Power Integrations Reports Third-Quarter Financial Results

October 28, 2015

Revenues increased four percent sequentially to $88.9 million; non-GAAP earnings were $0.55 per diluted share; GAAP earnings were $0.39 per diluted share

Cash flow from operations was $24.7 million for the quarter; company announces new $30 million share-repurchase authorization

SAN JOSE, Calif.--(BUSINESS WIRE)-- Power Integrations (Nasdaq: POWI) today announced financial results for the quarter ended September 30, 2015. Net revenues for the third quarter were $88.9 million, up four percent from the prior quarter and down one percent from the third quarter of 2014. GAAP gross margin for the third quarter was 49.7 percent; operating margin was 13.3 percent. Net income for the quarter was $11.5 million or $0.39 per diluted share, compared with $0.29 per diluted share in the prior quarter and $0.52 per diluted share in the third quarter of 2014.

In addition to its GAAP results, the company provided non-GAAP financial measures that exclude stock-based compensation expenses, amortization of intangible assets and other acquisition-related expenses, the tax effects of these items, and a tax benefit recognized in 2014. Non-GAAP gross margin for the third quarter was 51.0 percent; operating margin was 18.9 percent. Non-GAAP net income was $16.2 million or $0.55 per diluted share, compared with $0.47 per diluted share in the prior quarter and $0.65 per diluted share in the third quarter of 2014.

Commented Balu Balakrishnan, president and CEO of Power Integrations: “Like many of our peers, we experienced soft demand in the industrial end-market during the third quarter. However, revenues increased in each of the other three end-market categories, resulting in overall sequential growth of four percent. Most notably, revenues from the communications market grew more than 30 percent sequentially driven by adoption of our InnoSwitch™ products in the mobile-device market.

“While macroeconomic conditions continue to weigh on overall demand, we believe we are in the early stages of a promising product cycle with InnoSwitch ICs, and we are poised to capitalize on key trends in power conversion such as energy-efficiency, faster charging of mobile devices, renewable energy and more.”

Additional Highlights

  • Power Integrations repurchased approximately 775,000 shares of its common stock during the quarter for $30.6 million, exhausting the company’s repurchase authorization. Earlier this month the company’s board of directors authorized the use of an additional $30 million for further repurchases.
  • The company paid a dividend of $0.12 per share on September 30. A dividend of $0.12 per share is scheduled to be paid on December 31, 2015, to stockholders of record as of November 30, 2015.
  • Power Integrations had $151.0 million in cash and short-term marketable securities at quarter-end, a decrease of $19.9 million during the quarter. Cash flow from operations in the quarter was $24.7 million.
  • Power Integrations was issued 15 U.S. patents during the third quarter and had 748 U.S. patents at quarter-end.

Financial Outlook

The company issued the following forecast for the fourth quarter of 2015:

  • Revenues are expected to be in a range of $89 million, plus or minus $3 million.
  • Non-GAAP gross margin is expected to be between 51 percent and 51.5 percent. (Excludes approximately $0.2 million of stock-based compensation expense and $1 million of amortization of acquisition-related intangible assets.) GAAP gross margin is expected to be between 49.7 percent and 50.2 percent.
  • Non-GAAP operating expenses are expected to be between $29.5 million and $30 million. (Excludes approximately $3.8 million of stock-based compensation expenses and $0.7 million of amortization of acquisition-related intangible assets.) GAAP operating expenses are expected to be between $34 million and $34.5 million.

Conference Call Today at 1:45 p.m. Pacific Time

Power Integrations management will hold a conference call today at 1:45 p.m. PT. 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 and the write-up of acquired inventory, acquisition expenses, severance and transition expenses, the tax effects of these items, and a tax benefit recognized in 2014. The company uses these measures in its own financial and operational decision-making 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 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 measures differently, limiting their usefulness as comparative measures.

