replay of this call available on our investor website, which is Investors.Power.com. Thanks again and good afternoon. Thank you, Mr. Secretary.
Matt: We'll leave it there thanks, everybody for dialing in today and there will be a replay of this call available on our Investor website, which is investors dot power dot com, Thanks, again and good afternoon.
Speaker Change: Thank you Mr. Schiffler, ladies and gentlemen, again that will conclude today's power integrations second quarter earnings conference again, thanks, so much for joining US everyone and we wish you all a great remainder of your day Goodbye.
Unknown Shareholder: Ladies and gentlemen, again, that will conclude today's Power Integration's second quarter earnings conference. Again, thanks so much for joining us, everyone. And we wish you all a great remainder of your day. Goodbye.
Speaker Change: Uh huh.
Matt: [music].