News Details

Quarterly revenues grew 16 percent year-over-year to $101.1 million; GAAP earnings were $0.46 per diluted share; non-GAAP earnings were $0.67 per diluted share

Full-year revenues were $387.4 million, up 13 percent from the prior year; company generated $97.9 million in cash flow from operations in 2016

SAN JOSE, Calif.--(BUSINESS WIRE)-- Power Integrations (Nasdaq: POWI) today announced financial results for the quarter and year ended December 31, 2016. Net revenues for the fourth quarter were $101.1 million, a decrease of three percent from the prior quarter, and an increase of 16 percent from the fourth quarter of 2015. Net income was $13.6 million or $0.46 per diluted share, compared to $0.48 per diluted share in the prior quarter and $0.44 per diluted share in the fourth quarter of 2015. Cash flow from operations for the quarter was $27.7 million.

In addition to its GAAP results, the company provided certain non-GAAP financial measures that exclude stock-based compensation expenses, amortization of intangible assets, other acquisition-related expenses, and the tax effects of these items. Non-GAAP net income for the fourth quarter was $20.2 million or $0.67 per diluted share, compared with $0.72 per diluted share in the prior quarter and $0.58 per diluted share in the fourth quarter of 2015.

For the full year, net revenues were $387.4 million, an increase of 13 percent compared to the prior year. GAAP net income for the year was $1.62 per diluted share, compared with $1.32 per diluted share in the prior year. Non-GAAP net income was $2.49 per diluted share, compared with $2.03 per diluted share in the prior year. Cash flow from operations totaled $97.9 million for the full year.

Commented Balu Balakrishnan, president and CEO of Power Integrations: “We ended 2016 with another strong quarter, and we’re entering 2017 with momentum fueled by innovative products, an expanding addressable market, and dynamic secular trends such as faster charging for mobile devices, smarter homes and appliances, and the continued global push for greater energy efficiency and cleaner energy.”

Additional Highlights

• The company had $250.5 million in cash and short-term marketable securities at quarter-end, an increase of $23.9 million during the quarter.
• Power Integrations paid a dividend of $0.13 per share on December 30, 2016. A dividend of $0.14 per share is scheduled to be paid on March 31, 2017, to stockholders of record as of February 28, 2017.
• Power Integrations was issued 13 U.S. patents during the fourth quarter.

Adoption of New Accounting Standard for 2017

Effective January 1, 2017, Power Integrations adopted the Financial Accounting Standards Board’s new standard for revenue recognition (ASC 606), under which the company is required to recognize revenues on sales to distributors upon shipment (the “sell-in” method) beginning with the first quarter of 2017. Prior to adopting ASC 606, the company utilized the “sell-through” method for a high percentage of its distribution sales; under this method revenue was deferred until distributors reported that they had sold the company’s products to end customers.

In adopting the new standard, Power Integrations elected to use the full retrospective method; accordingly, the company has recast its results for 2015 and 2016 as if the new standard had been in effect during those years. The table below displays the company’s revenues, cost of revenues and GAAP earnings per share for 2015 and 2016 as originally reported and as recast under the new standard. Full recast income statements, balance sheets and cash-flow statements, including reconciliations of non-GAAP measures, are available on the company’s investor website. (See document entitled “Recast Financials.”)

		FY 2015						FY 2016
(in millions, except per-share data)		Originally Reported			Under New Standard			Originally Reported			Under New Standard
Net Revenues		$	344.0		$	344.6		$	387.4		$	389.7
Cost of Revenues (GAAP)		$	170.6		$	171.3		$	196.2		$	197.5
Net income/diluted share (GAAP)		$	1.32		$	1.32		$	1.62		$	1.65

For the fourth quarter of 2016, revenues would have been $102.4 million under the new standard as compared to the $101.1 million originally reported; GAAP net income would have been $0.48 per diluted share as compared to the $0.46 per diluted share originally reported.

Sandeep Nayyar, Power Integrations’ chief financial officer, commented: “We do not expect the adoption of the new accounting standard to have a material impact on our full-year results, though changing to the sell-in method may affect the quarter-to-quarter seasonality of revenues within a given year. For example, our revenue outlook for the first quarter of 2017 reflects the fact that shipments to distributors normally exceed sell-through in the first quarter, resulting in higher first-quarter revenues than we would have expected under the prior accounting rules. If the sell-through method were still in effect, our revenue forecast for the first quarter would be lower by approximately $3 million.”

