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Power Integrations Reports Second-Quarter Financial Results

07/30/2013

Revenues grew 14 percent sequentially and 15 percent year-over-year to $87.9 million

Cash flow from operations was $24.6 million; non-GAAP and GAAP earnings were $0.61 and $0.45 per diluted share, respectively

SAN JOSE, Calif.--(BUSINESS WIRE)-- Power Integrations (Nasdaq: POWI) today announced financial results for the quarter ended June 30, 2013. Net revenues for the quarter were $87.9 million, up 14 percent from the prior quarter and 15 percent compared with the second quarter of 2012. GAAP net income for the quarter was $13.7 million or $0.45 per diluted share, compared with $0.37 per diluted share in the prior quarter and a net loss of $0.25 per share in the second quarter of 2012. GAAP gross margin for the second quarter was 52.6 percent; operating margin was 15.1 percent.

In addition to its GAAP results, the company provided non-GAAP financial measures that exclude stock-based compensation expenses, certain expenses, gains and charges related to acquisitions and strategic investments, non-cash interest income, the tax effects of these items, and a one-time tax-related charge incurred in the second quarter of 2012. Non-GAAP net income for the second quarter was $18.5 million or $0.61 per diluted share, compared with $0.47 per diluted share in the prior quarter and $0.49 per diluted share in the second quarter of 2012. Non-GAAP gross margin for the second quarter was 53.6 percent; non-GAAP operating margin was 22.0 percent.

Commented Balu Balakrishnan , president and CEO of Power Integrations: “Quarterly revenues exceeded our expectations, increasing 14 percent sequentially with growth in all four of our primary end markets. Growth was particularly robust in the industrial market, which is now our largest end market in terms of sales. Strong revenue growth and a higher gross margin enabled our non-GAAP operating margin to expand by more than three percentage points versus the prior quarter, contributing to sequential growth of 30 percent in non-GAAP earnings per share.”

Additional Highlights

  • On July 18 Power Integrations announced CHY100, the first AC-DC wall-charger interface IC that enables designers of mobile devices to implement the Quick Charge 2.0 protocol from Qualcomm Technologies, Inc. Launched earlier this year, Quick Charge 2.0 enables users to charge mobile devices up to 75% faster than when using conventional technology.

  • Power Integrations generated $24.6 million of cash flow from operations in the quarter; cash and investments increased by $26.0 million from the end of the prior quarter to a total of $145.1 million.
  • The company paid a dividend of $0.08 per share on June 28, 2013. The next dividend of $0.08 per share is to be paid on September 30, 2013 to stockholders of record as of August 30.
  • Power Integrations received 20 U.S. patents and 42 non-U.S. patents during the quarter and had a total of 562 U.S. patents and 461 non-U.S. patents as of June 30, 2013.

Financial Outlook

The company issued the following forecast for the third quarter of 2013:

  • Third-quarter revenues are expected to be between $89 million and $94 million.
  • Non-GAAP gross margin is expected to be approximately 54 percent. (Excludes from cost of revenues approximately $0.6 million of amortization of acquisition-related intangible assets and $0.3 million of stock-based compensation.) GAAP gross margin is expected to be approximately 53 percent.
  • Non-GAAP operating expenses are expected to be approximately $28 million, plus or minus $0.5 million. (Excludes from GAAP operating expenses approximately $4 million of stock-based compensation expenses and $1 million of amortization expense for acquisition-related intangible assets.) GAAP operating expenses are expected to be $33 million, plus or minus $0.5 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. Pacific time. Members of the investment community can join the call by dialing 1-877-317-6789 from within the United States or 1-412-317-6789 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, Inc., is a Silicon Valley-based supplier of high-performance electronic components used in high-voltage power-conversion systems. The company’s integrated circuits and diodes enable compact, energy-efficient AC-DC power supplies for a vast range of electronic products including mobile devices, TVs, PCs, appliances, smart utility meters and LED lights. CONCEPT IGBT drivers enhance the efficiency, reliability and cost of high-power applications such as industrial motor drives, solar and wind energy systems, electric vehicles and high-voltage DC transmission. Since its introduction in 1998, Power Integrations’ EcoSmart® energy-efficiency technology has prevented billions of dollars’ worth of energy waste and millions of tons of carbon emissions. Reflecting the environmental benefits of the company’s products, Power Integrations’ stock is included in the NASDAQ® Clean Edge® Green Energy Index, The Cleantech Index®, and the Ardour Global IndexSM. For more information, including design-support tools and resources, please visit www.powerint.com; visit Power Integrations’ Green Room for a comprehensive guide to energy-efficiency standards around the world.

