POWI 10-K & 10-Q changes, risk factors and insider trading

Our operating results are volatile and difficult to predict. If we fail to meet the expectations of public market analysts or investors, the market price of our common stock may decrease significantly. Our net revenuesrevenue and operating results have varied significantly in the past, are difficult to forecast, are subject to numerous factors both within and outside of our control,control and may fluctuate significantly in the future. As a result, our operating results could fall below the expectations of public market analysts or investors. If that occurs, the price of our stock may decline.

Some of the factors that could affect our operating results and the price of our stock include the following:

If demand for our products continues to declinedeclines in our major end markets and we do not penetrate additional markets, our net revenuesrevenue will decline further.decrease. When our customers are not successful in maintaining high levels of demand for their products, their demand for our ICsproducts decreases, which adversely affects our operating results. A limited number of applications of our products, such as consumer appliances and cellphone chargers, make up a significant percentage of our net revenues.revenue. We expect that a significant level of our net revenuesrevenue and operating results will continue to be dependent upon these applications in the near term. Demand for end products incorporating our products has been highly cyclical over time and has been impacted by economic downturns; our recent results have been impacted by economic conditionsconditions, including inflationsoftness in housing markets, which affects demand for consumer appliances and the effects of anti-COVID measures in China.inflation. Any further economic slowdown or disruption in the end markets that we serve could cause a further slowdown in demand for our ICs, causing our net revenuesrevenue to decline further and potentially result in write-offs of excess or obsolete inventory, which could cause the price of our stock to fall.

Our international sales activities account for a substantial portion of our net revenues,revenue, which subjects us to substantial risks. Sales to customers outside of the United States of AmericaU.S. account for, and have accounted forfor, a large portion of our net revenues,revenue. including approximately 98%,Approximately 98% and 96% of our net revenuesrevenue for each of the years ended December 31, 2024,2025, 2024 and 2023 andwas 2022,generated respectively.by sales to customers outside of the U.S. If our international sales declineddecline and we wereare unable to increase domestic sales, our revenues would declinerevenue and our operating results would be harmed. International sales involve a number of risks to us, including:

We do not have long-term contracts with any of our customers and if they fail to place, or if they cancel or reschedule orders for our products, our operating results and our business may suffer. Our business is characterized by short-term customer orders and shipment schedules, and the ordering patterns of some of our large customers have been unpredictable in the past and will likely remain unpredictable in the future. Not only does the volume of units ordered by particular customers vary substantially from period to period, but also purchase orders received from particular customers often vary substantially from early oral estimates provided by those customers for planning purposes. In addition, customer orders can be canceled or rescheduled without significant penalty to the customer. In the past, we have experienced customer cancellations of substantial orders for reasons beyond our control, and significant cancellations could occur again at any time. Also, a relatively small number of distributors, OEMs and merchant power supply manufacturers account for a significant portion of our revenues.revenue. Specifically,As a result, any challenges that we face with a key distributor, including the loss of a key distributor, could harm our topbusiness. tenSimilarly, customers,although includingwe sell through various distributors, accountedcertain end customers account for 79%, 80% and 76% of our net revenues in each of the years ended December 31, 2024, 2023 and 2022, respectively. However, a significant portion of theseour revenuesrevenue. areAs attributablesuch, tothe salesloss of demand for our products by customers who purchase through different distributors ofcould electronic components. These distributors sellharm our productsbusiness toeven if the impacts through a broad,single diversedistributor rangeare of end users, including OEMs and merchant power supply manufacturers, which mitigates the risk of customer concentration to a large degree.immaterial.

If our efforts to enhance existing products and introduce new products are not successful, we may not be able to generate demand for our products. Our success depends in significant part upon our ability to develop new ICs for high-voltage power conversion for existing and new markets, to introduce these products in a timely manner and to have these products selected for design into products of leading manufacturers.products. New product introduction schedules are subject to the risks and uncertainties that typically accompany development and delivery of complex technologies to the market place,marketplace, including product development delays and defects. We have experienced delays from time to time in completing new product development. If we fail to develop and sell new products in a timely manner,manner in the future, then our net revenuesrevenue and ability to compete domestically or internationally could decline.

In addition, we cannot be sure that we will be able to adjust to changing market demands as quickly and cost-effectively as necessary to compete successfully. Furthermore, we cannot assure that we will be able to introduce new products in a timely and cost-effective manner or in sufficient quantities to meet customer demand or that these products will achieve market acceptance. Our failure, or our customers’ failure, to develop and introduce new products successfully and in a timely manner would harm our business. In addition, customers may defer or return orders for existing products in response to the introduction of new products. When a potential liability existsWhile we will maintain reserves for potential customer returns, however we cannot assure that these reserves will be adequate.

Our products must meet exacting specifications, and undetected defects anddefects, failures or other quality issues may occur which may cause customers to return or stop buying our products and/or impose significant costs to us. Our customers generally establish demanding specifications for quality, performance and reliability, and our products must meet these specifications. ICs as complex as those we sell often encounter development delays and may contain undetected defectsdefects, failures or failuresother quality issues when first introduced or after commencement of commercial shipments. We have from time to time in the past experienced product quality, performance or reliability problems. If defects and failures occur in our products,products or if or any such failures are alleged to result in bodily injury, death, and/or property damage, we could experience lost revenue, decreased ability to compete, increased costs,costs (including product warranty or liability claims) and costs associated with customer support and product recalls, delays in or cancellations or rescheduling of orders or shipments and product returns or discounts. Some OEMs expect suppliers to warrant their products for longer periods of time and are increasingly looking to them for contribution when faced with product liability claims or recalls. While we specifically exclude consequential damages in our standard terms and conditions, certain of our contracts may not exclude such liabilities. OurWe carry various commercial liability insurancepolicies, including umbrella/excess policies which coverscover certain damages arising out of product defectsdefects. These policies may not cover all claims or be of a sufficient amount to fully protect against such claims.claims, Costsand a successful warranty or paymentsproduct liability claim against us in connectionexcess withof our available insurance coverage, or a requirement that we participate in a product recall, could have adverse effects on our business results. Further, in the future, it is possible that we will not be able to obtain insurance coverage in the amounts and for the risks we seek at policy costs and terms we desire. Additionally, if our products fail to perform as expected or such claimsfailure of our products results in a recall, our reputation may be damaged, which could harmmake it more difficult for us to sell our operatingproducts results.to existing and prospective customers and could materially and adversely affect our business, results of operations and financial condition.

