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Power Integrations Reports Fourth-Quarter Financial Results

02/04/2016

Non-GAAP earnings were $0.58 per diluted share; GAAP earnings were $0.44 per diluted share; revenues were $87.3 million

Cash flow from operations was $24.8 million for the quarter and $92.2 million for the year; quarterly dividend rises to $0.13 per share

SAN JOSE, Calif.--(BUSINESS WIRE)-- Power Integrations (Nasdaq: POWI) today announced financial results for the quarter and year ended December 31, 2015. Net revenues for the fourth quarter were $87.3 million, down two percent from the prior quarter and up one percent compared to the fourth quarter of 2014. Net income was $12.7 million or $0.44 per diluted share, compared to $0.39 in the prior quarter and $0.48 in the fourth quarter of 2014. Cash flow from operations for the fourth quarter was $24.8 million.

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 net income for the fourth quarter was $16.9 million or $0.58 per diluted share, compared with $0.55 in the prior quarter and $0.59 in the fourth quarter of 2014.

For the full year, net revenues were $344.0 million, down one percent from the prior year. Net income for the year was $39.1 million or $1.32 per diluted share, compared to $1.93 in the prior year. Non-GAAP net income for 2015 was $2.03 per diluted share, compared to $2.40 in the prior year. Cash flow from operations for the year was $92.2 million, compared to $85.6 million in the prior year.

Commented Balu Balakrishnan, president and CEO of Power Integrations: “Despite challenging economic conditions and a steep year-over-year decline in revenues from the PC market, quarterly revenues grew modestly from a year ago, and we generated nearly $25 million in cash flow from operations for the quarter. While we expect the March quarter to be sequentially lower due to seasonal factors, recent order trends and design wins point to strong sequential growth in the second quarter. The InnoSwitch™ product cycle continues to gain steam, and we have a promising pipeline of innovative new products on the way for key growth areas such as rapid charging, efficient lighting, renewable energy and high-power industrial applications.”

Additional Highlights

  • The company paid a dividend of $0.12 per share on December 31. The company’s board has declared dividends of $0.13 per share for each quarter of 2016, the first of which will be paid on March 31, 2016 to stockholders of record as of February 29, 2016.
  • Power Integrations had $173.9 million in cash and short-term marketable securities at quarter-end, an increase of $22.9 million during the quarter.
  • Power Integrations was issued 16 U.S. patents during the fourth quarter and had 764 U.S. patents at quarter-end.

Financial Outlook

The company issued the following forecast for the first quarter of 2016:

  • Revenues are expected to be in a range of $84 million plus or minus $3 million.
  • Non-GAAP gross margin is expected to be approximately 51 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 approximately 49.6 percent.
  • Non-GAAP operating expenses are expected to be between $30 million and $31 million. (Excludes approximately $4 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 $34.7 million and $35.7 million.

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

Power Integrations management will hold a conference call today at 1:30 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 first-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 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 October 30, 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 Twelve Months Ended
 
December 31, 2015 September 30, 2015 December 31, 2014 December 31, 2015 December 31, 2014
NET REVENUES $ 87,289 $ 88,878 $ 86,595 $ 343,989 $ 348,797
 
COST OF REVENUES   44,373     44,717     40,790     170,602     159,227  
 
GROSS PROFIT   42,916     44,161     45,805     173,387     189,570  
 
OPERATING EXPENSES:
Research and development 13,856 13,888 13,667 57,000 54,981
Sales and marketing 10,449 10,463 11,262 43,786 44,606
General and administrative 6,896 7,361 7,574 29,720 30,188
Amortization of acquisition-related intangible assets 666 666 628 2,775 3,190
Acquisition expenses, severance and transition costs   -     -     809     1,113     809  
Total operating expenses   31,867     32,378     33,940     134,394     133,774  
 
