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Power Integrations Reports Fourth-Quarter Financial Results

02/01/2018

Fourth-quarter revenues grew six percent year-over-year to $108.2 million; GAAP net loss of $0.57 per share driven by tax charge; non-GAAP earnings were $0.74 per diluted share

Full-year revenues grew 11 percent to $431.8 million; GAAP earnings were $0.90 per diluted share; non-GAAP earnings were $2.84 per diluted share, up 12 percent from prior year

Quarterly dividend rises to $0.16 per share; $30 million added to repurchase authorization

SAN JOSE, CALIF.--(BUSINESS WIRE)-- Power Integrations (Nasdaq:POWI) today announced financial results for the quarter and year ended December 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-year results have been recast as if ASC 606 had been in effect for those periods.

Net revenues for the fourth quarter were $108.2 million, a decrease of three percent from the prior quarter and an increase of six percent from the fourth quarter of 2016. Net loss for the quarter was $16.9 million or $0.57 per share, compared to net income of $0.54 per diluted share in the prior quarter and net income of $0.48 per diluted share in the fourth quarter of 2016. The fourth-quarter loss includes a net charge of $37.5 million resulting from the 2017 tax legislation. Cash flow from operations was $27.4 million for the quarter.

In addition to its GAAP results, the company provided certain non-GAAP financial measures that exclude stock-based compensation expenses, amortization of intangible assets, the tax effects of these items, and the fourth-quarter charge resulting from the 2017 tax legislation. Non-GAAP net income for the fourth quarter was $22.7 million or $0.74 per diluted share, compared with $0.78 per diluted share in the prior quarter and $0.70 per diluted share in the fourth quarter of 2016.

For the full year, net revenues were $431.8 million, an increase of 11 percent from the prior year. GAAP net income, which includes the impact of the tax charge, was $27.6 million or $0.90 per diluted share compared to $1.65 per diluted share for the prior year. Non-GAAP net income was $86.6 million or $2.84 per diluted share compared to $2.53 per diluted share for the prior year. Cash flow from operations was $82.0 million for the full year.

Commented Balu Balakrishnan, president and CEO of Power Integrations: “We are pleased to report double-digit growth in annual revenues and non-GAAP earnings again in 2017. Revenues from the industrial market grew 20 percent for the year, while the consumer category grew more than 15 percent driven by appliance applications. Together, these two end-markets accounted for more than 70 percent of our sales in 2017.

“While demand has moderated of late, particularly in the handset and appliance markets, we expect continued growth in 2018 and beyond, driven by trends such as energy efficiency, clean energy, IoT, faster charging, the switch to battery-powered motors for tools and transportation, and the mass adoption of convenience and comfort appliances in emerging markets. These trends are driving demand for increasingly innovative power-conversion technologies, and we are especially well-positioned to capitalize on these opportunities.”

Additional Highlights

  • Power Integrations paid a dividend of $0.14 per share on December 29, 2017. A dividend of $0.16 per share is scheduled to be paid on March 30, 2018, to stockholders of record as of February 28, 2018.
  • Power Integrations repurchased approximately 33,000 shares of its common stock during the fourth quarter, and had $44.4 million remaining on its repurchase authorization at year-end. The company’s board of directors has subsequently increased the repurchase authorization by a further $30 million.
  • Power Integrations was issued eight U.S. patents during the fourth quarter of 2017.

Financial Outlook

The company issued the following forecast for the first quarter of 2018:

  • Revenues are expected to be $103 million plus or minus $3 million.
  • GAAP gross margin is expected to be approximately 50.3 percent; non-GAAP gross margin is expected to be approximately 51.5 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 between $41 million and $41.5 million; non-GAAP operating expenses are expected to be between $34 million and $34.5 million. (Non-GAAP expenses are expected to exclude approximately $6.5 million of stock-based compensation 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 1-647-689-4187. 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), the tax effects of these items, and a charge related to the 2017 tax legislation. 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. Reconciliations of non-GAAP measures to GAAP measures are attached to this press release.

