Power Integrations Reports Record Revenues

August 2, 2011
Quarterly sales topped $80 million for the first time

Company generated $35 million of cash flow from operations

SAN JOSE, Calif.--(BUSINESS WIRE)-- Power Integrations (Nasdaq:POWI), the leader in high-voltage integrated circuits for energy-efficient power conversion, today announced financial results for the quarter ended June 30, 2011. Net revenues for the second quarter were $80.2 million, up four percent from the prior quarter and up slightly compared with the second quarter of 2010. Net income was $10.6 million or $0.35 per diluted share, compared with $0.33 per diluted share in the prior quarter and $0.53 per diluted share in the second quarter of 2010. Gross margin for the second quarter was 46.9 percent; operating margin was 16.4 percent.

In addition to its GAAP results, the company provided certain non-GAAP financial measures that exclude stock-based compensation expenses, amortization of the fair-value write-up of acquired inventory and acquisition-related intangible assets, and the tax effects of these items. Non-GAAP net income for the quarter was $13.1 million or $0.43 per diluted share, compared with $0.40 per diluted share in the prior quarter and $0.60 per diluted share in the second quarter of 2010. Non-GAAP gross margin for the second quarter was 47.5 percent; non-GAAP operating margin was 19.8 percent.

Commented Balu Balakrishnan, president and CEO of Power Integrations: "We surpassed $80 million in quarterly sales for the first time in our history, thanks in part to strong growth in LED lighting applications and the continued ramp of our new high-power products. We reduced inventories by nearly 15 percent during the quarter and generated $35 million of cash flow from operations."

Balakrishnan continued: "We have also achieved significant cost reductions to help offset rising input costs — particularly higher wafer costs due to the decline of the dollar versus the Japanese yen, as well as higher commodity prices — which have impacted our profitability in recent quarters. We expect our gross margin to increase meaningfully in the fourth quarter as lower-cost inventory begins to flow through our results."

Balakrishnan concluded: "While design activity remains healthy and our growth initiatives are on track, we have not yet seen evidence of a typical seasonal upturn in demand. Meanwhile, several of our largest end customers in the mobile-phone market have recently announced lower-than-expected sales. Based on these factors, we expect our third-quarter revenues to be between $74 million and $80 million. However, we are well positioned to respond to increased demand should it materialize."

Additional Highlights

  • Inventories at quarter-end were $54.1 million, a decrease of $8.9 million during the quarter.
  • Power Integrations repurchased approximately 120,000 shares of its common stock during the second quarter for a total of $4.4 million. The company had $45.6 million remaining on its current repurchase authorization at quarter-end.
  • The company paid a quarterly dividend of $0.05 per share on June 30, 2011. The next dividend of $0.05 per share will be paid on September 30, 2011 to stockholders of record as of August 31.
  • Power Integrations received 14 U.S. patents and 42 foreign patents during the quarter, and had a total of 424 U.S. patents and 267 foreign patents as of June 30, 2011.

Financial Outlook for Third Quarter of 2011

The company issued the following forecast for the third quarter of 2011:

  • Revenues are expected to be between $74 million and $80 million;
  • Gross margins are expected to be flat to slightly lower compared with the second quarter;
  • Operating expenses:
    • GAAP: $25.2 million, plus or minus $0.5 million;
    • Non-GAAP: $22.5 million, plus or minus $0.5 million (excluding approximately $2.6 million of stock-based compensation expenses and less than $0.1 million of amortization expense related to 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 1-877-303-9795 from within the United States or 1-631-291-4581 from outside the U.S. The call will be available via a live and archived webcast on the investor section of the company's website, http://powerintegrations2014.q4web.com.

About Power Integrations

Power Integrations is the leading supplier of high-voltage integrated circuits used in energy-efficient power conversion. The company's innovative technology enables compact, energy-efficient power supplies in a wide range of electronic products, in AC-DC, DC-DC and LED lighting applications. Since its introduction in 1998, Power Integrations' EcoSmart™ energy-efficiency technology has saved an estimated $4.9 billion of standby energy waste and prevented millions of tons of CO2 emissions. The company's Green Room web site provides a wealth of information about "energy vampires" and the issue of standby energy waste, along with a comprehensive guide to energy-efficiency standards around the world. Reflecting the environmental benefits of EcoSmart technology, Power Integrations' stock is included in The Cleantech Index® and the NASDAQ® Clean Edge® Green Energy Index. For more information, please visit 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 stock-based compensation expenses recorded under Accounting Standard Codification 718-10, certain acquisition-related expenses such as the amortization of acquisition-related intangible assets and the fair-value write-up of acquired inventory, and the tax effects of these items. The company uses these non-GAAP measures in its own financial and operational decision-making processes and, with respect to one measure, 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 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. 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 financial measures differently, limiting their usefulness as comparative measures.