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, acquisition-related expenses, amortization of acquisition-related intangible assets and the fair-value write-up of acquired inventory, certain charges and gains associated with strategic investments, non-cash interest income, the tax effects of the above items, and a one-time tax related charge incurred in the second quarter of 2012. 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 measures differently, limiting their usefulness as comparative measures.

Note Regarding Forward-Looking Statements

The statements in this press release under the caption “Financial Outlook” relating to the company’s projected third-quarter financial performance 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 forward-looking 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 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; 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 and forecasting the performance of 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 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 May 3, 2013. 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, 2013

March 31, 2013

June 30, 2012

June 30, 2013

June 30, 2012

NET REVENUES $ 87,922 $ 77,040 $ 76,382 $ 164,962 $ 148,155
 
COST OF REVENUES   41,715     37,176     38,627     78,891     75,807  
 
GROSS PROFIT   46,207     39,864     37,755     86,071     72,348  
 
OPERATING EXPENSES:
Research and development 13,489 12,272 12,066 25,761 22,706
Sales and marketing 10,242 9,659 8,419 19,901 16,530
General and administrative 8,066 7,734 6,687 15,800 13,291
Amortization of acquisition-related intangible assets 1,122 1,122 757 2,244 785
Acquisition expenses   -     -     413     -     902  
Total operating expenses   32,919     30,787     28,342     63,706     54,214  
 
INCOME FROM OPERATIONS 13,288 9,077 9,413 22,365 18,134
 
Non-cash interest income - - 623 - 780
Cost of acquisition-related currency option - - (635 ) - (635 )
Gain related to SemiSouth 497 - - 497 -
Other income (expense), net   68     217     207     285     665  
 
INCOME BEFORE PROVISION (BENEFIT) FOR INCOME TAXES 13,853 9,294 9,608 23,147 18,944
 
PROVISION (BENEFIT) FOR INCOME TAXES   181     (1,609 )   16,784     (1,428 )   18,659  
 
NET INCOME (LOSS) $ 13,672   $ 10,903   $ (7,176 ) $ 24,575   $ 285  
 
EARNINGS (LOSS) PER SHARE:
Basic $ 0.47   $ 0.38   $ (0.25 ) $ 0.85   $ 0.01  
Diluted $ 0.45   $ 0.37   $ (0.25 ) $ 0.82   $ 0.01  
 
SHARES USED IN PER-SHARE CALCULATION:
Basic 29,178 28,754 28,619 28,967 28,423
Diluted 30,158 29,783 28,619 29,977 29,624
 
 
SUPPLEMENTAL INFORMATION:
 
Stock-based compensation expenses included in:
Cost of revenues $ 264 $ 264 $ 256 $ 528 $ 501
Research and development 1,640 1,106 1,566 2,746 2,687
Sales and marketing 795 829 746 1,624 1,493
General and administrative   1,629     1,437     1,074     3,066     1,992  
Total stock-based compensation expense $ 4,328   $ 3,636   $ 3,642   $ 7,964   $ 6,673  
 
Cost of revenues includes:
Amortization of write-up of acquired inventory $ -   $ -   $ 1,136   $ -   $ 1,216  
Amortization of acquisition-related intangible assets $ 645   $ 645   $ 459   $ 1,290   $ 544  
 
Operating expenses include:
Patent-litigation expenses $ 807   $ 1,399   $ 1,409   $ 2,206   $ 2,705  
 
 
REVENUE MIX BY END MARKET
Communications 21 % 22 % 24 % 21 % 25 %
Computer 10 % 10 % 12 % 10 % 12 %
Consumer 34 % 36 % 36 % 35 % 38 %
Industrial 35 % 32 % 28 % 34 % 25 %
 

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, 2013

March 31, 2013

June 30, 2012

June 30, 2013

June 30, 2012

RECONCILIATION OF GROSS PROFIT
GAAP gross profit $ 46,207 $ 39,864 $ 37,755 $ 86,071 $ 72,348
GAAP gross profit margin 52.6 % 51.7 % 49.4 % 52.2 % 48.8 %
 
Stock-based compensation included in cost of revenues 264 264 256 528 501
Amortization of write-up of acquired inventory - - 1,136 - 1,216
Amortization of acquisition-related intangible assets   645     645     459     1,290     544  
 