Any failure, disruption or security breach or incident otherwise impacting our information technology infrastructure or information management systems could have an adverse impact on our business and operations. Cyber-attacks have become increasingly more prevalent and much harder to detect, defend against or prevent. As the frequency of cyber-attacks and resulting breaches reported by other businesses and governments increases, we expect to continue to devote significant resources to improve and maintain our IT infrastructure and its security. We have incurred and may in the future incur significant costs in order to implement, maintain and/or update security systems we believe are necessary to protect our IT infrastructure. As the techniques used to obtain unauthorized access to or to sabotage or otherwise disrupt systems change frequently and are often not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventive measures. A breakdown in existing controls and procedures around our cyber-security environment may prevent us from detecting, reporting or responding to cyber incidents in a timely manner and any such breakdown, or any security breach or incident suffered by us of our third-party service providers, could have a material adverse effect including but not limited to interruptionsinterruptions, other disruptions or delays in our business operations, loss of existing or future customers, claims, demands and liabilities and damage to our reputation, which could adversely affect our business, reputation, and financial results. We cannot guarantee that our implemented processes for IT and risk mitigation measures will be effective for IT systems under our control.

Furthermore, we rely on products and services provided by third-party suppliers to operate certain critical business systems. We cannot guarantee that third parties and infrastructure in our supply chain or our partners’ supply chains have not been or will not be compromised or that they do not or will not in the future contain exploitable defects or bugs that could result in a breach of or disruption to or other incident impacting our IT infrastructure, including our products and services, or the third-party information technology systems that support our services.

We have limited insight into the data privacy or security practices of third-party service providers. Our ability to monitor these third parties’ information security practices is limited, and they may not have adequate information security measures in place. If one of our third-party suppliers suffers a security breach,breach or incident, our response may be limited or more difficult because we may not have direct access to their systems, logs and other information related to the security breach.breach or incident.

Interruptions in our information technology systems could adversely affect our business. We rely on the efficient and uninterrupted operation of complex information technology systems and networks to operate our business. Any significant system or network disruption, including but not limited to new system implementations, faulty software provided by one of our security vendors, computer viruses, security breaches,breaches or incidents, or energy blackouts could have a material adverse impact on our operations, sales and operating results. We have implemented measures to manage our risks related to such disruptions, but such disruptions could still occur and negatively impact our operations and financial results. Furthermore, the risk of state-supported and geopolitically motivated cybersecurity incidents may increase due to geopolitical instability. In addition, we may incur additional costs to remedy any damages caused by these disruptions, security breaches or other security incidents.

Intense competition in the high-voltage power supply industry may lead to a decrease in our average selling price and reduced sales volume of our products. The high-voltage power supply industry is intensely competitive and characterized by significant price sensitivity. Our products face competition from alternative technologies, such as linear transformers, discrete switcher power supplies, and other integrated and hybrid solutions. If the price of competing solutions decreases significantly, the cost effectiveness of our products will be adversely affected. If power requirements for applications in which our products are currently utilized go outside the cost-effective range of our products, some of these alternative technologies can be used more cost effectively. In addition, as our patents expire, our competitors could legally begin using the technology covered by the expired patents in their products, potentially increasing the performance of their products and/or decreasing the cost of their products, which may enable our competitors to compete more effectively. Our current patents may or may not inhibit our competitors from getting any benefit from an expired patent. Our U.S. patents have expiration dates ranging from 2025 to 2045. We cannot assure that our products will continue to compete favorably or that we will be successful in the face of increasing competition from new products and enhancements introduced by existing competitors or new companies entering this market. We believe our failure to compete successfully in the high-voltage power supply business, including our ability to introduce new products with higher average selling prices, would materially harm our operating results.

We depend on third-party suppliers to provide us with wafers for our products and if they fail to provide us sufficient quantities of wafers, our business may suffer. Our primary supply arrangements for the production of wafers are with Epson, Lapis and X-FAB. Our contracts with these suppliers expire on varying dates, with theLapis earliestand X-FAB each to expire in December 2025.2028 and Epson to expire in December 2035. Although some aspects of our relationships with Lapis, X-FAB and Epson are contractual, many important aspects of these relationships depend on their continued cooperation. We cannot assure that we will continue to work successfully with Epson, Lapis and X-FAB in the future, and that the wafer foundries’ capacity will meet our needs. Additionally, one or more of these wafer foundries could seek an early termination of our wafer supply agreements. Any serious disruption in the supply of wafers from Epson, Lapis and X-FAB could harm our business. We estimate that it would take 12 to 24 months from the time we identified an alternate manufacturing source to produce wafers with acceptable manufacturing yields in sufficient quantities to meet our needs.

Although we provide our foundries with rolling forecasts of our production requirements, their ability to provide wafers to us is ultimately limited by the available capacity of the wafer foundry. Any reduction in wafer foundry capacity available to us could require us to pay amounts in excess of contracted or anticipated amounts for wafer deliveries or require us to make other concessions to meet our customers’ requirements,requirements or may limit our ability to meet demand for our products. Further, to the extent demand for our products exceeds wafer foundry capacity, this could inhibit us from expanding our business and harm relationships with our customers. Any of these concessions or limitations could harm our business.

If our third-party suppliers and independent subcontractors do not produce our wafers and assemble our finished products at acceptable yields, our net revenuesrevenue may decline. We depend on independent foundries to produce wafers, and independent subcontractors to assemble and test finished products, at acceptable yields and to deliver them to us in a timely manner. The failure of the foundries to supply us wafers at acceptable yields could prevent us from selling our products to our customers and would likely cause a decline in our net revenuesrevenue and gross margin. In addition, our IC assembly process requires our manufacturers to use a high-voltage molding compound that has been available from only a few suppliers. These compounds and their specified processing conditions require a more exacting level of process control than normally required for standard IC packages. Unavailability of assembly materials or problems with the assembly process can materially and adversely affect yields, timely delivery and cost to manufacture. We may not be able to maintain acceptable yields in the future.