INCOME FROM OPERATIONS 11,049 11,783 11,865 38,993 55,796
 
Other income, net   206     428     182     425     1,018  
 
INCOME BEFORE INCOME TAXES 11,255 12,211 12,047 39,418 56,814
 
PROVISION (BENEFIT) FOR INCOME TAXES   (1,446 )   698     (2,307 )   271     (2,730 )
 
NET INCOME $ 12,701   $ 11,513   $ 14,354   $ 39,147   $ 59,544  
 
EARNINGS PER SHARE:
Basic $ 0.45   $ 0.40   $ 0.49   $ 1.35   $ 1.99  
Diluted $ 0.44   $ 0.39   $ 0.48   $ 1.32   $ 1.93  
 
SHARES USED IN PER-SHARE CALCULATION:
Basic 28,483 28,855 29,350 29,001 29,976
Diluted 29,126 29,298 30,051 29,696 30,829
 
 
SUPPLEMENTAL INFORMATION:
 
Stock-based compensation expenses included in:
Cost of revenues $ 208 $ 219 $ 231 $ 933 $ 879
Research and development 1,281 1,277 1,262 5,255 4,784
Sales and marketing 877 877 962 3,644 3,540
General and administrative   899     988     1,157     4,935     5,079  
Total stock-based compensation expense $ 3,265   $ 3,361   $ 3,612   $ 14,767   $ 14,282  
 
Cost of revenues includes:
Amortization of write-up of acquired inventory $ -   $ -   $ -   $ 309   $ -  
Amortization of acquisition-related intangible assets $ 961   $ 961   $ 646   $ 3,844   $ 2,581  
 
General & administrative expenses include:
Patent-litigation expenses $ 1,517   $ 1,500   $ 1,815   $ 5,975   $ 5,657  
 
Other income, net includes:
Amortization of in-place lease intangible assets $ 90   $ 30   $ -   $ 120   $ -  
 
 
REVENUE MIX BY END MARKET
Communications 26 % 26 % 21 % 24 % 18 %
Computer 7 % 7 % 9 % 7 % 10 %
Consumer 34 % 36 % 37 % 36 % 37 %
Industrial 33 % 31 % 33 % 33 % 35 %

                                                 
 
POWER INTEGRATIONS, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP RESULTS
(in thousands, except per-share amounts)
   
Three Months Ended Twelve Months Ended
 
December 31, 2015   September 30, 2015 December 31, 2014 December 31, 2015 December 31, 2014
RECONCILIATION OF GROSS PROFIT
GAAP gross profit $ 42,916 $ 44,161 $ 45,805 $ 173,387 $ 189,570
GAAP gross margin 49.2 % 49.7 % 52.9 % 50.4 % 54.3 %
 
Stock-based compensation included in cost of revenues 208 219 231 933 879
Amortization of write-up of acquired inventory - - - 309 -
Amortization of acquisition-related intangible assets   961     961     646     3,844     2,581  
 
Non-GAAP gross profit $ 44,085   $ 45,341   $ 46,682   $ 178,473   $ 193,030  
Non-GAAP gross margin 50.5 % 51.0 % 53.9 % 51.9 % 55.3 %
 
 
RECONCILIATION OF OPERATING EXPENSES
GAAP operating expenses $ 31,867 $ 32,378 $ 33,940 $ 134,394 $ 133,774
 
Less: Stock-based compensation expense included in operating expenses
Research and development 1,281 1,277 1,262 5,255 4,784
Sales and marketing 877 877 962 3,644 3,540
General and administrative   899     988     1,157     4,935     5,079  
Total   3,057     3,142     3,381     13,834     13,403  
 
Amortization of acquisition-related intangible assets   666     666     628     2,775     3,190  
 
Acquisition expenses, severance and transition costs   -     -     809     1,113     809  
 
Non-GAAP operating expenses $ 28,144   $ 28,570   $ 29,122   $ 116,672   $ 116,372  
 
