Power Integrations Reports Second-Quarter Financial Results

July 27, 2017

Revenues grew ten percent year-over-year to $107.6 million; cash flow from operations was $24.1 million

GAAP earnings were $0.46/diluted share; non-GAAP earnings were $0.69/diluted share

SAN JOSE, Calif.--(BUSINESS WIRE)-- Power Integrations (Nasdaq: POWI) today announced financial results for the quarter ended June 30, 2017. Results are calculated using the “sell-in” method of revenue recognition on sales to distributors, reflecting the company’s adoption of ASC 606 effective January 1, 2017. Prior-year results have been recast as if ASC 606 had been in effect for those periods.

Net revenues for the second quarter were $107.6 million, an increase of three percent from the prior quarter and ten percent from the second quarter of 2016. Net income was $13.9 million or $0.46 per diluted share, compared to $0.47 per diluted share in the prior quarter and $0.39 per diluted share in the second quarter of 2016. Cash flow from operations was $24.1 million for the quarter.

In addition to its GAAP results, the company provided certain non-GAAP financial measures that exclude stock-based compensation expenses, amortization of intangible assets and the tax effects of these items. Non-GAAP net income for the second quarter was $21.1 million or $0.69 per diluted share, compared with $0.63 per diluted share in the prior quarter and $0.61 per diluted share in the second quarter of 2016.

Commented Balu Balakrishnan, president and CEO of Power Integrations: “Quarterly revenues grew ten percent from a year ago, and we believe we are on track for another year of double-digit revenue growth. We are excited about the breadth and diversity of growth opportunities across our business, such as expanding electronic content in consumer appliances, IoT applications, faster charging for mobile devices, LED lighting, electric transportation, renewable energy, high-voltage DC transmission and more. We are attacking these opportunities with our most innovative products ever, and we have a robust pipeline of new products that will further expand our addressable market in the years to come.”

Additional Highlights

  • Power Integrations paid a dividend of $0.14 per share on June 30, 2017. A dividend of $0.14 per share is scheduled to be paid on September 29, 2017, to stockholders of record as of August 31, 2017.
  • Power Integrations’ board of directors has expanded the company’s share-repurchase authorization by $30 million; the company now has $53.6 million available for the repurchase of its common stock.
  • Power Integrations was issued 15 U.S. patents during the second quarter of 2017.

Financial Outlook

The company issued the following forecast for the third quarter of 2017:

  • Revenues are expected to be $111 million plus or minus $3 million.
  • GAAP gross margin is expected to be approximately 49.3 percent; non-GAAP gross margin is expected to be approximately 50.5 percent. (The difference between the expected GAAP and non-GAAP gross margins is composed of approximately 0.9 percentage points from amortization of acquisition-related intangible assets and 0.3 percentage points from stock-based compensation.)
  • GAAP operating expenses are expected to be approximately $39.5 million; non-GAAP operating expenses are expected to be approximately $33 million. (Non-GAAP expenses are expected to exclude approximately $6 million of stock-based compensation expenses and $0.5 million of amortization of acquisition-related intangible assets.)

Conference Call Today at 1:30 p.m. Pacific Time

Power Integrations management will hold a conference call today at 1:30 p.m. Pacific time. Members of the investment community can join the call by dialing 1-647-788-4901. The call will also be available on the investor section of the company's website, http://investors.power.com.

About Power Integrations

Power Integrations, Inc. is a leading innovator in semiconductor technologies for high-voltage power-conversion. The company’s 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. For more information please visit www.power.com.

Note Regarding Use of Non-GAAP Financial Measures

In addition to the company's consolidated financial statements, which are presented according to GAAP, the company provides certain non-GAAP financial information that excludes stock-based compensation expenses recorded under ASC 718-10, amortization of acquisition-related intangible assets (including in-place lease intangible assets) and the tax effects of these items. The company uses these measures in its financial and operational decision-making and, with respect to one measure, in setting performance targets for compensation purposes. The company believes that these non-GAAP measures offer important analytical tools to help investors understand its operating results, and to facilitate comparability with the results of companies that provide similar measures. These non-GAAP measures have limitations as analytical tools and are not meant to be considered in isolation or as a substitute for GAAP financial information. For example, stock-based compensation is an important component of the company’s compensation mix, and will continue to result in significant expenses in the company’s GAAP results for the foreseeable future, but is not reflected in the non-GAAP measures. Also, other companies, including companies in Power Integrations’ industry, may calculate non-GAAP measures differently, limiting their usefulness as comparative measures. Reconciliations of non-GAAP measures to GAAP measures are attached to this press release.