Financial Outlook

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

• Revenues (as calculated under the new revenue-recognition standard) are expected to be flat plus or minus three percent compared to the recast fourth-quarter revenues of $102.4 million.
• GAAP gross margin is expected to be between 47.9 percent and 48.4 percent; non-GAAP gross margin is expected to be between 49 percent and 49.5 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 0.2 percentage points from stock-based compensation.)
• GAAP operating expenses are expected to be between $35.6 million and $36.6 million; non-GAAP operating expenses are expected to be between $31 million and $32 million. (Non-GAAP expenses exclude approximately $4.0 million of stock-based compensation expenses and $0.6 million of amortization of acquisition-related intangible assets.)

Conference Call Tomorrow at 8:00 a.m. Pacific Time

Power Integrations management will hold a conference call tomorrow, February 2, at 8:00 a.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, amortization of in-place lease intangible assets, and the tax effects of these items. 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; 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 11, 2016. 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 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												Twelve Months Ended
		December 31, 2016				September 30, 2016				December 31, 2015				December 31, 2016				December 31, 2015
NET REVENUES		$	101,108			$	103,790			$	87,289			$	387,393			$	343,989
COST OF REVENUES			51,724				52,597				44,373				196,232				170,602
GROSS PROFIT			49,384				51,193				42,916				191,161				173,387
OPERATING EXPENSES:
Research and development			15,766				15,906				13,856				62,310				57,000
Sales and marketing			11,941				11,447				10,449				45,535				43,786
General and administrative			8,257				8,789				6,896				33,029				29,720
Amortization of acquisition-related intangible assets			584				582				666				2,443				2,775
Acquisition expenses, severance and transition costs			-				-				-				-				1,113
Total operating expenses			36,548				36,724				31,867				143,317				134,394
INCOME FROM OPERATIONS			12,836				14,469				11,049				47,844				38,993
Other income, net			299				282				206				1,078				425
INCOME BEFORE INCOME TAXES			13,135				14,751				11,255				48,922				39,418
PROVISION FOR INCOME TAXES			(482	)			586				(1,446	)			1,032				271
NET INCOME		$	13,617			$	14,165			$	12,701			$	47,890			$	39,147
EARNINGS PER SHARE:
Basic		$	0.47			$	0.49			$	0.45			$	1.66			$	1.35
Diluted		$	0.46			$	0.48			$	0.44			$	1.62			$	1.32
SHARES USED IN PER-SHARE CALCULATION:
Basic			29,196				28,972				28,483				28,925				29,001
Diluted			29,914				29,625				29,126				29,619				29,696
SUPPLEMENTAL INFORMATION:
Stock-based compensation expenses included in:
Cost of revenues		$	417			$	348			$	208			$	1,148			$	933
Research and development			1,966				1,934				1,281				7,309				5,255
Sales and marketing			1,260				1,303				877				4,489				3,644
General and administrative			2,025				2,204				899				7,939				4,935
Total stock-based compensation expense		$	5,668			$	5,789			$	3,265			$	20,885			$	14,767
Cost of revenues includes:
Amortization of write-up of acquired inventory		$	-			$	-			$	-			$	-			$	309
Amortization of acquisition-related intangible assets		$	939			$	939			$	961			$	3,785			$	3,844
General & administrative expenses include:
Patent-litigation expenses		$	2,150			$	1,894			$	1,517			$	6,861			$	5,975
Other income, net includes:
Amortization of in-place lease intangible assets		$	90			$	90			$	90			$	360			$	120
REVENUE MIX BY END MARKET
Communications			30	%			28	%			26	%			27	%			24	%
Computer			6	%			5	%			7	%			6	%			7	%
Consumer			35	%			37	%			34	%			36	%			36	%
Industrial			29	%			30	%			33	%			31	%			33	%