Non-GAAP gross profit $ 47,116   $ 40,773   $ 39,606   $ 87,889   $ 74,609  
Non-GAAP gross profit margin 53.6 % 52.9 % 51.9 % 53.3 % 50.4 %
 
 
RECONCILIATION OF OPERATING EXPENSES
GAAP operating expenses $ 32,919 $ 30,787 $ 28,342 $ 63,706 $ 54,214
 
Less: Stock-based compensation expense included in operating expenses
Research and development 1,640 1,106 1,566 2,746 2,687
Sales and marketing 795 829 746 1,624 1,493
General and administrative   1,629     1,437     1,074     3,066     1,992  
Total   4,064     3,372     3,386     7,436     6,172  
 
Acquisition expenses   -     -     413     -     902  
 
Amortization of acquisition-related intangible assets   1,122     1,122     757     2,244     785  
 
Non-GAAP operating expenses $ 27,733   $ 26,293   $ 23,786   $ 54,026   $ 46,355  
 
 
RECONCILIATION OF INCOME FROM OPERATIONS
GAAP income from operations $ 13,288 $ 9,077 $ 9,413 $ 22,365 $ 18,134
GAAP operating margin 15.1 % 11.8 % 12.3 % 13.6 % 12.2 %
 
Add: Total stock-based compensation 4,328 3,636 3,642 7,964 6,673
Amortization of write-up of acquired inventory - - 1,136 - 1,216
Amortization of acquisition-related intangible assets 1,767 1,767 1,216 3,534 1,329
Acquisition expenses   -     -     413     -     902  
 
Non-GAAP income from operations $ 19,383   $ 14,480   $ 15,820   $ 33,863   $ 28,254  
Non-GAAP operating margin 22.0 % 18.8 % 20.7 % 20.5 % 19.1 %
 
 
RECONCILIATION OF PROVISION FOR INCOME TAXES
GAAP provision (benefit) for income taxes $ 181 $ (1,609 ) $ 16,784 $ (1,428 ) $ 18,659
GAAP effective tax rate 1.3 % -17.3 % 174.7 % -6.2 % 98.5 %
 
One-time charge associated with tax settlement - - 15,749 - 15,749
Tax effect of other adjustments to GAAP results   (802 )   (2,295 )   (405 )   (3,097 )   (709 )
 
Non-GAAP provision for income taxes $ 983   $ 686   $ 1,440   $ 1,669   $ 3,619  
Non-GAAP effective tax rate 5.1 % 4.7 % 9.0 % 4.9 % 12.5 %
 
 
RECONCILIATION OF NET INCOME (LOSS) PER SHARE (DILUTED)
GAAP net income (loss) $ 13,672 $ 10,903 $ (7,176 ) $ 24,575 $ 285
 
Adjustments to GAAP net income (loss)
Stock-based compensation 4,328 3,636 3,642 7,964 6,673
Amortization of write-up of acquired inventory - - 1,136 - 1,216
Amortization of acquisition-related intangible assets 1,767 1,767 1,216 3,534 1,329
Acquisition expenses - - 413 - 902
Non-cash interest income - - (623 ) - (780 )
Cost of acquisition-related currency option - - 635 - 635
One-time charge associated with tax settlement - - 15,749 - 15,749
Gain on sale of SemiSouth related assets (497 ) - - (497 ) -
Tax effect of items excluded from non-GAAP results   (802 )   (2,295 )   (405 )   (3,097 )   (709 )
 
Non-GAAP net income $ 18,468   $ 14,011   $ 14,587   $ 32,479   $ 25,300  
 

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

  30,158     29,783     29,792     29,977     29,624  
 
Non-GAAP net income per share (diluted) $ 0.61   $ 0.47   $ 0.49   $ 1.08   $ 0.85  
 
GAAP income (loss) per share $ 0.45   $ 0.37   $ (0.25 ) $ 0.82   $ 0.01  
 

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

June 30, 2013

March 31, 2013

December 31, 2012

ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 85,426 $ 69,489 $ 63,394
Short-term marketable securities 59,630 49,530 31,766
Accounts receivable 15,772 14,739 7,326
Inventories 43,199 43,708 44,625
Deferred tax assets 344 349 352
Prepaid expenses and other current assets   12,097     13,296     17,401  
Total current assets   216,468     191,111     164,864  
 