Note Regarding Forward-Looking Statements

The statements in this press release regarding the company’s forecast for its third-quarter financial performance, being on track for double-digit revenue growth for the year and expanding its addressable market in the years to come are forward-looking statements reflecting management's current expectations and beliefs. These forward-looking statements are based on current information that is, by its nature, subject to rapid and even abrupt change. Due to risks and uncertainties associated with the company's business, actual results could differ materially from those projected or implied by these statements. These risks and uncertainties include, but are not limited to: changes in global macroeconomic conditions, which may impact the level of demand for the company’s products; potential changes and shifts in customer demand away from end products that utilize the company's integrated circuits to end products that do not incorporate the company's products; the effects of competition, which may cause the company’s revenues to decrease or cause the company to decrease its selling prices for its products; the outcome and cost of patent litigation, which may affect sales of the company’s products or could result in higher expenses and charges than currently expected; unforeseen costs and expenses; and unfavorable fluctuations in component costs or operating expenses resulting from changes in commodity prices and/or exchange rates. In addition, new product introductions and design wins 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 and market acceptance of the new products. These and other risk factors that may cause actual results to differ are more fully explained under the caption “Risk Factors” in the company's most recent Annual Report on Form 10-K, filed with the Securities and Exchange Commission (SEC) on February 8, 2017. The company is under no obligation (and expressly disclaims any obligation) to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise, except as otherwise required by the rules and regulations of the SEC.

Power Integrations and the Power Integrations logo are trademarks or registered trademarks of Power Integrations, Inc.

POWER INTEGRATIONS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per-share amounts)
           
 
Three Months Ended Six Months Ended

June 30,
2017

March 31,
2017

June 30,
2016

 

June 30,
2017

June 30,
2016

NET REVENUES $ 107,563 $ 104,688 $ 97,571 $ 212,251 $ 185,607
 
COST OF REVENUES   54,116     54,212     49,786     108,328     93,334  
 
GROSS PROFIT   53,447     50,476     47,785     103,923     92,273  
 
OPERATING EXPENSES:
Research and development 17,341 16,640 15,859 33,981 30,638
Sales and marketing 12,607 11,633 11,407 24,240 22,147
General and administrative 8,765 8,704 8,133 17,469 15,983
Amortization of acquisition-related intangible assets   537     583     611     1,120     1,277  
Total operating expenses   39,250     37,560     36,010     76,810     70,045  
 
INCOME FROM OPERATIONS 14,197 12,916 11,775 27,113 22,228
 
Other income, net   465     506     236     971     497  
 
INCOME BEFORE INCOME TAXES 14,662 13,422 12,011 28,084 22,725
 
PROVISION FOR INCOME TAXES   760     (677 )   604     83     939  
 
NET INCOME $ 13,902   $ 14,099   $ 11,407   $ 28,001   $ 21,786  
 
EARNINGS PER SHARE:
Basic $ 0.47   $ 0.48   $ 0.40   $ 0.95   $ 0.76  
Diluted $ 0.46   $ 0.47   $ 0.39   $ 0.92   $ 0.74  
 
SHARES USED IN PER-SHARE CALCULATION:
Basic 29,720 29,456 28,850 29,589 28,765
Diluted 30,454 30,248 29,422 30,370 29,361
 
 
SUPPLEMENTAL INFORMATION:
 
Stock-based compensation expenses included in:
Cost of revenues $ 351 $ 143 $ 293 $ 494 $ 383
Research and development 2,351 1,634 1,940 3,985 3,409
Sales and marketing 1,189 1,097 899 2,286 1,926
General and administrative   2,436     2,095     1,880     4,531     3,710  
Total stock-based compensation expense $ 6,327   $ 4,969   $ 5,012   $ 11,296   $ 9,428  
 
Cost of revenues includes:
Amortization of acquisition-related intangible assets $ 939   $ 939   $ 946   $ 1,878   $ 1,907  
 
General & administrative expenses include:
Patent-litigation expenses $ 1,779   $ 1,844   $ 1,658   $ 3,623   $ 2,817  
 
Other income, net includes:
Amortization of in-place lease intangible assets $ 90   $ 90   $ 90   $ 180   $ 180  
 
