Power Integrations Announces Third-Quarter Financial Results

October 25, 2007

SAN JOSE, Calif., Oct 25, 2007 (PrimeNewswire via COMTEX News Network) -- Power Integrations (Nasdaq:POWI) today announced financial results for the three months ended September 30, 2007. The company's net revenues were $49.8 million, an increase of 15 percent compared to $43.2 million in the quarter ended June 30, 2007, and up 12 percent compared to the $44.4 million reported in the third quarter of 2006.

Third-quarter gross margin under generally accepted accounting principles (GAAP) was 53.0 percent. Operating margin on a GAAP basis was 12.6 percent. Net income under GAAP was $6.8 million, or $0.22 per diluted share, compared to $0.22 per diluted share in the prior quarter and $0.09 per diluted share in the year-ago quarter.

On a non-GAAP basis, which excludes stock-based compensation expenses, third-quarter gross margin was 53.7 percent. Non-GAAP operating margin was 20.5 percent, including an impact of 3.5 percentage points from expenses associated with the company's financial restatement and related matters. Third-quarter net income on a non-GAAP basis was $10.1 million, or $0.32 per diluted share, which includes an impact of approximately $0.04 per share from restatement-related expenses. Non-GAAP net income was $0.30 per diluted share in the quarter ended June 30, 2007, and $0.19 per diluted share in the third quarter of 2006.

The company had a total of $178.1 million in cash and investments at quarter-end, an increase of $28.4 million during the quarter.

"Power Integrations had an excellent third quarter as we continued to execute the strategy we implemented several quarters ago," said Balu Balakrishnan, president and CEO of Power Integrations. "The expansion of our gross margin over the past few years has enabled us to selectively target key high-volume opportunities in order to accelerate our revenue and earnings growth.

"Our results demonstrate that this strategy is paying off," added Balakrishnan. "Revenues increased 15 percent sequentially, driven largely by the ramp of high-volume designs in applications such as cellphones, PDAs and videogame consoles," added Balakrishnan. "The replacement of linear power supplies was a major factor in our growth, reflecting the superior cost and energy-efficiency performance of our LinkSwitch products. LinkSwitch revenues grew 75 percent sequentially and exceeded 20 percent of revenues in the third quarter.

"Going forward, we will continue to pursue key high-volume designs on a selective basis while focusing on further reducing product costs and expanding our base of lower-volume, higher-margin designs," continued Balakrishnan. "We believe this is the right strategy to grow our bottom line as quickly as possible."

Revenue mix by end market for the third quarter was 29 percent consumer, 26 percent communications, 23 percent computer, 15 percent industrial and 7 percent other. By product family, revenue mix was 51 percent TinySwitch(r), 26 percent TOPSwitch(r), 21 percent LinkSwitch(r) and 2 percent DPA-Switch(r).

Quarterly Highlights

 * Power Integrations' EcoSmart(r) technology saved an estimated
   1.4 billion kilowatt-hours of electricity during the third quarter
   through the reduction of standby power waste. As a result, an
   estimated total of nearly one million tons of CO2 emissions were
   averted, an amount equal to the quarterly emissions of more than
   600,000 automobiles.

 * In September, a jury upheld the validity of the four patents
   asserted by Power Integrations in its patent-infringement lawsuit
   against Fairchild Semiconductor. A separate jury had previously
   found that Fairchild willfully infringed each of the patents, and
   awarded Power Integrations damages of approximately $34 million.
   The company now intends to seek an injunction against the
   infringing products as well as an enhancement of the damage award
   based on the finding of willful infringement.

 * Also in September, Power Integrations launched TOPSwitch-HX, the
   fifth generation of its flagship family of integrated circuits,
   which were first introduced in 1994. TOPSwitch-HX offers best-in-
   class efficiency over the entire load range, including standby
   mode, and in some cases can eliminate the need for a separate
   standby power supply to meet one-watt and other energy-efficiency
   standards.

 * During the third quarter, Power Integrations completed
   qualification of Seiko Epson as its fourth foundry partner. The
   partnership with Epson is intended to ensure production capacity to
   support the long-term growth of the company's business, and to help
   the company achieve its cost reduction goals.

 * Power Integrations received 7 U.S. patents in the third quarter and
   had a total of 191 U.S. patents and 89 foreign patents as of
   September 30, 2007.

Fourth-Quarter Outlook

The company expects its revenues and gross margins for the fourth quarter of 2007 to be similar to the third-quarter levels. Operating expenses are expected to total $18.5 million to $19 million, including approximately $3 million in stock-based compensation expenses, $0.8 million to $1 million of patent-litigation expenses and $0.5 million in legal expenses related to the company's special investigation and restatement.

