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Power Integrations Reports Third-Quarter Financial Results

10/25/2018

GAAP earnings were $0.59 per diluted share; non-GAAP earnings were $0.77 per diluted share; revenues were $110.1 million

Board of directors authorizes use of $80 million for share repurchases

SAN JOSE, Calif.--(BUSINESS WIRE)-- Power Integrations (Nasdaq: POWI) today announced financial results for the quarter ended September 30, 2018. Net revenues for the third quarter were $110.1 million, an increase of one percent from the prior quarter and a decrease of one percent from the third quarter of 2017. Net income for the quarter was $17.7 million or $0.59 per diluted share, compared to net income of $0.51 per diluted share in the prior quarter and $0.54 per diluted share in the third quarter of 2017. Cash flow from operations was $23.2 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 acquisition-related intangible assets and the tax effects of these items. Non-GAAP net income for the third quarter of 2018 was $23.2 million or $0.77 per diluted share, compared with $0.74 per diluted share in the prior quarter and $0.78 per diluted share in the third quarter of 2017.

Commented Balu Balakrishnan, president and CEO of Power Integrations: “Although revenues fell short of our expectations, we delivered healthy earnings driven by a slightly better-than-expected gross margin and lower-than-expected operating expenses. We are projecting lower revenues in the fourth quarter reflecting ongoing inventory reductions across the supply chain and softer demand in China, particularly in the appliance market. Nevertheless, we remain optimistic about the growth opportunities ahead of us in 2019 and beyond. As a reflection of our confidence, our board has allocated an additional $80 million for share repurchases – the largest buyback program in our history.”

Additional Highlights

  • Power Integrations repurchased approximately 152,000 shares of its common stock during the third quarter, utilizing $11 million and exhausting the company’s repurchase authorization. The company’s board of directors has authorized the use of an additional $80 million for share repurchases, subject to pre-determined price/volume parameters.
  • The company paid a dividend of $0.16 per share on September 28, 2018. A dividend of $0.16 per share is scheduled to be paid on December 31, 2018, to stockholders of record as of November 30, 2018.
  • Power Integrations was issued ten U.S. patents during the third quarter of 2018.

Financial Outlook

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

  • Revenues are expected to be $97 million plus or minus $3 million.
  • GAAP gross margin is expected to be between 50.5 percent and 51 percent. Non-GAAP gross margin is expected to be between 51.5 percent and 52 percent. (The difference between the expected GAAP and non-GAAP gross margins is composed of approximately 0.7 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 $42 million and $42.5 million; non-GAAP operating expenses are expected to be between $35.5 million and $36 million. (Non-GAAP expenses are expected to exclude approximately $6 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) 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. Reconciliations of non-GAAP measures to GAAP measures are attached to this press release.

Note Regarding Forward-Looking Statements

The above statements in Mr. Balakrishnan’s quote and under the caption “Financial Outlook” regarding the company’s forecast for its fourth-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, including changing tariffs and uncertainty regarding trade negotiations, 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 14, 2018. 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

Nine Months Ended

September 30, 2018

  June 30, 2018  

September 30, 2017

September 30, 2018

September 30, 2017

NET REVENUES $ 110,085 $ 109,482 $ 111,255 $ 322,648 $ 323,506
 
COST OF REVENUES   53,080     53,248     55,542     155,865     163,870  
 
GROSS PROFIT   57,005     56,234     55,713     166,783     159,636  
 
OPERATING EXPENSES:
Research and development 17,236 17,898 17,340 52,615 51,321
Sales and marketing 12,823 13,022 12,254 38,419 36,494
General and administrative 8,466 9,220 9,546 26,700 27,015
Amortization of acquisition-related intangible assets   455     475     514     1,444     1,634  
Total operating expenses   38,980     40,615     39,654     119,178     116,464  
 
INCOME FROM OPERATIONS 18,025 15,619 16,059 47,605 43,172
 
Other income, net   1,098     885     895     2,819     1,866  
 
INCOME BEFORE INCOME TAXES 19,123 16,504 16,954 50,424 45,038
 
PROVISION FOR INCOME TAXES   1,456     1,123     448     3,176     531  
 
NET INCOME $ 17,667   $ 15,381   $ 16,506   $ 47,248   $ 44,507  
 
EARNINGS PER SHARE:
Basic $ 0.60   $ 0.52   $ 0.55   $ 1.60   $ 1.50  
Diluted $ 0.59   $ 0.51   $ 0.54   $ 1.56   $ 1.46  
 
SHARES USED IN PER-SHARE CALCULATION:
Basic 29,365 29,505 29,759 29,558 29,646
Diluted 29,998 30,183 30,614 30,281 30,472
 
 
SUPPLEMENTAL INFORMATION:
 