We must attract and retain qualified personnel to be successful and competition for qualified personnel is intense in our market. Our success depends to a significant extent upon the continued service of our executive officers and other key management and technical personnel, and on our ability to continue to attract, retain and motivate qualified personnel, such as experienced analog design engineers and systems applications engineers. The competition for these employees is intense, particularly in Silicon Valley. The loss of the services of one or more of our engineers, executive officers or other key personnel could harm our business. In addition, if onequalified orpersonnel more of these individuals leavesleave our employ, and we are unable to quickly and efficiently replace those individuals with qualified personnel who can smoothly transition into their new roles, our business may suffer. We do not have long-term employment contracts with, and we do not have in place key person life insurance policies on, any of our employees.

Because the sales cycle for our products can be lengthy, we may incur substantial expenses before we generate significant revenues,revenue, if any. Our products are generally incorporated into a customer’s products at the design stage. However, customer decisions to use our products, commonly referred to as design wins, can often require us to expend significant research and development and sales and marketing resources without any assurance of success. These significant research and development and sales and marketing resources often precede volume sales, if any, by a year or more. The value of any design win will largely depend upon the commercial success of the customer’s product. We cannot assure that we will continue to achieve design wins or that any design win will result in future revenues.revenue. If a customer decides at the design stage not to incorporate our products into its product, we may not have another opportunity for a design win with respect to that product for many months or years.

In the event of an earthquake, fire, other pandemics, natural or other disasters, including with respect to climate change, our operations may be interrupted and our business would be harmed. Our principal executive offices and operating facilities are situated near San Francisco, California, and most of our major suppliers, which are wafer foundries and assembly houses, are located in areas that have been subject to severe earthquakes, such as Japan. Many of our suppliers are also susceptible to other disasters such as tropical storms, typhoons, tsunamis or other catastrophic events, including those caused by climate change. In the event of a disaster, we or one or more of our major suppliers may be temporarily unable to continue operations and may suffer significant property damage. Additionally, our business or the business of our suppliers may in the future be adversely impacted by world-wide responses to any global health or other crises. Such impacts could include public health measures, travel restrictions, business shutdowns, border closures, delivery and freight delays and other disruptions. Any interruption in our ability, or that of our major suppliers, to continue operations could delay the development and shipment of our products and have a substantial negative impact on our financial results.

If we are unable to adequately protect or enforce our intellectual property rights, we could lose market share, incur costly litigation expenses, suffer incremental price erosion or lose valuable assets, any of which could harm our operations and negatively impact our profitability. Our success depends upon our ability to continue our technological innovation and protect our intellectual property, including patents, trade secrets, copyrights and know-how. We are currently engaged in litigation to enforce our intellectual property rights, and associated expenses have been, and are expected to remain, material and have adversely affected our operating results. We cannot assure that the steps we have taken to protect our intellectual property will be adequate to prevent misappropriation, or that others will not develop competitive technologies or products. From time to time, we have received, and we may receive in the future, communications alleging possible infringement of patents or other intellectual property rights of others. Costly litigation may be necessary to enforce our intellectual property rights or to defend us against claimed infringement. The failure to obtain necessary licenses and other rights, and/or litigation arising out of infringement claims could cause us to lose market share and harm our business.

Our U.S. patents have expiration dates ranging from 2026 to 2046. We cannot assure that our products will continue to compete favorably or that we will be successful in the face of increasing competition from new products and enhancements introduced by existing competitors or new companies entering this market. We believe our failure to compete successfully in the high-voltage power supply business, including our ability to introduce new products with higher average selling prices, would materially harm our operating results. As our patents expire, we will lose intellectual property protection previously afforded by those patents. Additionally, the laws of some foreign countries in which our technology is or may in the future be licensed may not protect our intellectual property rights to the same extent as the laws of the United States, thus limiting the protections applicable to our technology.

If we do not prevail in our litigation, we will have expended significant financial resources, potentially without any benefit, and may also suffer the loss of rights to use some technologies. We are currently involved in defending a number of patent litigation mattersmatter and the outcome of the litigation is uncertain. See Note 14, Legal Proceedings and Contingencies, in our Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K. For example, we are being sued in an ongoing case for patent infringement. Should we ultimately be determined to be infringing another party’s patents, or if an injunction is issued against us while litigation is pending on those claims, such result could have an adverse impact on our ability to sell products found to be infringing, either directly or indirectly. In the event of an adverse outcome, we may be required to pay substantial damages, stop our manufacture, use, sale, or importation of infringing products, or obtain licenses to the intellectual property we are found to have been infringed. We have also incurred, and expect to continue to incur, significant legal costs in conducting these lawsuits, including the appealappeals of the case we won,are defending, and our involvement in this litigation and any future intellectual property litigation could adversely affect sales and divert the efforts and attention of our technical and management personnel, whether or not such litigation is resolved in our favor. Thus, even if we are successful in these lawsuits, the benefits of this success may fail to outweigh the significant legal costs we will have incurred.

Changes in tax rules and regulations, changes in interpretation of tax rules and regulations, or unfavorable assessments from tax audits may increase the amount of taxes we are required to pay. Our operations are subject to income and transaction taxes in the United States and in multiple foreign jurisdictions and to review or audit by the U.S. Internal Revenue Service (“IRS”) and state, local and foreign tax authorities. In addition, the United States, countries in Asia and other countries where we do business have recently enacted or are considering changes in relevant tax, accounting and other laws, regulations and interpretations, including changes to tax laws applicable to multinational companies. TheseFor example, on July 4, 2025, the United States enacted federal tax legislation commonly referred to as the “One Big Beautiful Bill Act”, which, among other changes, allows domestic research and development expenditures to be expensed for tax years beginning on or after January 1, 2025 and modifies certain international tax provisions for tax years starting on or after January 1, 2026. This legislation or other potential changes could adversely affect our effective tax rates or result in other costs to us.

The European Union (“EU”) member states formally adopted the EU’s Pillar Two Directive, which was established by the Organization for Economic Cooperation and Development,Development (the “OECD”), and which generally provides for a 15 per cent minimum effective tax rate for multinational corporations, in all jurisdictions in which they operate.operate While(“Pillar weTwo”). doHowever, noton anticipateJanuary 5, 2026, the OECD announced a “side-by-side” elective safe harbor that thisexempts willU.S.-parented havemultinational acorporations materialfrom impactcertain provisions of Pillar Two for fiscal years beginning on our tax provision or effectiveafter taxJanuary rate,1, we will continue to monitor the evolving tax legislation in the jurisdictions in which we operate.2026.

