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Power Integrations Reports First-Quarter Financial Results

04/27/2017

Revenues grew 19 percent year-over-year to $104.7 million; GAAP earnings were $0.47 per diluted share; non-GAAP earnings were $0.63 per diluted share

SAN JOSE, Calif.--(BUSINESS WIRE)-- Power Integrations (Nasdaq:POWI) today announced financial results for the quarter ended March 31, 2017. Results are calculated using the “sell-in” method of revenue recognition on sales to distributors, reflecting the company’s adoption of ASC 606 effective January 1, 2017. Prior-period results have been recast as if ASC 606 had been in effect for those periods.

Net revenues for the first quarter were $104.7 million, an increase of two percent from the prior quarter, and an increase of 19 percent from the first quarter of 2016. Net income was $14.1 million or $0.47 per diluted share, compared to $0.48 per diluted share in the prior quarter and $0.35 per diluted share in the first quarter of 2016.

In addition to its GAAP results, the company provided certain non-GAAP financial measures that exclude stock-based compensation expenses, amortization of intangible assets and the tax effects of these items. Non-GAAP net income for the first quarter was $19.1 million or $0.63 per diluted share, compared with $0.70 per diluted share in the prior quarter and $0.55 per diluted share in the first quarter of 2016.

Commented Balu Balakrishnan, president and CEO of Power Integrations: “We are off to a strong start in 2017 with 19 percent revenue growth in the first quarter. Our growth is being fueled by innovative products such as our InnoSwitch™ ICs, and by multi-year secular trends such as energy-efficiency, faster charging for mobile devices, smarter homes and appliances, LED lighting, renewable energy, and the growing use of battery power in transportation, power tools and other applications. We also have a robust pipeline of new products coming to market over the next several quarters, which we believe will further enhance our competitive positioning and expand our addressable market.”

Additional Highlights

  • Power Integrations paid a dividend of $0.14 per share on March 31, 2017. A dividend of $0.14 per share is scheduled to be paid on June 30, 2017, to stockholders of record as of May 31, 2017.
  • Power Integrations was issued 13 U.S. patents during the first quarter of 2017.

Financial Outlook

The company issued the following forecast for the second quarter of 2017:

  • Revenues are expected to be $107 million plus or minus $3 million.
  • GAAP gross margin is expected to be between 48.8 percent and 49.3 percent; non-GAAP gross margin is expected to be between 50 percent and 50.5 percent. (The difference between the expected GAAP and non-GAAP gross margins is composed of approximately 0.9 percentage points from amortization of acquisition-related intangible assets and 0.3 percentage points from stock-based compensation.)
  • GAAP operating expenses are expected to be approximately $39 million; non-GAAP operating expenses are expected to be approximately $33.5 million. (Non-GAAP expenses are expected to exclude approximately $5 million of stock-based compensation expenses and $0.5 million of amortization of 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 1-647-788-4901. 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 (including in-place lease intangible assets) and the tax effects of these items. The company uses these measures in its financial and operational decision-making and, with respect to one measure, in setting performance targets for compensation purposes. The company believes that these non-GAAP measures offer important analytical tools to help investors understand its operating results, and to facilitate comparability with the results of companies that provide similar measures. These non-GAAP measures have 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 second-quarter financial performance, and regarding the company’s belief that its pipeline of new products coming to market over the next several quarters will further enhance its competitive positioning and expand its addressable market, 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; 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 Annual Report on Form 10-K, filed with the Securities and Exchange Commission (SEC) on February 8, 2017. 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.