Note Regarding Forward-Looking Statements

The statements in this press release regarding the company’s forecast for its first-quarter financial performance and continued growth in 2018 and beyond 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’s revenues to decrease or 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 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, 2017 September 30, 2017 December 31, 2016 December 31, 2017 December 31, 2016
NET REVENUES $ 108,249 $ 111,255 $ 102,436 $ 431,755 $ 389,668
 
COST OF REVENUES   54,221     55,542     52,360     218,091     197,477  
 
GROSS PROFIT   54,028     55,713     50,076     213,664     192,191  
 
OPERATING EXPENSES:
Research and development 17,180 17,340 15,766 68,501 62,310
Sales and marketing 12,743 12,254 11,941 49,237 45,535
General and administrative 9,127 9,546 8,257 36,142 33,029
Amortization of acquisition-related intangible assets   513     514     584     2,147     2,443  
Total operating expenses   39,563     39,654     36,548     156,027     143,317  
 
INCOME FROM OPERATIONS 14,465 16,059 13,528 57,637 48,874
 
Other income, net   796     895     299     2,662     1,078  
 
INCOME BEFORE INCOME TAXES 15,261 16,954 13,827 60,299 49,952
 
PROVISION (BENEFIT) FOR INCOME TAXES   32,159     448     (476 )   32,690     1,054  
 
NET INCOME (LOSS) $ (16,898 ) $ 16,506   $ 14,303   $ 27,609   $ 48,898  
 
EARNINGS (LOSS) PER SHARE:
Basic $ (0.57 ) $ 0.55   $ 0.49   $ 0.93   $ 1.69  
Diluted $ (0.57 ) $ 0.54   $ 0.48   $ 0.90   $ 1.65  
 
SHARES USED IN PER-SHARE CALCULATION:
Basic 29,759 29,759 29,196 29,674 28,925
Diluted 29,759 30,614 29,914 30,545 29,619
 
 
SUPPLEMENTAL INFORMATION:
 
Stock-based compensation expenses included in:
Cost of revenues $ 436 $ 391 $ 417 $ 1,321 $ 1,148
Research and development 2,338 2,173 1,966 8,496 7,309
Sales and marketing 1,470 1,441 1,260 5,197 4,489
General and administrative   2,611     2,521     2,025     9,663     7,939  
Total stock-based compensation expense $ 6,855   $ 6,526   $ 5,668   $ 24,677   $ 20,885  
 
Cost of revenues includes:
Amortization of acquisition-related intangible assets $ 939   $ 939   $ 939   $ 3,756   $ 3,785  
 
General & administrative expenses include:
Patent-litigation expenses $ 1,914   $ 2,302   $ 2,150   $ 7,839   $ 6,861  
 
Other income, net includes:
Amortization of in-place lease intangible assets $ -   $ -   $ 90   $ 180   $ 360  
 
 
REVENUE MIX BY END MARKET
Communications 25 % 23 % 29 % 24 % 27 %
Computer 5 % 5 % 6 % 5 % 6 %
Consumer 37 % 37 % 37 % 38 % 36 %
Industrial 33 % 35 % 28 % 33 % 31 %
 

 
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, 2017 September 30, 2017 December 31, 2016 December 31, 2017 December 31, 2016
RECONCILIATION OF GROSS PROFIT
GAAP gross profit $ 54,028 $ 55,713 $ 50,076 $ 213,664 $ 192,191
GAAP gross margin 49.9 % 50.1 % 48.9 % 49.5 % 49.3 %
 
Stock-based compensation included in cost of revenues 436 391 417 1,321 1,148
Amortization of acquisition-related intangible assets   939     939     939     3,756     3,785  
 
Non-GAAP gross profit $ 55,403   $ 57,043   $ 51,432   $ 218,741   $ 197,124  
Non-GAAP gross margin 51.2 % 51.3 % 50.2 % 50.7 % 50.6 %
 