UncertaintiesCurrent arising out of economic consequences of current andor potential war, domestic or international conflict, political or social instability, or military actions or terrorist activities and associated political instability could adversely affect our business. Like other U.S. companies, our business and operating results are subject to uncertainties arising out of economic consequences of current and potential military actions or terrorist activities and associated political instability, and the impact of heightened security concerns on domestic and international travel and commerce. These uncertainties could also lead to delays or cancellations of customer orders, a general decrease in corporate spending or our inability to effectively market and sell our products. Any of these results could substantially harm our business and results of operations, causing a decrease in our revenues.revenue.

Securities laws and regulations, including potential risk resulting from our evaluation of internal controls over financial reporting, will continue to impact our results. Complying with the requirements of the federal securities lawslaws, state laws, stock exchange requirements, and Nasdaq’sother conditionslegal forrequirements continued listing havehas imposed significant legal and financial compliance costs, and are expected to continue to impose significant costs and management burden on us. These rules and regulations also may make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified executive officers and members of our board of directors, particularly qualified members to serve on our audit committee. Further, the rules and regulations under the Dodd-Frank Wall Street Reform and Consumer Protection Act, which became effective in 2011, may impose significant costs and management burden on us.

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 mobileindustrial phones,controls, computing and networking equipment, appliances, electronic“smart” utility meters, appliances, air conditioners, battery-powered tools, industrial controls, and “home-automation,”building-automation, or “internet of thingsinternet-of-things” applications such as networked thermostats, power stripsthermostats and security devices.devices, and mobile devices such as smartphones, tablets and notebook computers. Variations of our power-supply ICs are used for high-voltage power conversion in electric vehicles (“EVs”). 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 for brushless DC (“BLDC”) motors used in consumer appliances, HVAC systems, ceiling fans and a variety of industrial applications.

Our net revenuesrevenue werewas $443.5 million and $419.0 million and $444.5 million in 20242025 and 2023,2024, respectively. The declineincrease in revenuesrevenue in 20242025 was primarily driven by lowerhigher sales intoin the communicationsindustrial end-market, primarilyincluding reflectinggrowth greaterin usesales of Chinese-madeour componentsgate-driver in chargers manufactured for Chinese smartphone vendors,products, as well as increased decouplingsales of smartphoneour handsetsICs for a broad range of applications including electronic utility meters, electric vehicles and chargers.battery-powered Revenues from the consumer, industrial and computer categories increased compared to the prior year.tools.

Our top ten customers, including distributors that resell to OEMs and merchant power supply manufacturers, accounted for approximately 79%81% and 80%79% of net revenuesrevenue in 20242025 and 2023,2024, respectively. International sales represented approximately 98% of net revenuesrevenue forin botheach 2024of 2025 and 2023.2024.

Because our industry is intensely price-sensitive, our gross margin (gross profit divided by net revenuesrevenue) 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. Also, 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. All else being equal, a 10% change in the value of the U.S. dollar compared to the Japanese yen would eventually result in a corresponding change in our gross margin of approximately 1.4%1.5%; this sensitivity may increase or decrease depending on the percentage of our wafer supply that we purchase from Japanese suppliers. Also, 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 profit margin are impacted by the volume of units we produce.

Our gross profit, defined as net revenuesrevenue less cost of revenues,revenue, was $241.6 million or 55% of net revenue in 2025, compared to $224.8 million or 54% of net revenuesrevenue in 2024, compared to $229.0 million or 52% of net revenues in 2023.2024. Our gross margin increased in 20242025 due to the favorable impact of the dollar/yen exchange rate on our wafer costs, manufacturing efficiencies including the benefit of higher unit volumes on our manufacturing costs per unit, and favorable end-market mix with a greater percentage of sales coming from higher-margin market categories.

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America, or 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 revenuesrevenue 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.

Product revenuesrevenue consistconsists of sales to original equipment manufacturers, or OEMs, merchant power supply manufacturers and distributors. We apply the provisions of Accounting Standards Codification (“ASC”) 606-10, Revenue from Contracts with Customers, and all related appropriate guidance. We recognize revenue under the core principle to depict the transfer of control to our customers in an amount reflecting the consideration we expect to be entitled. In order to achieve that core principle, we apply the following five-step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied.

Sales to most distributors are made under terms allowing certain price adjustments and limited rights of return (known as “stock rotation”) of our products held in their inventory or upon sale to their end customers. We recognize revenue from sales to distributors upon the transfer of control to the distributor. Frequently, distributors need to sell at a price lower than the standard distribution price in order to win business. At the time the distributor invoices its customer or soon thereafter, the distributor submits a “ship-and-debit” price adjustment claim to us to adjust the distributor’s cost from the standard price to the pre-approved lower price. After we verify that the claim wasis pre-approved, we issue a credit memo to the distributor for the ship-and-debit claim. In determining the transaction price, we consider ship-and-debit price adjustments to be variable consideration. At the time revenue is recognized on sales to distributors, future ship-and-debit price adjustments are unknown and therefore subject to uncertainty. Such price adjustments are estimated using the expected-value method based on an analysis of actual ship-and-debit claims, at the distributor and product level, over a period of time considered adequate to account for current pricing and business trends. The reserve for ship-and-debit claims decreasedincreased by $9.6$7.2 million between December 31, 20242025 and December 31, 2023,2024, primarily due to lowerhigher inventory levels held by distributors.distributors in our industrial end-market. Historically, actual price adjustments for ship-and-debit claims have not materially differed from those estimated when determining the transaction price. To the extent future ship-and-debit claims significantly exceed amounts estimated, there could be a material impact on our revenuesrevenue and results of operations.

The bulk of our inventory is held in wafers, which combined with the fungibility of our products across customers and applications results in a lower risk of obsolescence. We routinely monitor the quality of our on-hand wafers to ensure that performance remains unchanged over time. When evaluating the adequacy of our provision for excess and obsolete inventory, we identify excess and obsolete products and also analyze historical usage, forecasted demand, current economic trends and historical write-offs. This write-down is reflected as a reduction to inventory in the consolidated balance sheets and an increase in cost of revenuesrevenue in our consolidated statements of income. If actual market conditions are less favorable than our assumptions, we may be required to take additional write-downs, which could adversely impact our cost of revenuesrevenue and operating results. Historically,Historically these write-downs have not been material.