 
REVENUE MIX BY END MARKET
Communications 22 % 28 % 26 % 25 % 25 %
Computer 4 % 4 % 6 % 4 % 6 %
Consumer 41 % 37 % 36 % 39 % 37 %
Industrial 33 % 31 % 32 % 32 % 32 %

POWER INTEGRATIONS, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP RESULTS
(in thousands, except per-share amounts)
             
Three Months Ended Six Months Ended

June 30,
2017

March 31,
2017

June 30,
2016

June 30,
2017

June 30,
2016

RECONCILIATION OF GROSS PROFIT
GAAP gross profit $ 53,447 $ 50,476 $ 47,785 $ 103,923 $ 92,273
GAAP gross margin 49.7 % 48.2 % 49.0 % 49.0 % 49.7 %
 
Stock-based compensation included in cost of revenues 351 143 293 494 383
Amortization of acquisition-related intangible assets   939     939     946     1,878     1,907  
 
Non-GAAP gross profit $ 54,737   $ 51,558   $ 49,024   $ 106,295   $ 94,563  
Non-GAAP gross margin 50.9 % 49.2 % 50.2 % 50.1 % 50.9 %
 
 
RECONCILIATION OF OPERATING EXPENSES
GAAP operating expenses $ 39,250 $ 37,560 $ 36,010 $ 76,810 $ 70,045
 
Less: Stock-based compensation expense included in operating expenses
Research and development 2,351 1,634 1,940 3,985 3,409
Sales and marketing 1,189 1,097 899 2,286 1,926
General and administrative   2,436     2,095     1,880     4,531     3,710  
Total   5,976     4,826     4,719     10,802     9,045  
 
Amortization of acquisition-related intangible assets   537     583     611     1,120     1,277  
 
Non-GAAP operating expenses $ 32,737   $ 32,151   $ 30,680   $ 64,888   $ 59,723  
 
 
RECONCILIATION OF INCOME FROM OPERATIONS
GAAP income from operations $ 14,197 $ 12,916 $ 11,775 $ 27,113 $ 22,228
GAAP operating margin 13.2 % 12.3 % 12.1 % 12.8 % 12.0 %
 
Add: Total stock-based compensation 6,327 4,969 5,012 11,296 9,428
Amortization of acquisition-related intangible assets   1,476     1,522     1,557     2,998     3,184  
 
Non-GAAP income from operations $ 22,000   $ 19,407   $ 18,344   $ 41,407   $ 34,840  
Non-GAAP operating margin 20.5 % 18.5 % 18.8 % 19.5 % 18.8 %
 
 
RECONCILIATION OF PROVISION FOR INCOME TAXES
GAAP provision for income taxes $ 760 $ (677 ) $ 604 $ 83 $ 939
GAAP effective tax rate 5.2 % -5.0 % 5.0 % 0.3 % 4.1 %
 
Tax effect of adjustments to GAAP results   (736 )   (1,533 )   (225 )   (2,269 )   (526 )
 
Non-GAAP provision for income taxes $ 1,496   $ 856   $ 829   $ 2,352   $ 1,465  
Non-GAAP effective tax rate 6.6 % 4.3 % 4.4 % 5.5 % 4.1 %
 
 
RECONCILIATION OF NET INCOME PER SHARE (DILUTED)
GAAP net income $ 13,902 $ 14,099 $ 11,407 $ 28,001 $ 21,786
 
Adjustments to GAAP net income
Stock-based compensation 6,327 4,969 5,012 11,296 9,428
Amortization of acquisition-related intangible assets 1,476 1,522 1,557 2,998 3,184
Amortization of in-place lease intangible assets 90 90 90 180 180
Tax effect of items excluded from non-GAAP results   (736 )   (1,533 )   (225 )   (2,269 )   (526 )
 
Non-GAAP net income $ 21,059   $ 19,147   $ 17,841   $ 40,206   $ 34,052  
 
Average shares outstanding for calculation
of non-GAAP income per share (diluted)   30,454     30,248     29,422     30,370     29,361  
 
Non-GAAP net income per share (diluted) $ 0.69   $ 0.63   $ 0.61   $ 1.32   $ 1.16  
 
GAAP income per share $ 0.46   $ 0.47   $ 0.39   $ 0.92   $ 0.74  

POWER INTEGRATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
       
 
June 30, 2017 March 31, 2017 December 31, 2016
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 32,649 $ 46,335 $ 62,134
Short-term marketable securities 221,346 203,753 188,323
Accounts receivable 18,697 15,046 6,528
Inventories 52,432 51,149 52,564
Prepaid expenses and other current assets   16,902     16,770     8,715  
Total current assets   342,026     333,053     318,264  
 