Note Regarding Forward-Looking Statements

The statements in this press release regarding the company’s forecast for its fourth-quarter financial performance and its beliefs about being in the early stages of a promising product cycle and being poised to capitalize on key trends in power conversion 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 including its InnoSwitch 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 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 Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission (SEC) on July 31, 2015. 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, InnoSwitch 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 INCOME
(in thousands, except per-share amounts)
               
 
Three Months Ended Nine Months Ended
September 30, 2015 June 30, 2015 September 30, 2014 September 30, 2015 September 30, 2014
NET REVENUES $ 88,878 $ 85,265 $ 90,144 $ 256,700 $ 262,202
 
COST OF REVENUES   44,717     41,247     41,092     126,229     118,437  
 
GROSS PROFIT   44,161     44,018     49,052     130,471     143,765  
 
OPERATING EXPENSES:
Research and development 13,888 14,683 13,458 43,144 41,314
Sales and marketing 10,463 11,567 10,935 33,337 33,344
General and administrative 7,361 7,480 7,155 22,824 22,614
Amortization of acquisition-related intangible assets 666 693 629 2,109 2,562
Acquisition expenses, severance and transition costs   -     391     -     1,113     -  
Total operating expenses   32,378     34,814     32,177     102,527     99,834  
 
INCOME FROM OPERATIONS 11,783 9,204 16,875 27,944 43,931
 
Other income, net   428     14     381     219     836  
 
INCOME BEFORE INCOME TAXES 12,211 9,218 17,256 28,163 44,767
 
PROVISION (BENEFIT) FOR INCOME TAXES   698     628     1,145     1,717     (423 )
 
NET INCOME $ 11,513   $ 8,590   $ 16,111   $ 26,446   $ 45,190  
 
EARNINGS PER SHARE:
Basic $ 0.40   $ 0.29   $ 0.54   $ 0.91   $ 1.50  
Diluted $ 0.39   $ 0.29   $ 0.52   $ 0.89   $ 1.46  
 
SHARES USED IN PER-SHARE CALCULATION:
Basic 28,855 29,368 30,013 29,175 30,186
Diluted 29,298 30,034 30,757 29,856 31,053
 
 
SUPPLEMENTAL INFORMATION:
 
Stock-based compensation expenses included in:
Cost of revenues $ 219 $ 257 $ 131 $ 725 $ 648
Research and development 1,277 1,306 971 3,974 3,522
Sales and marketing 877 878 779 2,767 2,578
General and administrative   988     1,309     699     4,036     3,922  
Total stock-based compensation expense $ 3,361   $ 3,750   $ 2,580   $ 11,502   $ 10,670  
 
Cost of revenues includes:
Amortization of write-up of acquired inventory $ -   $ -   $ -   $ 309   $ -  
Amortization of acquisition-related intangible assets $ 961   $ 961   $ 645   $ 2,883   $ 1,935  
 
General & administrative expenses include:
Patent-litigation expenses $ 1,500   $ 1,501   $ 1,529   $ 4,458   $ 3,842  
 
Other income, net includes:
Amortization of in-place lease intangible assets $ 30   $ -   $ -   $ 30   $ -  
 
 
REVENUE MIX BY END MARKET
Communications 26 % 21 % 18 % 23 % 17 %
Computer 7 % 7 % 11 % 7 % 11 %
Consumer 36 % 36 % 36 % 37 % 37 %
Industrial 31 % 36 % 35 % 33 % 35 %
 

POWER INTEGRATIONS, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP RESULTS
(in thousands, except per-share amounts)
                 
Three Months Ended Nine Months Ended
September 30, 2015 June 30, 2015 September 30, 2014 September 30, 2015 September 30, 2014
RECONCILIATION OF GROSS PROFIT
GAAP gross profit $ 44,161 $ 44,018 $ 49,052 $ 130,471 $ 143,765
GAAP gross margin 49.7 % 51.6 % 54.4 % 50.8 % 54.8 %
 
Stock-based compensation included in cost of revenues 219 257 131 725 648
Amortization of write-up of acquired inventory - - - 309 -
Amortization of acquisition-related intangible assets   961     961     645     2,883     1,935  
 
Non-GAAP gross profit $ 45,341   $ 45,236   $ 49,828   $ 134,388   $ 146,348  
Non-GAAP gross margin 51.0 % 53.1 % 55.3 % 52.4 % 55.8 %
 
 
RECONCILIATION OF OPERATING EXPENSES
GAAP operating expenses $ 32,378 $ 34,814 $ 32,177 $ 102,527 $ 99,834
 