The following table sets forth statement of income data as a percentage of net revenuesrevenue for the periods indicated:

Net revenues.revenue. Net revenuesrevenue consistconsists of revenuesrevenue from product sales, which are calculated net of returns and allowances. RevenuesRevenue declinedincreased in 20242025 compared to the prior year drivendue byprimarily lowerto higher sales intoin the communications end-market, primarily reflecting greater use of Chinese-made components in chargers manufactured for Chinese smartphone vendors, as well as increased decoupling of smartphone handsets and chargers. Revenues from the consumer, industrial and computer end-market categories increased compared to the prior year.end-market.

SalesInternational sales, consisting of sales to customers outside of the United States of America based on “bill to” customer locations, were $436.6 million and $412.5 million and $435.9 million in 20242025 and 2023,2024, respectively, representing 98% of net revenuesrevenue in both 20242025 and 2023.2024. Although power suppliesconverters using our products are designeddistributed andto distributedend markets worldwide, most of these power supplies are manufactured by our customers in Asia. As a result, sales to this region accountedrepresented forapproximately 84% of our net revenuesrevenue in both 20242025 and 2023.2024. We expect international sales, and sales to the Asia region in particular, to continue to account for a large portion of our net revenuesrevenue forin the foreseeable future.

Sales to distributors accounted for 70%69% and 69%70% of our net revenuesrevenue in 20242025 and 2023,2024, respectively,respectively. with directDirect sales to OEMs and merchant power supply manufacturers accountingaccounted for the remainder in each of the corresponding years.

The following customers represented 10% or more of our net revenuesrevenue for the respective years:

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

No other customers accounted for 10% or more of our net revenuesrevenue duringin these years.

Gross profit. Gross profit is net revenuesrevenue less cost of revenues.revenue. Our cost of revenuesrevenue consists primarily of 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 facility, overhead associated with the management of our supply chain and the amortization of acquired intangible assets. Gross margin is gross profit divided by net revenues.revenue. The following table compares gross profit and gross margin for the years ended December 31, 2024,2025, 20232024 and 20222023:

Our gross margin increased in 20242025 as compared to 20232024 due to the favorable impact of the dollar/yen exchange rate on our wafer costs, manufacturing efficiencies including the benefit of higher unit volumes on our manufacturing costs per unit, and favorable end-market mix with a greater percentage of sales coming from higher-margin end-marketmarket categories.

Research and development expenses. Research and development (“R&D”) expenses consist primarily of employee-related expenses including salaries and stock-based compensation, as well as expensed material and facility costs associated with the development of new processes and products. We also record R&D expenses for prototype wafers related to new products until the products are released to production. The following table compares R&D expenses for the years ended years ended December 31, 2024,2025, 20232024 and 20222023:

G&A expenses increased in 2025 compared to 2024 primarily due to increased stock-basedprofessional compensationand expenselegal relatedservices to performance-based awards,and higher salaries-salary- and benefit-related expenses due to increased headcount and annual salary increases as well as increased professional services.expenses.

Other income increaseddecreased in 20242025 primarily due primarily to an increase inlower interest income resulting from higher yields earned on our investments.income.

Provision (benefitBenefit) for income taxes. ProvisionBenefit for income taxes represents federal, state and foreign taxes. The following table compares the provision (benefit) for income taxes for the years ended December 31, 2024,2025, 20232024 and 20222023:

In 20242025 and 2023,2024, theour effective tax rate was lower than the statutory U.S. federal income-tax rates of 21% due to the geographic distribution of our world-wide earnings in lower tax jurisdictions, the impact of federal research tax credits and the recognition of excess tax benefits related to share-based compensation. Additionally, in 20242025 and 2023,2024, our effective tax rate was favorably impacted by a discrete itemitems associated with the release of unrecognized tax benefits.benefits caused by an expiration in the statute of limitations on these positions. These benefits were offset by U.S. tax on foreign income, known as globalNet intangibleControlled low-taxedForeign income.Corporation Tested Income (“NCTI”). 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 tax holidays in any jurisdiction. For additional details, refer to Note 11, Provision (Benefit) for Income Taxes, in our Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.

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. As of December 31, 20242025 and 2023,2024, we had no advances outstanding under the Credit Agreement.

Our investing activities in the year ended December 31, 20232025, resultedgenerated in a $14.2$36.2 million net use of cash, consisting primarily of $20.9 million for purchases of property and equipment, primarily production-related machinery and equipment, partially offset by $6.7$60.5 million of proceeds from sales and maturities of marketable securities, net of purchases. This amount was partially offset by the use of $24.4 million for purchases of property and equipment, primarily production-related machinery and equipment.

InOver 2023,the we repurchased 0.8 million shares for $55.3 million, leaving $26.0 million in funds authorized as of December 31, 2023. We exhausted this authorization in April 2024. In October 2024,years our board of directors has authorized the use of anfunds additional $50.0 million for theto repurchase shares of our common stock, including $50.0 million in each of October 2024 and April 2025, with repurchases to be executed according to pre-defined price/volume guidelines. As of December 31, 2024, $48.1 million remained under this repurchase authorization; the program has no expiration date. In 2024,2025, we repurchased a total of 0.42.0 million shares of the Company’s common stock for $27.9$98.1 million.million, exhausting our repurchase authorization. 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.

Our operating results are volatile and difficult to predict. If we fail to meet the expectations of public market analysts or investors, the market price of our common stock may decrease significantly. Our net revenue and operating results have varied significantly in the past, are difficult to forecast, are subject to numerous factors both within and outside of our control and may fluctuate significantly in the future. As a result, our operating results could fall below the expectations of public market analysts or investors. If that occurs, the price of our stock may decline.

If demand for our products declines in our major end markets and we do not penetrate additional markets, our net revenue will decrease. When our customers are not successful in maintaining high levels of demand for their products, their demand for our products decreases, which adversely affects our operating results. A limited number of applications offor our products, such as consumer appliances and cellphone chargers, make up a significant percentage of our net revenue. We expect that a significant level of our net revenue andand, therefore, our operating results will continue to be dependent upon these applications in the near term.and mid-term. Demand for end products incorporating our products has been highly cyclical over time and has been impacted by economic downturns;downturns. ourOur recent results have been impacted by economic conditions, including increases in inflation rates as well as softness in the housing markets,market, which affects demand for consumer appliances and inflation.appliances. Any economic slowdown or disruption in the end markets that we serve could cause a slowdown in demand for our ICs,products, causing our net revenue to decline and potentially result in lower revenue and write-offs of excess or obsolete inventory, which could cause the price of our stock to fall.