Stock-based compensation expenses included in:
Cost of revenues $ 243 $ 292 $ 391 $ 784 $ 885
Research and development 1,634 2,271 2,173 5,744 6,158
Sales and marketing 1,105 1,126 1,441 3,507 3,727
General and administrative   1,416     2,426     2,521     6,103     7,052  
Total stock-based compensation expense $ 4,398   $ 6,115   $ 6,526   $ 16,138   $ 17,822  
 
Cost of revenues includes:
Amortization of acquisition-related intangible assets $ 814   $ 813   $ 939   $ 2,440   $ 2,817  
 
General & administrative expenses include:
Patent-litigation expenses $ 2,305   $ 2,019   $ 2,302   $ 6,221   $ 5,925  
 
Other income, net includes:
Amortization of in-place lease intangible assets $ -   $ -   $ -   $ -   $ 180  
 
 
REVENUE MIX BY END MARKET
Communications 22 % 20 % 23 % 21 % 24 %
Computer 6 % 5 % 5 % 5 % 4 %
Consumer 35 % 40 % 37 % 38 % 38 %
Industrial 37 % 35 % 35 % 36 % 34 %
 
POWER INTEGRATIONS, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP RESULTS
(in thousands, except per-share amounts)
         
Three Months Ended Nine Months Ended

September 30, 2018

  June 30, 2018  

September 30, 2017

September 30, 2018

September 30, 2017

RECONCILIATION OF GROSS PROFIT
GAAP gross profit $ 57,005 $ 56,234 $ 55,713 $ 166,783 $ 159,636

GAAP gross margin

51.8 % 51.4 % 50.1 % 51.7 % 49.3 %
 
Stock-based compensation included in cost of revenues 243 292 391 784 885
Amortization of acquisition-related intangible assets   814     813     939     2,440     2,817  
 
Non-GAAP gross profit $ 58,062   $ 57,339   $ 57,043   $ 170,007   $ 163,338  
Non-GAAP gross margin 52.7 % 52.4 % 51.3 % 52.7 % 50.5 %
 
 
RECONCILIATION OF OPERATING EXPENSES
GAAP operating expenses $ 38,980 $ 40,615 $ 39,654 $ 119,178 $ 116,464
 

Less: Stock-based compensation expense included in operating expenses

Research and development 1,634 2,271 2,173 5,744 6,158
Sales and marketing 1,105 1,126 1,441 3,507 3,727
General and administrative   1,416     2,426     2,521     6,103     7,052  
Total   4,155     5,823     6,135     15,354     16,937  
 
Amortization of acquisition-related intangible assets   455     475     514     1,444     1,634  
 
Non-GAAP operating expenses $ 34,370   $ 34,317   $ 33,005   $ 102,380   $ 97,893  
 
 
RECONCILIATION OF INCOME FROM OPERATIONS
GAAP income from operations $ 18,025 $ 15,619 $ 16,059 $ 47,605 $ 43,172
GAAP operating margin 16.4 % 14.3 % 14.4 % 14.8 % 13.3 %
 

Add: Total stock-based compensation

4,398 6,115 6,526 16,138 17,822
Amortization of acquisition-related intangible assets   1,269     1,288     1,453     3,884     4,451  
 
Non-GAAP income from operations $ 23,692   $ 23,022   $ 24,038   $ 67,627   $ 65,445  
Non-GAAP operating margin 21.5 % 21.0 % 21.6 % 21.0 % 20.2 %
 
 
RECONCILIATION OF PROVISION FOR INCOME TAXES
GAAP provision for income taxes $ 1,456 $ 1,123 $ 448 $ 3,176 $ 531
GAAP effective tax rate 7.6 % 6.8 % 2.6 % 6.3 % 1.2 %
 
Tax effect of adjustments to GAAP results   (167 )   (559 )   (751 )   (1,515 )   (3,020 )
 
Non-GAAP provision for income taxes $ 1,623   $ 1,682   $ 1,199   $ 4,691   $ 3,551  
Non-GAAP effective tax rate 6.5 % 7.0 % 4.8 % 6.7 % 5.3 %
 
 
RECONCILIATION OF NET INCOME PER SHARE (DILUTED)
GAAP net income $ 17,667 $ 15,381 $ 16,506 $ 47,248 $ 44,507
 
Adjustments to GAAP net income
Stock-based compensation 4,398 6,115 6,526 16,138 17,822
Amortization of acquisition-related intangible assets 1,269 1,288 1,453 3,884 4,451
Amortization of in-place lease intangible assets - - - - 180
Tax effect of items excluded from non-GAAP results   (167 )   (559 )   (751 )   (1,515 )   (3,020 )
 
Non-GAAP net income $ 23,167   $ 22,225   $ 23,734   $ 65,755   $ 63,940  
 

 