Less: Stock-based compensation expense included in operating expenses
Research and development 1,277 1,306 971 3,974 3,522
Sales and marketing 877 878 779 2,767 2,578
General and administrative   988     1,309     699     4,036     3,922  
Total   3,142     3,493     2,449     10,777     10,022  
 
Amortization of acquisition-related intangible assets   666     693     629     2,109     2,562  
 
Acquisition expenses, severance and transition costs   -     391     -     1,113     -  
 
Non-GAAP operating expenses $ 28,570   $ 30,237   $ 29,099   $ 88,528   $ 87,250  
 
 
RECONCILIATION OF INCOME FROM OPERATIONS
GAAP income from operations $ 11,783 $ 9,204 $ 16,875 $ 27,944 $ 43,931
GAAP operating margin 13.3 % 10.8 % 18.7 % 10.9 % 16.8 %
 
Add: Total stock-based compensation 3,361 3,750 2,580 11,502 10,670
Amortization of write-up of acquired inventory - - - 309 -
Amortization of acquisition-related intangible assets 1,627 1,654 1,274 4,992 4,497
Acquisition expenses, severance and transition costs   -     391     -     1,113     -  
 
Non-GAAP income from operations $ 16,771   $ 14,999   $ 20,729   $ 45,860   $ 59,098  
Non-GAAP operating margin 18.9 % 17.6 % 23.0 % 17.9 % 22.5 %
 
 
RECONCILIATION OF PROVISION (BENEFIT) FOR INCOME TAXES
GAAP provision (benefit) for income taxes $ 698 $ 628 $ 1,145 $ 1,717 $ (423 )
GAAP effective tax rate 5.7 % 6.8 % 6.6 % 6.1 % -0.9 %
 
Benefit associated with tax settlement - - - - (3,331 )
Tax effect of other adjustments to GAAP results   (310 )   (197 )   (120 )   (1,028 )   (783 )
 
Non-GAAP provision for income taxes $ 1,008   $ 825   $ 1,265   $ 2,745   $ 3,691  
Non-GAAP effective tax rate 5.9 % 5.5 % 6.0 % 6.0 % 6.2 %
 
 
RECONCILIATION OF NET INCOME PER SHARE (DILUTED)
GAAP net income $ 11,513 $ 8,590 $ 16,111 $ 26,446 $ 45,190
 
Adjustments to GAAP net income
Stock-based compensation 3,361 3,750 2,580 11,502 10,670
Amortization of write-up of acquired inventory - - - 309 -
Amortization of acquisition-related intangible assets 1,627 1,654 1,274 4,992 4,497
Benefit associated with tax settlement - - - - (3,331 )
Acquisition expenses, severance and transition costs - 391 - 1,113 -
Amortization of in-place lease intangible assets 30 - - 30 -
Tax effect of items excluded from non-GAAP results   (310 )   (197 )   (120 )   (1,028 )   (783 )
 
Non-GAAP net income $ 16,221   $ 14,188   $ 19,845   $ 43,364   $ 56,243  
 
Average shares outstanding for calculation
of non-GAAP income per share (diluted)   29,298     30,034     30,757     29,856     31,053  
 
Non-GAAP net income per share (diluted) $ 0.55   $ 0.47   $ 0.65   $ 1.45   $ 1.81  
 
GAAP income per share $ 0.39   $ 0.29   $ 0.52   $ 0.89   $ 1.46  
 

POWER INTEGRATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
           
 
September 30, 2015 June 30, 2015 December 31, 2014
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 59,735 $ 75,941 $ 60,708
Short-term marketable securities 91,222 94,944 114,575
Accounts receivable 11,061 13,212 10,186
Inventories 55,439 64,231 64,025
Deferred tax assets 75 38 39
Prepaid expenses and other current assets   5,780     9,444     16,379  
Total current assets   223,312     257,810     265,912  
 
PROPERTY AND EQUIPMENT, net 102,223 92,913 95,823
INTANGIBLE ASSETS, net 39,957 41,028 35,524
GOODWILL 91,849 91,849 80,599
DEFERRED TAX ASSETS 10,647 11,025 11,562
OTHER ASSETS   5,502     4,894     4,243  
Total assets $ 473,490   $ 499,519   $ 493,663  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 23,370 $ 30,792 $ 21,980
Accrued payroll and related expenses 8,203 9,539 9,071
Taxes payable 2,022 2,237 2,963
Deferred tax liabilities 1,985 2,085 2,193
Deferred income on sales to distributors 16,464 16,457 15,223
Other accrued liabilities   3,182     3,381     3,730  
Total current liabilities   55,226     64,491     55,160  
 