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, 2016				September 30, 2016				December 31, 2015				December 31, 2016				December 31, 2015
RECONCILIATION OF GROSS PROFIT
GAAP gross profit		$	49,384			$	51,193			$	42,916			$	191,161			$	173,387
GAAP gross margin			48.8	%			49.3	%			49.2	%			49.3	%			50.4	%
Stock-based compensation included in cost of revenues			417				348				208				1,148				933
Amortization of write-up of acquired inventory			-				-				-				-				309
Amortization of acquisition-related intangible assets			939				939				961				3,785				3,844
Non-GAAP gross profit		$	50,740			$	52,480			$	44,085			$	196,094			$	178,473
Non-GAAP gross margin			50.2	%			50.6	%			50.5	%			50.6	%			51.9	%
RECONCILIATION OF OPERATING EXPENSES
GAAP operating expenses		$	36,548			$	36,724			$	31,867			$	143,317			$	134,394
Less:Stock-based compensation expense included in operating expenses
Research and development			1,966				1,934				1,281				7,309				5,255
Sales and marketing			1,260				1,303				877				4,489				3,644
General and administrative			2,025				2,204				899				7,939				4,935
Total			5,251				5,441				3,057				19,737				13,834
Amortization of acquisition-related intangible assets			584				582				666				2,443				2,775
Acquisition expenses, severance and transition costs			-				-				-				-				1,113
Non-GAAP operating expenses		$	30,713			$	30,701			$	28,144			$	121,137			$	116,672
RECONCILIATION OF INCOME FROM OPERATIONS
GAAP income from operations		$	12,836			$	14,469			$	11,049			$	47,844			$	38,993
GAAP operating margin			12.7	%			13.9	%			12.7	%			12.4	%			11.3	%
Add:Total stock-based compensation			5,668				5,789				3,265				20,885				14,767
Amortization of write-up of acquired inventory			-				-				-				-				309
Amortization of acquisition-related intangible assets			1,523				1,521				1,627				6,228				6,619
Acquisition expenses, severance and transition costs			-				-				-				-				1,113
Non-GAAP income from operations		$	20,027			$	21,779			$	15,941			$	74,957			$	61,801
Non-GAAP operating margin			19.8	%			21.0	%			18.3	%			19.3	%			18.0	%
RECONCILIATION OF PROVISION FOR INCOME TAXES
GAAP provision for income taxes		$	(482	)		$	586			$	(1,446	)		$	1,032			$	271
GAAP effective tax rate			-3.7	%			4.0	%			-12.8	%			2.1	%			0.7	%
Tax effect of adjustments to GAAP results			(724	)			(328	)			(796	)			(1,578	)			(1,824	)
Non-GAAP provision for income taxes		$	242			$	914			$	(650	)		$	2,610			$	2,095
Non-GAAP effective tax rate			1.2	%			4.1	%			-4.0	%			3.4	%			3.4	%
RECONCILIATION OF NET INCOME PER SHARE (DILUTED)
GAAP net income		$	13,617			$	14,165			$	12,701			$	47,890			$	39,147
Adjustments to GAAP net income
Stock-based compensation			5,668				5,789				3,265				20,885				14,767
Amortization of write-up of acquired inventory			-				-				-				-				309
Amortization of acquisition-related intangible assets			1,523				1,521				1,627				6,228				6,619
Acquisition expenses, severance and transition costs			-				-				-				-				1,113
Amortization of in-place lease intangible assets			90				90				90				360				120
Tax effect of items excluded from non-GAAP results			(724	)			(328	)			(796	)			(1,578	)			(1,824	)
Non-GAAP net income		$	20,174			$	21,237			$	16,887			$	73,785			$	60,251
Average shares outstanding for calculation of non-GAAP income per share (diluted)			29,914				29,625				29,126				29,619				29,696
Non-GAAP net income per share (diluted)		$	0.67			$	0.72			$	0.58			$	2.49			$	2.03
GAAP income per share		$	0.46			$	0.48			$	0.44			$	1.62			$	1.32