Conference Call at 1:45 pm Pacific Time

Power Integrations management will hold a conference call for members of the investment community today at 1:45 pm Pacific time. Members of the investment community may access the call by dialing 877-857-6176 from within the United States, or 719-325-4843 from outside the U.S. A telephonic replay will be available for 48 hours following the conclusion of the call by dialing 888-203-1112 (U.S.) or 719-457-0820 (outside the U.S.) The replay access code is 4381032. The call will also be available via a live and archived webcast on the "investor info" section of the company's website, http://powerintegrations2014.q4web.com.

About Power Integrations

Power Integrations, Inc. is the leading supplier of high-voltage analog integrated circuits used in power conversion. The company's breakthrough integrated-circuit technology enables compact, energy-efficient power supplies in a wide range of electronic products, in both AC-DC and DC-DC applications. The company's EcoSmart energy-efficiency technology, which dramatically reduces energy waste, has saved consumers and businesses around the world more than an estimated $2.5 billion on their electricity bills since its introduction in 1998. For more information, visit the company's website at www.powerint.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 expenses (and the related tax effects thereof) recorded under Statement of Financial Accounting Standards No. 123R, "Share-based Payment," which requires the recognition of expenses relating to share-based payments such as stock options. The company uses these non-GAAP measures in its own financial and operational decision-making processes and in setting performance targets for employee-compensation purposes. Further, the company believes that these non-GAAP measures offer an important analytical tool to help investors understand the company's core operating results and trends, and to facilitate comparability with the company's historical results and with the operating results of other companies that provide similar non-GAAP measures.

These non-GAAP measures have certain limitations as analytical tools and are not meant to be considered in isolation or as a substitute for GAAP financial information. 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. Also, other companies, including other companies in Power Integrations' industry, may calculate non-GAAP financial measures differently than the company, limiting their usefulness as a comparative measure.

Note Regarding Forward-Looking Statements

The statements in this press release relating to the company's projected fourth-quarter financial performance and its intention to continue to pursue key high-volume designs on a selective basis while focusing on reducing product costs and further expanding its base of lower-volume, higher-margin designs are forward-looking statements, reflecting management's current forecast. These forward-looking statements are based on current information that is, by its nature, subject to rapid and even abrupt changes. Due to risks and uncertainties associated with the company's business, actual results could differ materially from those projected or implied by management's forward-looking statements. These risks and uncertainties include, but are not limited to: changes and shifts in customer demand away from products that utilize the company's integrated circuits to products that do not incorporate the company's products; the company's ability to maintain and establish strategic relationships; the effects of competition; the risks inherent in the development and delivery of complex technologies; the outcome and cost of patent litigation; the company's ability to attract, retain and motivate qualified personnel; the emergence of new markets for the company's products and services; the company's ability to compete in those markets based on timeliness, cost and market demand; and fluctuations in currency 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 are more fully explained in the company's most recent annual report on Form 10-K, filed with the Securities and Exchange Commission on August 8, 2007. 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.

                       POWER INTEGRATIONS, INC.
                 CONSOLIDATED STATEMENTS OF OPERATIONS
               (in thousands, except per-share amounts)

                          Three Months Ended        Nine Months Ended
                     ---------------------------   -------------------
                    Sept. 30,  June 30, Sept. 30, Sept. 30,  Sept. 30,
                       2007      2007      2006      2007       2006
                     -------   -------   -------   --------   --------
 NET REVENUES        $49,806   $43,240   $44,404   $138,363   $121,122

 COST OF REVENUES     23,409    19,288    20,355     62,897     54,622
                     -------   -------   -------   --------   --------

 GROSS PROFIT         26,397    23,952    24,049     75,466     66,500
                     -------   -------   -------   --------   --------
 OPERATING EXPENSES:
 Research
  and
  development          6,664     5,916     6,331     18,474     18,158
 Sales and
  marketing            6,976     6,171     6,330     19,488     19,054
 General and
  administrative       6,475     5,546    10,210     18,403     26,732
                     -------   -------   -------   --------   --------
    Total
     Operating
     Expenses         20,115    17,633    22,871     56,365     63,944
                     -------   -------   -------   --------   --------
 INCOME FROM
  OPERATIONS           6,282     6,319     1,178     19,101      2,556