We believe that our future success depends in part upon our ability to penetrate additional markets for our products. We cannot assureprovide assurances that we will be able to overcome the marketing or technological challenges necessary to penetrate additional markets. To the extent that a competitor penetrates additional markets before we do, or takes market share from us in our existing markets, our net revenue and financial condition could be materially adversely affected.

We do not have long-term contracts with any of our customers and if they fail to place, or if they cancel or reschedule orders for our products, our operating results and our business may suffer. Our business is characterized by short-term customer orders and shipment schedules,schedules. and theThe ordering patterns of some of our large customers have been unpredictable in the past and will likely remain unpredictable in the future. Not only does the volume of units ordered by particular customers vary substantially from period to period, but also purchase orders received from particular customers often vary substantially from early oral estimates provided by those customers for planning purposes. In addition, customer orders can generally be canceled or rescheduled without significant penalty to the customer. In the past, we have experienced customer cancellations of substantial orders for reasons beyond our control,control andusually significantdue to decreased demand from our customers’ end customers. Significant cancellations could occur again at any time. Also, aA relatively small number of distributors, OEMsOEMs, and merchantother power-supply manufacturerscustomers account for a significant portion of our revenue. As a result, any challenges that we face with a key distributor, including the loss of a key distributor, could harm our business. Similarly, although we sell through various distributors, certain end customers account for a significant portion of our revenue. As such, the loss of demand for our products by customers who purchase through different distributors could harm our business even if the impacts through a single distributor are immaterial.

If our efforts to enhance existing products and introduce new products are not successful, we may not be able to generate demand for our products. Our success depends in significant part upon our ability to develop new ICsproducts for high-voltage power conversion for both existing and new markets, to introduce these products in a timely mannermanner, and to have these products selected for design into our customers’ end products. New product introduction schedules are subject to the risks and uncertainties that typically accompany development and delivery of complex technologies to the marketplace, including product development delays and defects. We have experienced delays fromin timethe to timepast in completing new product development. If we fail to develop and sell new products in a timely manner in the future, then our net revenue and ability to compete both domestically or internationally could decline.

In addition, we cannot be sure that we will be able to adjust to changing market demands as quickly and as cost-effectively as necessary to competesuccessfully successfully.compete. Furthermore, we cannot assureprovide assurances that we will be able to introduce new products in a timely and cost-effective manner or in sufficient quantities to meet customer demand or that these products will achieve market acceptance. Our failure, or our customers’ failure, to develop and introduce new products successfully and in a timely manner would harm our business. In addition, customers may defer or return orders for existing products. While we maintain reserves for potential customer returns, we cannot assureprovide assurances that these reserves will be adequate.

Our international sales activities account for a substantial portion of our net revenue, which subjects us to substantial risks. Sales to customers outside of the U.S. account for, and have historically accounted for, a large portion of our net revenue. Approximately 98% of our net revenue for each of the years ended December 31, 2025, 2024 and 2023 was generated by sales to customers outside of the U.S. If our international sales decline and we are unable to increase domestic sales, our revenue and operating results would be harmed. International sales and global conditions involve a number of risks to our business, including:

Our failure to adequately address these risks could reduce our international sales and materially and adversely affect our operating results. Furthermore, because substantially all of our foreign sales are denominated in U.S. dollars, increases in the value of the dollar causeversus other currencies causes the price of our products in foreign markets to rise, making our products more expensive relative to competing products priced in local currencies.

Because the sales cycle for our products can be lengthy, we may incur substantial expenses before we generate significant revenue, if any. Our products are generally incorporated into a customer’s products at the design stage. However, customer decisions to use our products, commonly referred to as "design wins," can often require us to expend significant research and development and sales and marketing resources without any assurance of success. These significant research and development and sales and marketing resources often precede volume sales, if any, by a year or more. The value of any design win will largely depend upon the commercial success of the customer’s product. We cannot assureprovide assurances that we will continue to achieve design wins or that any design win will result in future revenue. If a customer decides at the design stage not to incorporate our products into its product, we may not have another opportunity for a design win with respect to that product for many months or years.

Our products are sold through distributors, which limits our direct interaction with our end customers, therefore reducing our ability to forecast sales and increasing the complexity of our business. Sales to distributors account for a significant portion of our net revenue. Selling through distributors reduces our ability to forecast sales and creates challenges for our business by requiring us, among other things, to:

Since we have limited ability to forecast inventory levels at our end customers, it is possible that there may be significant build-up of inventories in the distributor channel, with the OEM or the OEM’s contract manufacturer. Such a buildup could result in a slowdown in orders, requests for returns from customers, or requests to move out plannedfuture shipments. This could adversely impact our revenue and profits. Any failure to manage these complexities could disrupt or reduce sales of our products and unfavorably impact our financial results.

In addition, to the extent we are not able to keep our products away from unintended markets, demand and pricing dynamics can become distorted in our distributor channel and in certain geographies, which could adversely affect our revenue. Further, customersCustomers purchasing our products on unintended markets may use our products for purposes for which they were not intended, or may purchase counterfeit or substandard products, for instance that have been altered or damaged, which could harm our business and cause our reputation to be adversely affected.

The power supply industry routinely experiences cyclical market patterns and our products are used across different end markets. A significant downturn in the industry or in any of these end markets could cause a meaningful reduction in demand for our products and adversely affect our operating results. The power supply industry is highly cyclical and subject to downturns, such as we have recently seen, and our revenue and gross margin can fluctuate significantly due to such downturns. These downturns can be severe and prolonged and can result in price erosion and weak demand for our products. Weak demand for our products resulting from general economic conditions affecting the end markets we serve, or the power supply industry specifically, and reduced spending by our customers can result, and in the past has resulted, in diminished product demand, high inventory levels, erosion of average selling prices, excess and obsolete inventoriesinventories, and corresponding inventory write-downs. Our expense levels are based, in part, on our expectations of future sales. Many of our expenses, particularly those relating to facilities, capital equipment, and other overhead, are relatively fixed. We might be unable to reduce spending quickly enough to compensate for reductions in sales. Accordingly, shortfalls in sales could adversely affect our operating results. Furthermore, any significant upturn in the power supply industry could result in increased competition for access to raw materials and third-party service providers. For example, infrastructure investments in AI have increased substantially, driving significant demand increases in the data center computing market and straining the supply chain. If we are unable to manage our supply chain or timely or efficiently scale to meet growing demand or if we have not accurately assessed the magnitude or sustainability of such demand, our results of operations could be adversely impacted.