 
POWER INTEGRATIONS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per-share amounts)
           
Three Months Ended
March 31, 2017 December 31, 2016 March 31, 2016
NET REVENUES $ 104,688 $ 102,436 $ 88,036
 
COST OF REVENUES   54,212     52,360     43,548  
 
GROSS PROFIT   50,476     50,076     44,488  
 
OPERATING EXPENSES:
Research and development 16,640 15,766 14,779
Sales and marketing 11,633 11,941 10,740
General and administrative 8,704 8,257 7,850
Amortization of acquisition-related intangible assets   583     584     666  
Total operating expenses   37,560     36,548     34,035  
 
INCOME FROM OPERATIONS 12,916 13,528 10,453
 
Other income, net   506     299     261  
 
INCOME BEFORE INCOME TAXES 13,422 13,827 10,714
 
PROVISION FOR INCOME TAXES   (677 )   (476 )   335  
 
NET INCOME $ 14,099   $ 14,303   $ 10,379  
 
EARNINGS PER SHARE:
Basic $ 0.48   $ 0.49   $ 0.36  
Diluted $ 0.47   $ 0.48   $ 0.35  
 
SHARES USED IN PER-SHARE CALCULATION:
Basic 29,456 29,196 28,679
Diluted 30,248 29,914 29,244
 
 
SUPPLEMENTAL INFORMATION:
 
Stock-based compensation expenses included in:
Cost of revenues $ 143 $ 417 $ 90
Research and development 1,634 1,966 1,469
Sales and marketing 1,097 1,260 1,027
General and administrative   2,095     2,025     1,830  
Total stock-based compensation expense $ 4,969   $ 5,668   $ 4,416  
 
Cost of revenues includes:
Amortization of acquisition-related intangible assets $ 939   $ 939   $ 961  
 
General & administrative expenses include:
Patent-litigation expenses $ 1,844   $ 2,150   $ 1,159  
 
Other income, net includes:
Amortization of in-place lease intangible assets $ 90   $ 90   $ 90  
 
 
REVENUE MIX BY END MARKET
Communications 28 % 29 % 23 %
Computer 4 % 6 % 6 %
Consumer 37 % 37 % 38 %
Industrial 31 % 28 % 33 %
 

 
POWER INTEGRATIONS, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP RESULTS
(in thousands, except per-share amounts)
               
Three Months Ended
March 31, 2017 December 31, 2016 March 31, 2016
RECONCILIATION OF GROSS PROFIT
GAAP gross profit $ 50,476 $ 50,076 $ 44,488
GAAP gross margin 48.2 % 48.9 % 50.5 %
 
Stock-based compensation included in cost of revenues 143 417 90
Amortization of acquisition-related intangible assets   939     939     961  
 
Non-GAAP gross profit $ 51,558   $ 51,432   $ 45,539  
Non-GAAP gross margin 49.2 % 50.2 % 51.7 %
 
 
RECONCILIATION OF OPERATING EXPENSES
GAAP operating expenses $ 37,560 $ 36,548 $ 34,035
 

Less: Stock-based compensation expense included in operating expenses

Research and development 1,634 1,966 1,469
Sales and marketing 1,097 1,260 1,027
General and administrative   2,095     2,025     1,830  
Total   4,826     5,251     4,326  
 
Amortization of acquisition-related intangible assets   583     584     666  
 
Non-GAAP operating expenses $ 32,151   $ 30,713   $ 29,043  
 
 
RECONCILIATION OF INCOME FROM OPERATIONS
GAAP income from operations $ 12,916 $ 13,528 $ 10,453
GAAP operating margin 12.3 % 13.2 % 11.9 %
 

Add: Total stock-based compensation

4,969 5,668 4,416
Amortization of acquisition-related intangible assets   1,522     1,523     1,627  
 
Non-GAAP income from operations $ 19,407   $ 20,719   $ 16,496  
Non-GAAP operating margin 18.5 % 20.2 % 18.7 %
 
 
RECONCILIATION OF PROVISION FOR INCOME TAXES
GAAP provision for income taxes $ (677 ) $ (476 ) $ 335
GAAP effective tax rate -5.0 % -3.4 % 3.1 %
 
Tax effect of adjustments to GAAP results   (1,533 )   (724 )   (301 )
 
Non-GAAP provision for income taxes $ 856   $ 248   $ 636  
Non-GAAP effective tax rate 4.3 % 1.2 % 3.8 %
 