 OTHER INCOME,
  net                  1,917     1,641     1,585      5,223      4,357
 INSURANCE
  REIMBURSEMENT           --       723        --        723         --
                     -------   -------   -------   --------   --------

 INCOME BEFORE
  PROVISION FOR
  INCOME TAXES         8,199     8,683     2,763     25,047      6,913

 PROVISION FOR
  INCOME TAXES         1,446     1,906       102      5,011        525
                     -------   -------   -------   --------   --------
 NET INCOME          $ 6,753   $ 6,777   $ 2,661   $ 20,036   $  6,388
                     =======   =======   =======   ========   ========
 EARNINGS
  PER SHARE:
   Basic             $  0.23   $  0.24   $  0.09   $   0.70   $   0.22
                     =======   =======   =======   ========   ========
   Diluted           $  0.22   $  0.22   $  0.09   $   0.65   $   0.21
                     =======   =======   =======   ========   ========
 SHARES USED
  IN PER-SHARE
  CALCULATION:
   Basic              28,789    28,674    28,650     28,708     29,192
   Diluted            31,342    30,942    29,832     30,987     30,887

 SUPPLEMENTAL
  INFORMATION:

 Stock-based
  compensation
  expenses
  included in:
   Cost of revenues  $   326   $   280   $   448   $    938   $    907
   Research and
    development        1,088       642     1,019      2,649   $  3,336
   Sales and
    marketing          1,452       851     1,311      3,317   $  4,275
   General and
    administrative     1,041       730     1,045      2,542      3,304
                     -------   -------   -------   --------   --------
   Total stock-
    based compen-
    sation expense   $ 3,907   $ 2,503   $ 3,823   $  9,446   $ 11,822
                     =======   =======   =======   ========   ========
 Operating
  expenses
  include the
  following:
   Patent-litiga-
    tion expenses    $   574   $   559   $ 1,797   $  1,683   $  5,483
                     =======   =======   =======   ========   ========
   Special
    investigation
    /restatement
    expenses         $ 1,735   $   941   $ 4,941   $  4,957   $ 10,898
                     =======   =======   =======   ========   ========

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

                               Three Months Ended    Nine Months Ended
                           -------------------------  ----------------
                           Sept 30, June 30, Sept 30, Sept 30, Sept 30,
                             2007     2007     2006     2007     2006
                           -------  -------  -------  -------  -------
 RECONCILIATION OF GROSS
  PROFIT MARGIN
   GAAP gross profit       $26,397  $23,952  $24,049  $75,466  $66,500
    GAAP gross profit
     margin                   53.0%    55.4%    54.2%    54.5%    54.9%

   Stock-based compensa-
    tion expense included
    in cost of revenues        326      280      448      938      907
                           -------  -------  -------  -------  -------
   Non-GAAP gross profit
    excluding stock-based
    compensation            26,723   24,232   24,497   76,404   67,407
                           -------  -------  -------  -------  -------
    Non-GAAP gross profit
     margin                   53.7%    56.0%    55.2%    55.2%    55.7%

 RECONCILIATION OF
  OPERATING MARGIN
   GAAP income from
    operations             $ 6,282  $ 6,319  $ 1,178  $19,101  $ 2,556
     GAAP operating margin    12.6%    14.6%     2.7%    13.8%     2.1%

   Stock-based compensation
    expense included in cost
    of revenues and
    operating expenses:
     Cost of revenues          326      280      448      938      907
     Research and
      development            1,088      642    1,019    2,649    3,336
     Sales and marketing     1,452      851    1,311    3,317    4,275
     General and
      administrative         1,041      730    1,045    2,542    3,304
                           -------  -------  -------  -------  -------
      Total                  3,907    2,503    3,823    9,446   11,822
                           -------  -------  -------  -------  -------
   Non-GAAP income from
    operations excluding
    stock-based
    compensation            10,189    8,822    5,001   28,547   14,378
                           -------  -------  -------  -------  -------
   Non-GAAP operating
    margin                    20.5%    20.4%    11.3%    20.6%    11.9%

 RECONCILIATION OF NET
  INCOME PER SHARE
  (DILUTED)
   GAAP net income         $ 6,753  $ 6,777  $ 2,661  $20,036  $ 6,388
   Adjustments to GAAP net
    income
     Total stock-based
      compensation           3,907    2,503    3,823    9,446   11,822
     Difference between GAAP
      and non-GAAP provision
      for income taxes        (512)     (94)    (825)  (1,043)  (2,245)