PowerWe Integrations isare a leading innovator in semiconductor technologies for high-voltage power conversion. Our products are key building blocks in the clean-power ecosystem, enabling the generation of renewable energy as well as the efficient transmission and consumption of power in applications ranging from milliwatts to megawatts.

Our net revenue was $108.3$118.9 million and $105.5$115.9 million in the three months ended MarchJune 31,30, 2026 and 2025, respectively, and $227.2 million and $221.4 million in the six months ended June 30, 2026 and 2025, respectively. The increase in net revenue for the three-monthsthree- periodand wassix-month primarilyperiods due toreflected higher sales in the industrial end-market.end market.

Our top ten customers, including distributors that resell to OEMs and merchant power-supplypower supply manufacturers, accounted for approximately 80%82% and 81% of our net revenue for boththe three and six months ended June 30, 2026 and approximately 81% in each of the threecorresponding monthsperiods ended March 31, 2026 andof 2025. International sales accounted for approximately 98% and 99% of our net revenue for each of the three and six months ended MarchJune 31,30, 20262026, respectively, and 2025,98% respectively.and 99%, respectively, in the corresponding periods of 2025.

Our gross margin was 53%54% and 55% for the three months ended MarchJune 31,30, 2026 and 2025, respectively, and 53% and 55% infor the correspondingsix periodmonths inended 2025.June 30, 2026 and 2025, respectively. The decrease in gross margin was primarily due to theless unfavorablefavorable customer and product mix related to increased sales of lower margin products and decreased sales of higher margin products as well as less favorable impact of the dollar/yen exchange rate andon our wafer costs and, for the six-month period, restructuring relatedcosts costs.recorded in cost of sales.

Total operating expenses were $55.5$55.7 million and $51.5$65.3 million for the three months ended MarchJune 31,30, 2026 and 2025, respectively, and $111.2 million and $116.8 million for the six months ended June 30, 2026 and 2025, respectively. The increasedecrease in operating expenses for the three-monththree- periodand six-month periods was primarily due to a non-recurring expense related to an employee litigation matter that occurred in the prior-year period as described in Note 11 Commitments and Contingencies of this report. These decreases were partially offset by restructuring and related charges of $6.6 million for severance and benefit costs associated with the workforce reduction described in Note 413 Restructuring of this report herein. These increases were offset in the three months ended March 31, 2026, by a $1.4 million credit in other operating expenses related to stock-based compensation expense associated with the changes in performance criteria measurement as described in Note 7 of this report herein.report.

Capital Return Program. We remain committed to delivering stockholder value through our stock repurchase and dividend programs. Under future programs authorized by our Board of Directors, we may repurchase shares of our common stock in the open-market or through privately negotiated transactions. The extent to which we repurchase our stock and the timing of such repurchases will depend upon market conditions, legalthe rules and regulations governing repurchases and other corporate considerations, as determined by our management team.

During the three and six months ended MarchJune 31,30, 2026, we returned $12.0$11.9 million and $23.8 million, respectively, of capital to stockholders through the payment of cash dividends.

Comparison of the three and six months ended MarchJune 31,30, 2026 and 2025

Net revenue. Net revenue consists of revenue from product sales, net of returns and allowances. Net revenue for the three and six months ended MarchJune 31,30, 2026 was $108.3$118.9 million comparedand to$227.2 $105.5million, respectively, and $115.9 million and $221.4 million, respectively, in the corresponding periodperiods of 2025. The increaseincreases wasin net revenue for the three- and six-month periods were due primarily to higher sales in the industrial end-market.

Our revenue mix by end market for the three and six months ended MarchJune 31,30, 2026 and 2025 was as follows:

International sales, consisting of sales outside of the United States of America based on “bill to” customer locations, were $106.5$116.9 million and $223.4 million in the three and six months ended MarchJune 31,30, 2026, respectively, and $104.2$114.0 million and $218.2 million, respectively, in the corresponding periodperiods of 2025. 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 approximately 80%81% of our net revenue in each of the three and six months ended MarchJune 31,30, 2026,2026 and approximately 84% in each of the corresponding periodperiods of 2025. We expect international sales, and sales to the Asia region in particular, to continue to account for a large portion of our net revenue in the future.

Sales to distributors accounted for approximately 71%72% of our net revenue in botheach of the three and six months ended MarchJune 31,30, 20262026, respectively, and approximately 70% and 71%, respectively, in the corresponding periods of 2025. Direct sales to OEMs and merchant power-supply manufacturers accounted for the remainder.

Gross profit. Gross profit is net revenue less cost of revenue. Our cost of revenue consists primarily of 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 facility, overhead associated with the management of our supply chain and the amortization of acquired intangible assets. The following table compares gross profit and gross margin for the three and six months ended MarchJune 31,30, 2026 and 2025:

The decrease in gross margin was primarily due to theless unfavorablefavorable customer and product mix related to increased sales of lower margin products and decreased sales of higher margin products as well as less favorable impact of the dollar/yen exchange rate andon restructuringour relatedwafer costs.

Research and development expenses. Research and development (“R&D”) expenses consist primarily of employee-relatedemployee expensescompensation including salaries and stock-based compensation, as well as expensed material and facility costs associated with the development of new processes and products. We also record R&D expenses for prototype wafers related to new products until the products are released to production. The following table compares R&D expenses for the three and six months ended MarchJune 31,30, 2026 and 2025:

R&D expenses increased for the three and six months ended MarchJune 31,30, 2026 as compared to the corresponding period of 2025.2025, Asprimarily describeddue in Note 4 Restructuring of this report herein, $3.0 million ofto application engineer project costs have been recognized in the three months ended March 31, 2026 related to customer product development projects.projects Thisas increasedescribed wasin Note 13 Restructuring of this report, as well as increased product-development expenses. These increases were partially offset by lower equipment-related expenses and lower stock-based compensation expense and by lower equipment-related expenses.