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

  29,998     30,183     30,614     30,281     30,472  
 
Non-GAAP net income per share (diluted) $ 0.77   $ 0.74   $ 0.78   $ 2.17   $ 2.10  
 
GAAP income per share $ 0.59   $ 0.51   $ 0.54   $ 1.56   $ 1.46  
 
POWER INTEGRATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
     
 

September 30, 2018

  June 30, 2018  

December 31, 2017

ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 148,551 $ 148,187 $ 93,655
Short-term marketable securities 99,766 98,494 189,236
Accounts receivable, net 13,742 6,843 16,798
Inventories 74,201 68,824 57,087
Prepaid expenses and other current assets   12,573     10,619     7,758  
Total current assets   348,833     332,967     364,534  
 
PROPERTY AND EQUIPMENT, net 113,841 111,063 111,705
INTANGIBLE ASSETS, net 22,452 23,751 25,419
GOODWILL 91,849 91,849 91,849
DEFERRED TAX ASSETS 3,673 3,181 2,364
OTHER ASSETS   23,779     25,216     25,203  
Total assets $ 604,427   $ 588,027   $ 621,074  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 34,469 $ 26,518 $ 33,211
Accrued payroll and related expenses 9,706 12,053 12,064
Taxes payable 1,311 1,254 1,767
Other accrued liabilities   5,019     4,588     4,009  
Total current liabilities   50,505     44,413     51,051  
 
LONG-TERM LIABILITIES:
Income taxes payable 17,952 17,635 18,259
Deferred tax liabilities 52 55 138
Other liabilities   4,786     4,095     3,944  
Total liabilities   73,295     66,198     73,392  
 
STOCKHOLDERS' EQUITY:
Common stock 28 28 29
Additional paid-in capital 148,696 152,380 198,384
Accumulated other comprehensive loss (2,076 ) (2,088 ) (2,139 )
Retained earnings   384,484     371,509     351,408  
Total stockholders' equity   531,132     521,829     547,682  
Total liabilities and stockholders' equity $ 604,427   $ 588,027   $ 621,074  
 
POWER INTEGRATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
         
Three Months Ended Nine Months Ended

September 30, 2018

  June 30, 2018  

September 30, 2017

September 30, 2018

September 30, 2017

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 17,667 $ 15,381 $ 16,506 $ 47,248 $ 44,507
Adjustments to reconcile net income to cash provided by operating activities
Depreciation 4,678 4,760 4,854 14,369 13,323
Amortization of intangible assets 1,299 1,320 1,453 3,967 4,631
Loss on disposal of property and equipment 395 22 286 455 324
Stock-based compensation expense 4,398 6,115 6,526 16,138 17,822
Amortization of premium (accretion of discount) on marketable securities (34 ) 114 295 342 803
Deferred income taxes (495 ) (760 ) 163 (1,395 ) (485 )
Increase in accounts receivable allowances 153 12 129 170 209
Change in operating assets and liabilities:
Accounts receivable (7,052 ) 10,872 1,376 2,886 (10,873 )
Inventories (5,377 ) (5,616 ) (2,726 ) (17,114 ) (2,594 )
Prepaid expenses and other assets (1,333 ) 1,753 (12,699 ) (2,721 ) (21,048 )
Accounts payable 9,923 (7,509 ) 8,928 2,647 5,299
Taxes payable and other accrued liabilities   (1,013 )   233     (529 )   (1,357 )   2,679  
Net cash provided by operating activities   23,209     26,697     24,562     65,635     54,597  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (8,607 ) (4,022 ) (6,691 ) (19,120 ) (29,567 )
Acquisition of technology licenses (400 ) - - (900 ) -
Purchases of marketable securities (58,221 ) - (34,499 ) (58,221 ) (146,073 )
Proceeds from sales and maturities of marketable securities   57,148     37,987     42,555     147,501     120,695  
Net cash provided by (used in) investing activities   (10,080 )   33,965     1,365     69,260     (54,945 )
 
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common stock 2,915 978 3,022 8,550 8,111
Repurchase of common stock (10,988 ) (30,075 ) (6,734 ) (74,377 ) (6,734 )
Payments of dividends to stockholders (4,692 ) (4,705 ) (4,164 ) (14,172 ) (12,463 )
Proceeds from draw on line of credit - - 5,000 8,000 5,000
Payments on line of credit   -     -     (5,000 )   (8,000 )   (5,000 )
Net cash used in financing activities   (12,765 )   (33,802 )   (7,876 )   (79,999 )   (11,086 )
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 364 26,860 18,051 54,896 (11,434 )
 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD   148,187     121,327     32,649     93,655     62,134  
 
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 148,551   $ 148,187   $ 50,700   $ 148,551   $ 50,700  
 

Power Integrations, Inc.
Joe Shiffler, 408-414-8528
joe@power.com

Source: Power Integrations, Inc.

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