   Non-GAAP income ex-
    cluding stock-based
    compensation           $10,148  $ 9,186  $ 5,659  $28,439  $15,965
                           -------  -------  -------  -------  -------
   Average shares out-
    standing for calcula-
    tion of non-GAAP income
    per share (diluted)     31,342   30,942   29,832   30,987   30,887
                           -------  -------  -------  -------  -------
   Non-GAAP income per
    share excluding stock-
    based compensation
    (diluted)              $  0.32  $  0.30  $  0.19  $  0.92  $  0.52
                           =======  =======  =======  =======  =======

    Note on use of non-GAAP financial measures:

    Effective January 1, 2006, Power Integrations adopted SFAS 123R,
    which requires the company to recognize compensation expenses
    relating to stock-based payments. In addition to the company's
    consolidated financial statements, which are prepared according to
    GAAP, the company provides certain non-GAAP financial information
    that excludes expenses recognized under SFAS 123R, and the related
    tax effects. The company uses these non-GAAP measures in its own
    financial and operational decision-making processes and in setting
    performance targets for employee-compensation purposes. Further,
    the company believes that these non-GAAP measures offer an
    important analytical tool to help investors understand the
    company's core operating results and trends, and to facilitate
    comparability with the company's historical results and with the
    operating results of other companies that provide similar non-GAAP
    measures. These non-GAAP measures have certain limitations as
    analytical tools and are not meant to be considered in isolation
    or as a substitute for GAAP financial information.


                       POWER INTEGRATIONS, INC.
                      CONSOLIDATED BALANCE SHEETS
                            (in thousands)


                                      September     June     December
                                          30,        30,        31,
                                         2007       2007       2006
                                       --------   --------   --------
 CURRENT ASSETS:
  Cash and cash equivalents            $162,532   $137,325   $124,937
  Restricted cash                         1,300      1,300      1,300
  Short-term investments                 13,262     10,038      2,506
  Accounts receivable                    14,652     14,322     10,489
  Inventories                            19,944     24,669     28,280
  Deferred tax assets                     2,047      2,199      2,199
  Prepaid expenses and other
   current assets                         3,664      3,210      4,009
                                       --------   --------   --------
    Total current assets                217,401    193,063    173,720
                                       --------   --------   --------

 INVESTMENTS                              1,000      1,000      3,999
 NOTE RECEIVABLE                         10,000     10,000     10,000
 PROPERTY AND EQUIPMENT, net             55,085     54,911     53,475
 INTANGIBLE ASSETS, NET                   5,315      5,508      5,895
 DEFERRED TAX ASSETS                     13,190     13,483     13,485
 OTHER ASSETS                               272        244        285
                                       --------   --------   --------
    Total assets                       $302,263   $278,209   $260,859
                                       ========   ========   ========

LIABILITIES AND STOCKHOLDERS' EQUITY
 CURRENT LIABILITIES:
  Accounts payable                     $ 10,109   $  7,361   $  8,592
  Accrued payroll and
   related expenses                       7,044      5,335      8,668
  Income taxes payable                    1,608      2,404     14,509
  Deferred income on sales
   to distributors                        5,574      4,727      4,901
  Accrued professional fees               3,868      3,387      3,294
  Other accrued liabilities                 126        180        129
                                       --------   --------   --------
   Total current liabilities             28,329     23,394     40,093
                                       --------   --------   --------

 LONG-TERM INCOME TAXES PAYABLE          14,236     14,237       --
                                       --------   --------   --------

   Total liabilities                     42,565     37,631     40,093
                                       --------   --------   --------

STOCKHOLDERS' EQUITY:
 Common stock                                29         29         29
 Additional paid-in capital             153,081    140,765    135,307
 Cumulative translation adjustment           83         32          4
 Retained earnings                      106,505     99,752     85,426
                                       --------   --------   --------
   Total stockholders' equity           259,698    240,578    220,766
                                       --------   --------   --------
   Total liabilities
    stockholders' equity               $302,263   $278,209   $260,859
                                       ========   ========   ========

This news release was distributed by PrimeNewswire, www.primenewswire.com

SOURCE: Power Integrations

Power Integrations, Inc.
          Joe Shiffler
          (408) 414-8528
          jshiffler@powerint.com

 

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NASDAQ: POWI $119.08 -1.23
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Contact Us

Joe Shiffler
Director, Investor Relations & Corporate Communications
(408) 414-8528
joe@power.com

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Mailing Address:
Power Integrations
Attn: Investor Relations
5245 Hellyer Avenue San Jose, CA. 95138

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P.O. Box 30170
College Station, TX 77842
Phone: (781) 575-2879




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