 
RECONCILIATION OF INCOME FROM OPERATIONS
GAAP income from operations $ 11,049 $ 11,783 $ 11,865 $ 38,993 $ 55,796
GAAP operating margin 12.7 % 13.3 % 13.7 % 11.3 % 16.0 %
 
Add: Total stock-based compensation 3,265 3,361 3,612 14,767 14,282
Amortization of write-up of acquired inventory - - - 309 -
Amortization of acquisition-related intangible assets 1,627 1,627 1,274 6,619 5,771
Acquisition expenses, severance and transition costs   -     -     809     1,113     809  
 
Non-GAAP income from operations $ 15,941   $ 16,771   $ 17,560   $ 61,801   $ 76,658  
Non-GAAP operating margin 18.3 % 18.9 % 20.3 % 18.0 % 22.0 %
 
 
RECONCILIATION OF PROVISION (BENEFIT) FOR INCOME TAXES
GAAP provision (benefit) for income taxes $ (1,446 ) $ 698 $ (2,307 ) $ 271 $ (2,730 )
GAAP effective tax rate -12.8 % 5.7 % -19.1 % 0.7 % -4.8 %
 
Benefit associated with tax settlement - - - - (3,331 )
Tax effect of other adjustments to GAAP results   (796 )   (310 )   (2,251 )   (1,824 )   (3,034 )
 
Non-GAAP provision (benefit) for income taxes $ (650 ) $ 1,008   $ (56 ) $ 2,095   $ 3,635  
Non-GAAP effective tax rate -4.0 % 5.9 % -0.3 % 3.4 % 4.7 %
 
 
RECONCILIATION OF NET INCOME PER SHARE (DILUTED)
GAAP net income $ 12,701 $ 11,513 $ 14,354 $ 39,147 $ 59,544
 
Adjustments to GAAP net income
Stock-based compensation 3,265 3,361 3,612 14,767 14,282
Amortization of write-up of acquired inventory - - - 309 -
Amortization of acquisition-related intangible assets 1,627 1,627 1,274 6,619 5,771
Benefit associated with tax settlement - - - - (3,331 )
Acquisition expenses, severance and transition costs - - 809 1,113 809
Amortization of in-place lease intangible assets 90 30 - 120 -
Tax effect of items excluded from non-GAAP results   (796 )   (310 )   (2,251 )   (1,824 )   (3,034 )
 
Non-GAAP net income $ 16,887   $ 16,221   $ 17,798   $ 60,251   $ 74,041  
 
Average shares outstanding for calculation
of non-GAAP income per share (diluted)   29,126     29,298     30,051     29,696     30,829  
 
Non-GAAP net income per share (diluted) $ 0.58   $ 0.55   $ 0.59   $ 2.03   $ 2.40  
 
GAAP income per share $ 0.44   $ 0.39   $ 0.48   $ 1.32   $ 1.93  

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

December 31, 2015

September 30, 2015

December 31, 2014

 

ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 90,092 $ 59,735 $ 60,708
Short-term marketable securities 83,769 91,222 114,575
Accounts receivable 7,818 11,061 10,186
Inventories 51,934 55,439 64,025
Deferred tax assets - 75 39
Prepaid expenses and other current assets   6,790     5,780     16,379  
Total current assets   240,403     223,312     265,912  
 
PROPERTY AND EQUIPMENT, net 99,381 102,223 95,823
INTANGIBLE ASSETS, net 38,165 39,957 35,524
GOODWILL 91,849 91,849 80,599
DEFERRED TAX ASSETS 11,843 10,647 11,562
OTHER ASSETS   5,896     5,502     4,243  
Total assets $ 487,537   $ 473,490   $ 493,663  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 21,660 $ 23,370 $ 21,980
Accrued payroll and related expenses 9,327 8,203 9,071
Taxes payable 3,620 2,022 2,963
Deferred tax liabilities - 1,985 2,193
Deferred income on sales to distributors 15,101 16,464 15,223
Other accrued liabilities   2,285     3,182     3,730  
Total current liabilities   51,993     55,226     55,160  
 