Note Regarding Forward-Looking Statements

The statements in this press release relating to the company's projected third-quarter 2011 financial performance and its expectation that its gross margin will improve substantially in the fourth quarter 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 these forward-looking statements. These risks and uncertainties include, but are not limited to: changes in global macroeconomic conditions that 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 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; unforeseen costs and expenses; unfavorable fluctuations in component costs resulting from changes in commodity prices and/or the exchange rate between the U.S. dollar and the Japanese yen; and the challenges inherent in integrating acquired businesses. 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 under the caption "Risk Factors" in the company's most recent Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission (SEC) on May 5, 2011. 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, EcoSmart, and the Power Integrations logo are trademarks or registered trademarks of Power Integrations, Inc. All other trademarks are property of their respective owners.

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

June 30, 2011

 

March 31, 2011

 

June 30, 2010

 

June 30, 2011

 

June 30, 2010

NET REVENUES   $ 80,184     $ 76,762     $ 79,858     $ 156,946     $ 151,365  
                     
COST OF REVENUES     42,558       40,339       38,369       82,897       73,954  
                     
GROSS PROFIT     37,626       36,423       41,489       74,049       77,411  
                     
OPERATING EXPENSES:                    
Research and development     10,195       10,023       8,674       20,218       16,785  
Sales and marketing     8,104       8,248       7,527       16,352       14,447  
General and administrative     6,141       6,475       6,465       12,616       12,478  
Total operating expenses     24,440       24,746       22,666       49,186       43,710  
                     
INCOME FROM OPERATIONS     13,186       11,677       18,823       24,863       33,701  
                     
OTHER INCOME, net     461       442       471       903       965  
                     
INCOME BEFORE PROVISION FOR INCOME TAXES     13,647       12,119       19,294       25,766       34,666  
                     
PROVISION FOR INCOME TAXES     3,048       2,265       3,707       5,313       6,765  
                     
NET INCOME   $ 10,599     $ 9,854     $ 15,587     $ 20,453     $ 27,901  
                     
EARNINGS PER SHARE:                    
Basic   $ 0.37     $ 0.34     $ 0.56     $ 0.71     $ 1.01  
Diluted   $ 0.35     $ 0.33     $ 0.53     $ 0.68     $ 0.95  
                     
SHARES USED IN PER-SHARE CALCULATION:                    
Basic     28,938       28,628       27,844       28,784       27,658  
Diluted     30,346       30,187       29,535       30,271       29,460  
                     
                     
SUPPLEMENTAL INFORMATION:                    
                     
Stock-based compensation expenses included in:                    
Cost of revenues   $ 216     $ 239     $ 173     $ 455     $ 330  
Research and development     980       811       929       1,791       1,656  
Sales and marketing     543       667       639       1,210       1,049  
General and administrative     705       787       775       1,492       1,508  
Total stock-based compensation expense   $ 2,444     $ 2,504     $ 2,516     $ 4,948     $ 4,543  
                     
Cost of revenues includes:                    
Amortization of write-up of acquired inventory   $ 148     $ 62     $ -     $ 210     $ -  
Amortization of acquisition-related intangible assets   $ 85     $ 85     $ 41     $ 170     $ 82  
                     
Operating expenses include:                    
Amortization of acquisition-related intangible assets   $ 28     $ 28     $ -     $ 56     $ -  
Patent-litigation expenses   $ 1,210     $ 1,257     $ 1,516     $ 2,467     $ 2,603  
                     
REVENUE MIX BY PRODUCT FAMILY                    
TOPSwitch     24 %     23 %     25 %     24 %     25 %
TinySwitch     31 %     35 %     39 %     33 %     39 %
LinkSwitch     43 %     40 %     35 %     41 %     35 %
Other     2 %     2 %     1 %     2 %     1 %
                     
REVENUE MIX BY END MARKET                    
Communications     28 %     32 %     28 %     30 %     30 %
Computer     13 %     11 %     12 %     12 %     12 %
Consumer     36 %     37 %     40 %     36 %     38 %
Industrial     23 %     20 %     20 %     22 %     20 %

 

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, 2011

 

March 31, 2011

 

June 30, 2010

 

June 30, 2011

 

June 30, 2010

RECONCILIATION OF GROSS PROFIT                    
GAAP gross profit   $ 37,626     $ 36,423     $ 41,489     $ 74,049     $ 77,411  
  GAAP gross profit margin     46.9 %     47.4 %     52.0 %     47.2 %     51.1 %
                       
Stock-based compensation included in cost of revenues     216       239       173       455       330  
Amortization of write-up of acquired inventory     148       62       -       210       -  
Amortization of acquisition-related intangible assets     85       85       41       170       82  
                       