 
RECONCILIATION OF OPERATING EXPENSES
GAAP operating expenses $ 39,563 $ 39,654 $ 36,548 $ 156,027 $ 143,317
 

Less: Stock-based compensation expense included in operating expenses

Research and development 2,338 2,173 1,966 8,496 7,309
Sales and marketing 1,470 1,441 1,260 5,197 4,489
General and administrative   2,611     2,521     2,025     9,663     7,939  
Total   6,419     6,135     5,251     23,356     19,737  
 
Amortization of acquisition-related intangible assets   513     514     584     2,147     2,443  
 
Non-GAAP operating expenses $ 32,631   $ 33,005   $ 30,713   $ 130,524   $ 121,137  
 
 
RECONCILIATION OF INCOME FROM OPERATIONS
GAAP income from operations $ 14,465 $ 16,059 $ 13,528 $ 57,637 $ 48,874
GAAP operating margin 13.4 % 14.4 % 13.2 % 13.3 % 12.5 %
 

Add: Total stock-based compensation

6,855 6,526 5,668 24,677 20,885

Amortization of acquisition-related intangible assets

  1,452     1,453     1,523     5,903     6,228  
 
Non-GAAP income from operations $ 22,772   $ 24,038   $ 20,719   $ 88,217   $ 75,987  
Non-GAAP operating margin 21.0 % 21.6 % 20.2 % 20.4 % 19.5 %
 
 
RECONCILIATION OF PROVISION (BENEFIT) FOR INCOME TAXES
GAAP provision (benefit) for income taxes $ 32,159 $ 448 $ (476 ) $ 32,690 $ 1,054
GAAP effective tax rate 210.7 % 2.6 % -3.4 % 54.2 % 2.1 %
 
Impact of U.S. tax legislation 37,524 - - 37,524 -
Tax effect of adjustments to GAAP results   (6,267 )   (751 )   (724 )   (9,287 )   (1,578 )
 
Non-GAAP provision for income taxes $ 902   $ 1,199   $ 248   $ 4,453   $ 2,632  
Non-GAAP effective tax rate 3.8 % 4.8 % 1.2 % 4.9 % 3.4 %
 
 
RECONCILIATION OF NET INCOME (LOSS) PER SHARE (DILUTED)
GAAP net income (loss) $ (16,898 ) $ 16,506 $ 14,303 $ 27,609 $ 48,898
 
Adjustments to GAAP net income (loss)
Stock-based compensation 6,855 6,526 5,668 24,677 20,885
Amortization of acquisition-related intangible assets 1,452 1,453 1,523 5,903 6,228
Amortization of in-place lease intangible assets - - 90 180 360
Impact of U.S. tax legislation 37,524 - - 37,524 -
Tax effect of items excluded from non-GAAP results   (6,267 )   (751 )   (724 )   (9,287 )   (1,578 )
 
Non-GAAP net income $ 22,666   $ 23,734   $ 20,860   $ 86,606   $ 74,793  
 

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

  30,692     30,614     29,914     30,545     29,619  
 
Non-GAAP net income per share (diluted) $ 0.74   $ 0.78   $ 0.70   $ 2.84   $ 2.53  
 
GAAP income per share $ (0.57 ) $ 0.54   $ 0.48   $ 0.90   $ 1.65  
 

 
POWER INTEGRATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
       
 
December 31, 2017 September 30, 2017 December 31, 2016
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 93,655 $ 50,700 $ 62,134
Short-term marketable securities 189,236 213,042 188,323
Accounts receivable, net 16,798 17,192 6,528
Inventories 57,087 55,158 52,564
Prepaid expenses and other current assets   7,758     10,831     8,715  
Total current assets   364,534     346,923     318,264  
 