Selling, General and Administrative. Selling, general and administrative (“SG&A”) expenses consist primarily of employee‑related expenses,compensation including salaries, commissions and stock‑based compensation for personnel across our sales representatives, administration, finance, human resources, and general management functions. SG&A expenses also include facilities‑related costs associated with our regional sales and support offices, as well as consulting, professional services, legal and auditing expenses. The following table below compares SG&A expenses for the three and six months ended MarchJune 31,30, 2026 and 2025:

SG&A expenses decreased for the three and six months ended June 30, 2026 compared to the corresponding periods of 2025 primarily due to the restructuring actions taken in the three months ended March 31, 2026 as compared to the corresponding period of 2025 primarily related to the restructuring actions taken in the three-months ended March 31, 2026 as described in Note 413 Restructuring of this reportreport. herein.The decrease was partially offset by increases in professional legal services.

Other operating expenses. Other operating expenses were a credit of $1.4$0.5 million in the three months ended MarchJune 31,30, 2026 relatedand a credit of $0.9 million in the six months ended June 30, 2026. These items relate to the quarterly remeasurement of unvested equity award modificationawards associated with theour retirement of ourretired former chief executive officerofficer. (referRefer to Note 7,8 Stockholders’Stockholders' Equity,Equity inof ourthis Notes to Unaudited Condensed Consolidated Financial Statementsreport for details).details.

Restructuring and related charges. Restructuring and related charges were $6.6 million in the threesix months ended MarchJune 31,30, 2026. The charges were primarily related to severance and benefit costs associated with the workforce reduction described in Note 413 Restructuring.Restructuring of this report.

Other income. Other income consists primarily of interest income earned on cash and cash equivalents, marketable securities and other short-term investments, and the impact of foreign exchange gains or losses. The table below compares other income for the three and six months ended MarchJune 31,30, 2026 and 2025:

Other income decreased for the three and six months ended MarchJune 31,30, 2026 as compared to the corresponding period of 2025 primarily due to lower 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 MarchJune 31,30, 2026 and 2025:

Our effective tax raterates for the three and six months ended MarchJune 31,30, 2026,2026 waswere 15.8%,12.5% and 11.1%13.3%, respectively, and (1.8%) and 9.5%, in the corresponding periodperiods of 2025. 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. InFor the three months ended MarchJune 31,30, 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. In the three and six months ended June 30, 2025, our effective tax rate was adversely affected by the recognition of a tax accountingdeficiency or “shortfall” associatedrelated withto share-based payments. Additionally, in the three months ended March 31, 2025, our effective tax rate was unfavorably impacted by the recognition of share-based payments and foreign income subject to U.S. tax. We have not been granted any incentivized tax rates and do not operate under any tax holidays in any jurisdiction.

As of MarchJune 31,30, 2026, we had $257.2$262.6 million in cash, cash equivalents and short-term investments, an increase of $7.7$13.1 million from $249.5 million as of December 31, 2025. As of MarchJune 31,30, 2026, we had working capital, defined as current assets less current liabilities, of $391.8$404.5 million, an increase of approximately $3.8$16.5 million from $388.0 million as of December 31, 2025.

The PNC Loan Agreement contains representations and warranties, affirmative covenants and conditions precedent to borrowingborrowings that are usual and customary for credit agreements of this type. The PNC Loan Agreement contains negativecertain covenants, including negativelimited covenants that restrict, subject to certain exceptions, our ability to: incur additional indebtedness or liens, guarantee or become liable for obligations of other persons or entities, liquidate, dissolve, merge or consolidate with any other entity or convey, transfer or lease our properties or assets to another person, which, in each case, are subject to certain qualifications and exceptions.

We were compliant with all covenants and had no advances outstanding under the PNC Loan Agreement as of AprilJune 10,30, 2026.

Our operating activities generated $20.0$42.0 million of cash in the threesix months ended MarchJune 31,30, 2026. Net income for this period was $3.3$13.1 million; we also incurred non-cash depreciation, stock-based compensation expense, amortizationdepreciation and a decrease in deferred tax assets of intangibles and accretion of discount on investments of $6.4$17.6 million, $6.3 million, $0.2$12.6 million and $0.2$1.8 million, respectively. Sources of cash included a $3.9$9.1 million decrease in inventories,inventories and a $3.8 million decrease in accounts receivable due to timing of receipts and $3.4$3.9 million decrease in prepaid expenses and other assets. These sources of cash were partially offset by an $8.5 million increase in accounts receivable due to timing of receipts and a $4.1$7.2 million decrease in accounts payable (excluding payables related to property and equipment) due to timing of payments and a $3.1 million decrease in other accrued liabilities.payments.

Our operating activities generated $26.4$55.5 million of cash in the threesix months ended MarchJune 31,30, 2025. Net income for this period was $8.8$10.2 million; we also incurred non-cash stock-based compensation expenseexpense, depreciation and depreciationan increase in deferred tax assets of $8.7$18.8 million, $14.2 million and $7.2$0.9 million, respectively. Sources of cash included a $4.7$10.0 million decreaseincrease in accountsother receivableaccrued due to timing of receipts, an increase of $4.0 million in accounts payable (excluding payables related to property and equipment) due to timing of paymentsliabilities and a $3.4$6.4 million decrease in prepaid expenses and other assets. These sources of cash were partially offset by a $3.9 million decrease in other accrued liabilities and a $3.5$2.8 million increase in inventories.

Our investing activities in the threesix months ended MarchJune 31,30, 2026, resulted in a $6.2$9.0 million net use of cash, primarily consisting of $4.2$2.7 million for purchases of investments, net of sales and maturities and $2.0$6.3 million for purchases of property and equipment (primarily production-related machinery and equipment).equipment.

Our investing activities in the threesix months ended MarchJune 31,30, 2025, generated $4.5$37.1 million of cash, primarily consisting of $10.3$48.8 million from sales and maturities of investments, net of purchases, partially offset by $5.7$11.7 million for purchases of property and equipment (—primarily production-related machinery and equipment).equipment.

Our financing activities in the threesix months ended MarchJune 31,30, 2026 resulted in a $9.3$21.1 million net use of cash, consisting of $12.0$23.8 million for the payment of dividends to stockholders, partially offset by proceeds of $2.7 million from the issuance of shares through our employee stock purchase plan.

Our financing activities in the threesix months ended MarchJune 31,30, 2025 resulted in a $32.3$76.6 million net use of cash, consisting of $23.1$55.7 million for the repurchase of our common stock and $12.0$23.8 million for the payment of dividends to stockholders, partially offset by proceeds of $2.8 million from the issuance of shares through our employee stock purchase plan.