Non-GAAP gross profit   $ 38,075     $ 36,809     $ 41,703     $ 74,884     $ 77,823  
  Non-GAAP gross profit margin     47.5 %     48.0 %     52.2 %     47.7 %     51.4 %
                       
                       
RECONCILIATION OF OPERATING EXPENSES                    
GAAP operating expenses   $ 24,440     $ 24,746     $ 22,666     $ 49,186     $ 43,710  
                       
Less:Stock-based compensation expense included in operating expenses                    
  Research and development     980       811       929       1,791       1,656  
  Sales and marketing     543       667       639       1,210       1,049  
  General and administrative     705       787       775       1,492       1,508  
  Total     2,228       2,265       2,343       4,493       4,213  
                       
  Amortization of acquisition-related intangible assets     28       28       -       56       -  
                       
Non-GAAP operating expenses   $ 22,184     $ 22,453     $ 20,323     $ 44,637     $ 39,497  
                       
                       
RECONCILIATION OF INCOME FROM OPERATIONS                    
GAAP income from operations   $ 13,186     $ 11,677     $ 18,823     $ 24,863     $ 33,701  
  GAAP operating margin     16.4 %     15.2 %     23.6 %     15.8 %     22.3 %
                       
Less:Total stock-based compensation     2,444       2,504       2,516       4,948       4,543  
  Amortization of write-up of acquired inventory     148       62       -       210       -  
  Amortization of acquisition-related intangible assets     113       113       41       226       82  
                       
Non-GAAP income from operations   $ 15,891     $ 14,356     $ 21,380     $ 30,247     $ 38,326  
  Non-GAAP operating margin     19.8 %     18.7 %     26.8 %     19.3 %     25.3 %
                       
                       
RECONCILIATION OF PROVISION FOR INCOME TAXES                    
GAAP provision for income taxes   $ 3,048     $ 2,265     $ 3,707     $ 5,313     $ 6,765  
  GAAP effective tax rate     22.3 %     18.7 %     19.2 %     20.6 %     19.5 %
                       
Tax effect of items excluded from non-GAAP results     (225 )     (404 )     (356 )     (629 )     (362 )
                       
Non-GAAP provision for income taxes   $ 3,273     $ 2,669     $ 4,063     $ 5,942     $ 7,127  
  Non-GAAP effective tax rate     20.0 %     18.0 %     18.6 %     19.1 %     18.1 %
                       
                       
RECONCILIATION OF NET INCOME PER SHARE (DILUTED)                    
GAAP net income   $ 10,599     $ 9,854     $ 15,587     $ 20,453     $ 27,901  
                       
Adjustments to GAAP net income                    
  Stock-based compensation     2,444       2,504       2,516       4,948       4,543  
  Amortization of write-up of acquired inventory     148       62       -       210       -  
  Amortization of acquisition-related intangible assets     113       113       41       226       82  
  Tax effect of items excluded from non-GAAP results     (225 )     (404 )     (356 )     (629 )     (362 )
                       
Non-GAAP net income   $ 13,079     $ 12,129     $ 17,788     $ 25,208     $ 32,164  
                       

Average shares outstanding for calculation of non-GAAP income per share (diluted)

    30,346       30,187       29,535       30,271       29,460  
                       
Non-GAAP income per share (diluted)   $ 0.43     $ 0.40     $ 0.60     $ 0.83     $ 1.09  
                       
GAAP income per share (diluted)   $ 0.35     $ 0.33     $ 0.53     $ 0.68     $ 0.95  

 

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

June 30, 2011

 

March 31, 2011

 

December 31, 2010

ASSETS            
CURRENT ASSETS:            
Cash and cash equivalents   $ 170,494   $ 137,694   $ 155,667
Short-term investments     33,091     32,070     27,355
Accounts receivable     8,070     13,314     5,713
Inventories     54,069     63,004     62,077
Deferred tax assets     1,437     1,434     1,435
Prepaid expenses and other current assets     9,572     8,217     9,263
Total current assets     276,733     255,733     261,510
             
INVESTMENTS     30,043     36,815     31,760
PROPERTY AND EQUIPMENT, net     85,449     84,586     84,470
INTANGIBLE ASSETS, net     9,309     9,552     9,795
GOODWILL     14,826     14,826     14,826
DEFERRED TAX ASSETS     12,593     13,022     13,421
OTHER ASSETS     25,355     22,439     17,288
Total assets   $ 454,308   $ 436,973   $ 433,070
             
LIABILITIES AND STOCKHOLDERS' EQUITY            
CURRENT LIABILITIES:            
Accounts payable   $ 14,173   $ 13,932   $ 20,291
Accrued payroll and related expenses     6,246     5,455     7,395
Income taxes payable     354     -     -
Deferred income on sales to distributors     11,199     10,951     12,221
Other accrued liabilities     2,367     2,918     9,548
Total current liabilities     34,339     33,256     49,455
             