PROPERTY AND EQUIPMENT, net 111,705 114,855 95,296
INTANGIBLE ASSETS, net 25,419 26,871 31,502
GOODWILL 91,849 91,849 91,849
DEFERRED TAX ASSETS 2,364 19,086 11,342
OTHER ASSETS   25,203     24,899     6,157  
Total assets $ 621,074   $ 624,483   $ 554,410  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 33,211 $ 38,474 $ 29,727
Accrued payroll and related expenses 12,064 9,772 10,756
Taxes payable 1,767 1,227 729
Other accrued liabilities   4,009     4,895     2,734  
Total current liabilities   51,051     54,368     43,946  
 
LONG-TERM LIABILITIES:
Income taxes payable 18,259 2,817 2,639
Deferred tax liabilities 138 538 820
Other liabilities   3,944     4,501     3,921  
Total liabilities   73,392     62,224     51,326  
 
STOCKHOLDERS' EQUITY:
Common stock 29 29 28
Additional paid-in capital 198,384 192,074 172,875
Accumulated other comprehensive loss (2,139 ) (2,320 ) (2,710 )
Retained earnings   351,408     372,476     332,891  
Total stockholders' equity   547,682     562,259     503,084  
Total liabilities and stockholders' equity $ 621,074   $ 624,483   $ 554,410  
 

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

December 31, 2017

  September 30, 2017   December 31, 2016 December 31, 2017   December 31, 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (16,898 ) $ 16,506 $ 14,303 $ 27,609 $ 48,898
Adjustments to reconcile net income (loss) to cash provided by operating activities
Depreciation 5,051 4,854 4,142 18,374 16,812
Amortization of intangible assets 1,452 1,453 1,612 6,083 6,663
Loss on disposal of property and equipment 36 286 116 360 332
Stock-based compensation expense 6,855 6,526 5,668 24,677 20,885
Amortization of premium on marketable securities 297 295 71 1,100 555
Deferred income taxes 16,323 163 (1,144 ) 15,838 (638 )
Increase in accounts receivable allowances - 129 (96 ) 209 207
Change in operating assets and liabilities:
Accounts receivable 394 1,376 6,347 (10,479 ) 751
Inventories (1,929 ) (2,726 ) (2,623 ) (4,523 ) (630 )
Prepaid expenses and other assets 3,402 (12,699 ) (448 ) (17,646 ) (2,524 )
Accounts payable (4,903 ) 8,928 (1,323 ) 396 7,714
Taxes payable and other accrued liabilities   17,362     (529 )   1,117     20,041     (1,124 )
Net cash provided by operating activities   27,442     24,562     27,742     82,039     97,901  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (2,929 ) (6,691 ) (4,124 ) (32,496 ) (12,198 )
Purchases of marketable securities (5,590 ) (34,499 ) (66,256 ) (151,663 ) (188,654 )
Proceeds from sales and maturities of marketable securities   28,748     42,555     8,295     149,443     83,423  
Net cash provided by (used in) investing activities   20,229     1,365     (62,085 )   (34,716 )   (117,429 )
 
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common stock 1,909 3,022 4,387 10,020 13,059
Repurchase of common stock (2,454 ) (6,734 ) - (9,188 ) (6,435 )
Payments of dividends to stockholders (4,171 ) (4,164 ) (3,800 ) (16,634 ) (15,054 )
Proceeds from draw on line of credit - 5,000 - 5,000 -
Payments on line of credit   -     (5,000 )   -     (5,000 )   -  
Net cash provided by (used in) financing activities   (4,716 )   (7,876 )   587     (15,802 )   (8,430 )
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 42,955 18,051 (33,756 ) 31,521 (27,958 )
 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD   50,700     32,649     95,890     62,134     90,092  
 
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 93,655   $ 50,700   $ 62,134   $ 93,655   $ 62,134  
 

Source: Power Integrations, Inc.

Power Integrations, Inc.

Joe Shiffler, 408-414-8528

joe@power.com

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