 
RECONCILIATION OF NET INCOME PER SHARE (DILUTED)
GAAP net income $ 14,099 $ 14,303 $ 10,379
 
Adjustments to GAAP net income
Stock-based compensation 4,969 5,668 4,416
Amortization of acquisition-related intangible assets 1,522 1,523 1,627
Amortization of in-place lease intangible assets 90 90 90
Tax effect of items excluded from non-GAAP results   (1,533 )   (724 )   (301 )
 
Non-GAAP net income $ 19,147   $ 20,860   $ 16,211  
 

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

  30,248     29,914     29,244  
 
Non-GAAP net income per share (diluted) $ 0.63   $ 0.70   $ 0.55  
 
GAAP income per share $ 0.47   $ 0.48   $ 0.35  
 

 
POWER INTEGRATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
     
 
March 31, 2017 December 31, 2016
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 46,335 $ 62,134
Short-term marketable securities 203,753 188,323
Accounts receivable 15,046 6,528
Inventories 51,149 52,564
Prepaid expenses and other current assets   16,770     8,715  
Total current assets   333,053     318,264  
 
PROPERTY AND EQUIPMENT, net 105,893 95,296
INTANGIBLE ASSETS, net 29,890 31,502
GOODWILL 91,849 91,849
DEFERRED TAX ASSETS 19,857 11,342
OTHER ASSETS   8,118     6,157  
Total assets $ 588,660   $ 554,410  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 37,478 $ 29,727
Accrued payroll and related expenses 9,146 10,756
Taxes payable 877 729
Other accrued liabilities   3,409     2,734  
Total current liabilities   50,910     43,946  
 
LONG-TERM LIABILITIES:
Income taxes payable 2,804 2,639
Deferred tax liabilities 688 820
Other liabilities   4,115     3,921  
Total liabilities   58,517     51,326  
 
STOCKHOLDERS' EQUITY:
Common stock 29 28
Additional paid-in capital 182,235 172,875
Accumulated other comprehensive loss (2,514 ) (2,710 )
Retained earnings   350,393     332,891  
Total stockholders' equity   530,143     503,084  
Total liabilities and stockholders' equity $ 588,660   $ 554,410  
 

 
POWER INTEGRATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
       
Three Months Ended
March 31, 2017 December 31, 2016 March 31, 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 14,099 $ 14,303 $ 10,379
Adjustments to reconcile net income to cash provided by operating activities
Depreciation 4,112 4,142 4,315
Amortization of intangible assets 1,612 1,612 1,792
Loss on disposal of property and equipment 38 116 78
Stock-based compensation expense 4,969 5,668 4,416
Amortization of premium on marketable securities 251 71 260
Deferred income taxes (1,105 ) (1,144 ) (81 )
Increase (decrease) in accounts receivable allowances - (96 ) 89
Change in operating assets and liabilities:
Accounts receivable (8,518 ) 6,347 (2,585 )
Inventories 1,415 (2,623 ) 6,269
Prepaid expenses and other assets (8,234 ) (448 ) (1,388 )
Accounts payable (2,377 ) (1,323 ) (1,840 )
Taxes payable and other accrued liabilities   (315 )   1,117     (1,413 )
Net cash provided by operating activities   5,947     27,742     20,291  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (6,403 ) (4,124 ) (2,095 )
Purchases of marketable securities (61,938 ) (66,256 ) (45,227 )
Proceeds from sales and maturities of marketable securities   46,340     8,295     38,531  
Net cash used in investing activities   (22,001 )   (62,085 )   (8,791 )
 
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common stock 4,392 4,387 2,957
Repurchase of common stock - - (6,085 )
Payments of dividends to stockholders   (4,137 )   (3,800 )   (3,729 )
Net cash provided by (used in) financing activities   255     587     (6,857 )
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (15,799 ) (33,756 ) 4,643
 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD   62,134     95,890     90,092  
 
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 46,335   $ 62,134   $ 94,735  
 

Source: Power Integrations, Inc.

Power Integrations, Inc.

Joe Shiffler, 408-414-8528

joe@power.com

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