PROPERTY AND EQUIPMENT, net 89,743 89,872 89,724
INTANGIBLE ASSETS, net 44,054 45,896 47,738
GOODWILL 80,599 80,599 80,599
DEFERRED TAX ASSETS 14,425 14,034 11,532
OTHER ASSETS   4,608     5,137     4,673  
Total assets $ 449,897   $ 426,649   $ 399,130  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 21,347 $ 19,743 $ 16,452
Accrued payroll and related expenses 7,681 6,713 6,720
Taxes payable 1,476 1,444 1,213
Deferred taxes 748 687 1,193
Deferred income on sales to distributors 15,035 14,487 11,550
Other accrued liabilities   2,650     4,022     3,439  
Total current liabilities   48,937     47,096     40,567  
 
LONG-TERM LIABILITIES
Income taxes payable 8,665 8,484 7,937
Deferred taxes 7,646 7,948 8,179
Pension liability   1,366     1,353     1,398  
Total liabilities   66,614     64,881     58,081  
 
STOCKHOLDERS' EQUITY:
Common stock 29 29 28
Additional paid-in capital 198,375 187,984 175,668
Accumulated other comprehensive loss (687 ) (484 ) (293 )
Retained earnings   185,566     174,239     165,646  
Total stockholders' equity   383,283     361,768     341,049  
Total liabilities and stockholders' equity $ 449,897   $ 426,649   $ 399,130  
 

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

June 30, 2013

March 31, 2013

June 30, 2012

June 30, 2013

June 30, 2012

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 13,672 $ 10,903 $ (7,176 ) $ 24,575 $ 285
Adjustments to reconcile net income (loss) to cash provided by operating activities
Depreciation 3,993 3,975 3,895 7,968 7,627
Amortization of intangible assets 1,842 1,842 1,290 3,684 1,479
Loss (gain) on sale of property and equipment 17 - - 17 (1 )
Gain on sale of SemiSouth related assets (497 ) - - (497 ) -
Stock-based compensation expense 4,328 3,636 3,642 7,964 6,673
Amortization of premium on marketable securities 147 104 258 251 567
Non-cash interest income - - (623 ) - (780 )
Deferred income taxes 848 (3,236 ) 5,161 (2,388 ) 4,834
Increase (decrease) in accounts receivable allowances (133 ) (20 ) (14 ) (153 ) (14 )
Excess tax benefit from stock options exercised - - (276 ) - (474 )
Tax benefit associated with employee stock plans - - 749 - 1,531
Change in operating assets and liabilities:
Accounts receivable (901 ) (7,393 ) 1,964 (8,294 ) (5,336 )
Inventories 528 893 4,958 1,421 14,119
Prepaid expenses and other assets 1,270 3,928 1,528 5,198 2,834
Accounts payable 625 2,832 2,310 3,457 3,795
Taxes payable and other accrued liabilities (1,652 ) 1,172 8,180 (480 ) 8,784
Deferred income on sales to distributors   548     2,936     1,897     3,484     3,387  
Net cash provided by operating activities   24,635     21,572     27,743     46,207     49,310  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (2,942 ) (3,950 ) (1,283 ) (6,892 ) (8,754 )
Proceeds from sale of property and equipment 36 - - 36 2
Proceeds from sale of SemiSouth related assets 959 - - 959 -
Acquisition - - (113,360 ) - (113,360 )
Increase in financing lease receivables - - - - (383 )
Collections of financing lease receivables - - - - 299
Loan to SemiSouth - - - - (18,000 )
Purchases of marketable securities (25,801 ) (19,422 ) - (45,223 ) -
Proceeds from maturities of marketable securities   15,350     1,500     6,403     16,850     12,468  
Net cash used in investing activities   (12,398 )   (21,872 )   (108,240 )   (34,270 )   (127,728 )
 
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common stock 6,044 8,705 7,864 14,749 14,321
Payments of dividends to stockholders (2,344 ) (2,310 ) (1,438 ) (4,654 ) (2,853 )
Excess tax benefit from stock options exercised   -     -     276     -     474  
Net cash provided by financing activities   3,700     6,395     6,702     10,095     11,942  
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 15,937 6,095 (73,795 ) 22,032 (66,476 )
 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD   69,489     63,394     147,155     63,394     139,836  
 
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 85,426   $ 69,489   $ 73,360   $ 85,426   $ 73,360  

Source: Power Integrations, Inc.

Power Integrations, Inc.

Joe Shiffler, 408-414-8528

jshiffler@powerint.com

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