LONG-TERM LIABILITIES:
Income taxes payable 746 746 743
Deferred tax liabilities 3,752 3,928 4,272
Other liabilities   2,569     2,673     2,812  
Total liabilities   62,293     71,838     62,987  
 
STOCKHOLDERS' EQUITY:
Common stock 28 29 29
Additional paid-in capital 136,422 161,089 171,938
Accumulated other comprehensive loss (1,043 ) (1,167 ) (1,136 )
Retained earnings   275,790     267,730     259,845  
Total stockholders' equity   411,197     427,681     430,676  
Total liabilities and stockholders' equity $ 473,490   $ 499,519   $ 493,663  
 

POWER INTEGRATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
               
Three Months Ended Nine Months Ended
September 30, 2015 June 30, 2015 September 30, 2014 September 30, 2015 September 30, 2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 11,513 $ 8,590 $ 16,111 $ 26,446 $ 45,190
Adjustments to reconcile net income to cash provided by operating activities
Depreciation 4,168 4,035 4,002 12,235 11,849
Amortization of intangible assets 1,732 1,729 1,349 5,247 4,723
Loss on disposal of property and equipment 270 - 11 270 170
Stock-based compensation expense 3,361 3,750 2,580 11,502 10,670
Amortization of premium on marketable securities 258 265 481 809 1,296
Deferred income taxes 66 9 (917 ) 152 (782 )
Increase (decrease) in accounts receivable allowances 213 (80 ) 90 128 75
Excess tax benefit from employee stock plans - - (224 ) - (437 )
Tax benefit (deficiency) associated with employee stock plans - - 451 (189 ) 815
Change in operating assets and liabilities:
Accounts receivable 1,938 (500 ) 5,972 888 1,933
Inventories 8,792 779 (5,693 ) 9,995 (14,639 )
Prepaid expenses and other assets 2,428 2,077 4,655 4,278 9,955
Accounts payable (8,338 ) 5,954 639 (2,035 ) 2,509
Taxes payable and other accrued liabilities (1,752 ) (751 ) 1,486 (3,579 ) (3,257 )
Deferred income on sales to distributors   6     (796 )   (384 )   1,241     3,017  
Net cash provided by operating activities   24,655     25,061     30,609     67,388     73,087  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (2,475 ) (1,822 ) (7,509 ) (7,619 ) (17,394 )
Payment for purchase of building (10,389 ) - - (10,389 ) -
Payment for acquisition, net of cash acquired - (184 ) - (15,549 ) -
Other assets - - (1,261 ) - (1,261 )
Purchases of marketable securities (4,940 ) (9,993 ) (20,518 ) (14,933 ) (45,269 )
Proceeds from sales and maturities of marketable securities   8,424     2,250     -     37,459     -  
Net cash used in investing activities   (9,380 )   (9,749 )   (29,288 )   (11,031 )   (63,924 )
 
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common stock 2,527 856 3,237 6,902 13,104
Repurchase of common stock (30,555 ) (22,335 ) (19,527 ) (53,731 ) (45,258 )
Payments of dividends to stockholders (3,453 ) (3,529 ) (3,595 ) (10,501 ) (9,654 )
Excess tax benefit from employee stock plans   -     -     224     -     437  
Net cash used in financing activities   (31,481 )   (25,008 )   (19,661 )   (57,330 )   (41,371 )
 
NET DECREASE IN CASH AND CASH EQUIVALENTS (16,206 ) (9,696 ) (18,340 ) (973 ) (32,208 )
 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD   75,941     85,637     79,060     60,708     92,928  
 
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 59,735   $ 75,941   $ 60,720   $ 59,735   $ 60,720  

Source: Power Integrations, Inc.

Power Integrations, Inc.

Joe Shiffler, 408-414-8528

joe@power.com

NASDAQ: POWI $119.08 -1.23
-1.02% Volume: 129,556 August 7, 2020

Contact Us

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

Literature Requests
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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