POWER INTEGRATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
		December 31, 2016				September 30, 2016				December 31, 2015
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	62,134			$	95,890			$	90,092
Short-term marketable securities			188,323				130,673				83,769
Accounts receivable			6,961				14,679				7,818
Inventories			52,564				49,941				51,934
Prepaid expenses and other current assets			8,520				7,372				6,790
Total current assets			318,502				298,555				240,403
PROPERTY AND EQUIPMENT, net			95,296				94,433				99,381
INTANGIBLE ASSETS, net			31,502				33,114				38,165
GOODWILL			91,849				91,849				91,849
DEFERRED TAX ASSETS			12,032				11,064				11,843
OTHER ASSETS			6,157				6,273				5,896
Total assets		$	555,338			$	535,288			$	487,537
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable		$	29,727			$	30,117			$	21,660
Accrued payroll and related expenses			10,756				9,011				9,327
Taxes payable			729				251				3,620
Deferred income on sales to distributors			16,207				16,334				15,101
Other accrued liabilities			2,434				3,427				2,285
Total current liabilities			59,853				59,140				51,993
LONG-TERM LIABILITIES:
Income taxes payable			2,639				2,666				2,511
Deferred tax liabilities			820				1,002				1,291
Other liabilities			3,921				3,422				3,123
Total liabilities			67,233				66,230				58,918
STOCKHOLDERS' EQUITY:
Common stock			28				28				28
Additional paid-in capital			172,875				162,820				145,366
Accumulated other comprehensive loss			(2,710	)			(1,885	)			(1,851	)
Retained earnings			317,912				308,095				285,076
Total stockholders' equity			488,105				469,058				428,619
Total liabilities and stockholders' equity		$	555,338			$	535,288			$	487,537

POWER INTEGRATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
		Three Months Ended												Twelve Months Ended
		December 31, 2016				September 30, 2016				December 31, 2015				December 31, 2016				December 31, 2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	13,617			$	14,165			$	12,701			$	47,890			$	39,147
Adjustments to reconcile net income to cash provided by operating activities
Depreciation			4,142				4,149				4,229				16,812				16,464
Amortization of intangible assets			1,612				1,612				1,792				6,663				7,039
Loss on disposal of property and equipment			116				68				91				332				361
Stock-based compensation expense			5,668				5,789				3,265				20,885				14,767
Amortization of premium on marketable securities			71				55				254				555				1,063
Deferred income taxes			(1,150	)			276				(5,568	)			(660	)			(5,416	)
Increase (decrease) in accounts receivable allowances			(96	)			110				(1	)			207				127
Tax shortfall associated with employee stock plans			-				-				-				-				(189	)
Change in operating assets and liabilities:
Accounts receivable			7,814				(779	)			3,243				650				4,131
Inventories			(2,623	)			(3,192	)			3,505				(630	)			13,500
Prepaid expenses and other assets			(1,096	)			(764	)			(887	)			(2,499	)			3,391
Accounts payable			(1,323	)			5,998				35				7,714				(2,000	)
Taxes payable and other accrued liabilities			1,117				(675	)			3,503				(1,124	)			(76	)
Deferred income on sales to distributors			(127	)			(554	)			(1,363	)			1,106				(122	)
Net cash provided by operating activities			27,742				26,258				24,799				97,901				92,187
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment			(4,124	)			(3,184	)			(3,740	)			(12,198	)			(11,359	)
Payment for purchase of building			-				-				-				-				(10,389	)
Payment for acquisition, net of cash acquired			-				-				-				-				(15,549	)
Purchases of marketable securities			(66,256	)			(56,187	)			(14,815	)			(188,654	)			(29,748	)
Proceeds from sales and maturities of marketable securities			8,295				22,207				21,850				83,423				59,309
Net cash provided by (used in) investing activities			(62,085	)			(37,164	)			3,295				(117,429	)			(7,736	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common stock			4,387				5,224				5,678				13,059				12,580
Repurchase of common stock			-				-				-				(6,435	)			(53,731	)
Payments of dividends to stockholders			(3,800	)			(3,771	)			(3,415	)			(15,054	)			(13,916	)
Net cash provided by (used in) financing activities			587				1,453				2,263				(8,430	)			(55,067	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			(33,756	)			(9,453	)			30,357				(27,958	)			29,384
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			95,890				105,343				59,735				90,092				60,708
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	62,134			$	95,890			$	90,092			$	62,134			$	90,092

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Source: Power Integrations, Inc.