PROPERTY AND EQUIPMENT, net 113,202 105,893 95,296
INTANGIBLE ASSETS, net 28,324 29,890 31,502
GOODWILL 91,849 91,849 91,849
DEFERRED TAX ASSETS 19,328 19,857 11,342
OTHER ASSETS   6,809     8,118     6,157  
Total assets $ 601,538   $ 588,660   $ 554,410  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 30,124 $ 37,478 $ 29,727
Accrued payroll and related expenses 11,639 9,146 10,756
Taxes payable 1,072 877 729
Other accrued liabilities   3,858     3,409     2,734  
Total current liabilities   46,693     50,910     43,946  
 
LONG-TERM LIABILITIES:
Income taxes payable 2,805 2,804 2,639
Deferred tax liabilities 615 688 820
Other liabilities   4,422     4,115     3,921  
Total liabilities   54,535     58,517     51,326  
 
STOCKHOLDERS' EQUITY:
Common stock 29 29 28
Additional paid-in capital 189,259 182,235 172,875
Accumulated other comprehensive loss (2,419 ) (2,514 ) (2,710 )
Retained earnings   360,134     350,393     332,891  
Total stockholders' equity   547,003     530,143     503,084  
Total liabilities and stockholders' equity $ 601,538   $ 588,660   $ 554,410  

POWER INTEGRATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
         
Three Months Ended Six Months Ended

June 30,
2017

March 31,
2017

June 30,
2016

June 30,
2017

June 30,
2016

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 13,902 $ 14,099 $ 11,407 $ 28,001 $ 21,786
Adjustments to reconcile net income to cash provided by operating activities
 
Depreciation 4,357 4,112 4,206 8,469 8,521
Amortization of intangible assets 1,566 1,612 1,647 3,178 3,439
Loss on disposal of property and equipment - 38 70 38 148
Stock-based compensation expense 6,327 4,969 5,012 11,296 9,428
Amortization of premium on marketable securities 257 251 169 508 429
Deferred income taxes 457 (1,105 ) 306 (648 ) 225
Increase in accounts receivable allowances 80 - 104 80 193
Change in operating assets and liabilities:
Accounts receivable (3,731 ) (8,518 ) (3,667 ) (12,249 ) (6,252 )
Inventories (1,283 ) 1,415 (1,084 ) 132 5,185
Prepaid expenses and other assets (115 ) (8,234 ) 714 (8,349 ) (674 )
Accounts payable (1,252 ) (2,377 ) 4,879 (3,629 ) 3,039
Taxes payable and other accrued liabilities   3,523     (315 )   (153 )   3,208     (1,566 )
Net cash provided by operating activities   24,088     5,947     23,610     30,035     43,901  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (16,473 ) (6,403 ) (2,795 ) (22,876 ) (4,890 )
Purchases of marketable securities (49,636 ) (61,938 ) (20,984 ) (111,574 ) (66,211 )
Proceeds from sales and maturities of marketable securities   31,800     46,340     14,390     78,140     52,921  
Net cash used in investing activities   (34,309 )   (22,001 )   (9,389 )   (56,310 )   (18,180 )
 
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common stock 697 4,392 491 5,089 3,448
Repurchase of common stock - - (350 ) - (6,435 )
Payments of dividends to stockholders   (4,162 )   (4,137 )   (3,754 )   (8,299 )   (7,483 )
Net cash provided by (used in) financing activities   (3,465 )   255     (3,613 )   (3,210 )   (10,470 )
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (13,686 ) (15,799 ) 10,608 (29,485 ) 15,251
 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD   46,335     62,134     94,735     62,134     90,092  
 
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 32,649   $ 46,335   $ 105,343   $ 32,649   $ 105,343  

Source: Power Integrations, Inc.

Power Integrations, Inc.

Joe Shiffler, 408-414-8528

joe@power.com

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NASDAQ: POWI $69.95 +0.00
+0% Volume: 87,647 August 16, 2017

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Joe Shiffler
Director, Investor Relations & Corporate Communications
(408) 414-8528
Fax: (408) 414-8628
jshiffler@power.com

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Power Integrations
Attention: Investor Relations
5245 Hellyer Avenue San Jose, CA. 95138

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