LONG-TERM LIABILITIES:
Income taxes payable 2,511 746 743
Deferred tax liabilities 1,291 3,752 4,272
Other liabilities   3,123     2,569     2,812  
Total liabilities   58,918     62,293     62,987  
 
STOCKHOLDERS' EQUITY:
Common stock 28 28 29
Additional paid-in capital 145,366 136,422 171,938
Accumulated other comprehensive loss (1,851 ) (1,043 ) (1,136 )
Retained earnings   285,076     275,790     259,845  
Total stockholders' equity   428,619     411,197     430,676  
Total liabilities and stockholders' equity $ 487,537   $ 473,490   $ 493,663  

                                             
 

POWER INTEGRATIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
Three Months Ended Twelve Months Ended
 
December 31, 2015 September 30, 2015 December 31, 2014 December 31, 2015 December 31, 2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 12,701 $ 11,513 $ 14,354 $ 39,147 $ 59,544
Adjustments to reconcile net income to cash provided by operating activities
Depreciation 4,229 4,168 4,035 16,464 15,884
Amortization of intangible assets 1,792 1,732 1,349 7,039 6,072
Loss on disposal of property and equipment 91 270 80 361 250
Stock-based compensation expense 3,265 3,361 3,612 14,767 14,282
Amortization of premium on marketable securities 254 258 398 1,063 1,694
Deferred income taxes (5,568 ) 66 939 (5,416 ) 157
Increase (decrease) in accounts receivable allowances (1 ) 213 (5 ) 127 70
Excess tax benefit from employee stock plans - - - - (437 )
Tax benefit (deficiency) associated with employee stock plans - - - (189 ) 815
Change in operating assets and liabilities:
Accounts receivable 3,243 1,938 200 4,131 2,133
Inventories 3,505 8,792 (7,064 ) 13,500 (21,703 )
Prepaid expenses and other assets (887 ) 2,428 (1,744 ) 3,391 8,211
Accounts payable 35 (8,338 ) (172 ) (2,000 ) 2,337
Taxes payable and other accrued liabilities 3,503 (1,752 ) 15 (76 ) (3,242 )
Deferred income on sales to distributors   (1,363 )   6     (3,522 )   (122 )   (505 )
Net cash provided by operating activities   24,799     24,655     12,475     92,187     85,562  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (3,740 ) (2,475 ) (5,677 ) (11,359 ) (23,071 )
Payment for purchase of building - (10,389 ) - (10,389 ) -
Payment for acquisition, net of cash acquired - - - (15,549 ) -
Loan to third party - - (6,600 ) - (6,600 )
Other assets - - - - (1,261 )
Purchases of marketable securities (14,815 ) (4,940 ) - (29,748 ) (45,269 )
Proceeds from sales and maturities of marketable securities   21,850     8,424     38,052     59,309     38,052  
Net cash provided by (used in) investing activities   3,295     (9,380 )   25,775     (7,736 )   (38,149 )
 
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common stock 5,678 2,527 751 12,580 13,855
Repurchase of common stock - (30,555 ) (35,502 ) (53,731 ) (80,760 )
Payments of dividends to stockholders (3,415 ) (3,453 ) (3,511 ) (13,916 ) (13,165 )
Excess tax benefit from employee stock plans   -     -     -     -     437  
Net cash provided by (used in) financing activities   2,263     (31,481 )   (38,262 )   (55,067 )   (79,633 )
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 30,357 (16,206 ) (12 ) 29,384 (32,220 )
 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD   59,735     75,941     60,720     60,708     92,928  
 
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 90,092   $ 59,735   $ 60,708   $ 90,092   $ 60,708  
 

Source: Power Integrations, Inc.

Power Integrations, Inc.

Joe Shiffler, 408-414-8528

joe@power.com

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