LONG-TERM LIABILITIES            
Income taxes payable     32,040     30,676     29,580
             
Total liabilities     66,379     63,932     79,035
             
STOCKHOLDERS' EQUITY:            
Common stock     29     29     28
Additional paid-in capital     191,549     185,834     175,295
Accumulated translation adjustment     158     135     85
Retained earnings     196,193     187,043     178,627
Total stockholders' equity     387,929     373,041     354,035
Total liabilities stockholders' equity   $ 454,308   $ 436,973   $ 433,070

 

>Net cash provided by (used in) investing activities
POWER INTEGRATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
                     
    Three Months Ended   Six Months Ended
   

June 30, 2011

 

March 31, 2011

 

June 30, 2010

 

June 30, 2011

 

June 30, 2010

CASH FLOWS FROM OPERATING ACTIVITIES:                    
Net income   $ 10,599     $ 9,854     $ 15,587       20,453       27,901  
Adjustments to reconcile net income to net cash provided by operating activities                    
Depreciation     3,790       3,682       3,029       7,472       5,800  
Amortization of intangible assets     243       243       172       486       334  
Gain on sale of property and equipment     (41 )     -       (362 )     (41 )     (349 )
Stock-based compensation expense     2,444       2,504       2,516       4,948       4,543  
Amortization of premium on held-to-maturity investments     420       439       508       859       858  
Deferred income taxes     427       399       (788 )     826       710  
Increase (decrease) in accounts receivable and other allowances     15       22       (18 )     37       (18 )
Excess tax benefit from stock options exercised     (299 )     (398 )     285       (697 )     (891 )
Tax benefit associated with employee stock plans     755       783       115       1,538       2,040  
Change in operating assets and liabilities:                    
Accounts receivable     5,230       (7,622 )     9,322       (2,392 )     3,492  
Inventories     8,879       (964 )     (4,275 )     7,915       (9,460 )
Prepaid expenses and other assets     1,613       1,435       4,234       3,048       3,562  
Accounts payable     (1,352 )     (2,908 )     (1,842 )     (4,260 )     4,453  
Taxes payable and other accrued liabilities     1,993       (525 )     3,596       1,468       3,006  
Deferred income on sales to distributors     248       (1,269 )     3,008       (1,021 )     5,885  
Net cash provided by operating activities     34,964       5,675       35,087       40,639       51,866  
                     
CASH FLOWS FROM INVESTING ACTIVITIES:                    
Purchases of property and equipment     (5,271 )     (7,248 )     (10,153 )     (12,519 )     (13,513 )
Proceeds from sale of property and equipment     2,249       -       1,415       2,249       1,415  
Other assets     (808 )     -       -       (808 )     -  
Acquisition     (13 )     (6,901 )     -       (6,914 )     -  
Increase in financing lease receivables     (2,179 )     (5,642 )     -       (7,821 )     -  
Collections of financing lease receivables     103       102       -       205       -  
Notes to third parties     (3,000 )     -       (3,000 )     (3,000 )     (4,750 )
Purchases of held-to-maturity investments     -       (11,508 )     -       (11,508 )     (27,224 )
Proceeds from held-to-maturity investments     5,330       1,300       15,300       6,630       18,150  
    (3,589 )     (29,897 )     3,562       (33,486 )     (25,922 )
                     
CASH FLOWS FROM FINANCING ACTIVITIES                    
Net proceeds from issuance of common stock     6,958       7,288       5,428       14,246       15,463  
Repurchase of common stock     (4,384 )     -       (7,922 )     (4,384 )     (13,960 )
Retirement of performance shares for income tax withholding     -       -       -       -       (769 )
Payments of dividends to stockholders     (1,448 )     (1,437 )     (1,390 )     (2,885 )     (2,768 )
Excess tax benefit from stock options exercised     299       398       (285 )     697       891  
Net cash provided by (used in) financing activities     1,425       6,249       (4,169 )     7,674       (1,143 )
                     
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS     32,800       (17,973 )     34,480       14,827       24,801  
                     
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD     137,694       155,667       125,295       155,667       134,974  
                     
CASH AND CASH EQUIVALENTS AT END OF PERIOD   $ 170,494     $ 137,694     $ 159,775     $ 170,494     $ 159,775  
                     
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND                    
FINANCING ACTIVITIES:                    
Unpaid property and equipment, net   $ 3,510     $ 1,917     $ (1,207 )   $ 3,510     $ 1,711  

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

Source: Power Integrations, Inc.

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ir@power.com

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

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




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