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Power Integrations Reports Second-Quarter Financial Results

Posted: July 28, 2016 8:57 pm (UTC)

Revenues grew 14 percent year-over-year to $97.2 million; GAAP earnings were $0.38 per diluted share; non-GAAP earnings were $0.60 per diluted share

Power Integrations Reports Second-Quarter Financial Results

SAN JOSE, Calif. — (BUSINESS WIRE) —

Power Integrations (Nasdaq: POWI) today announced financial results for the quarter ended June 30, 2016. Net revenues for the second quarter were $97.2 million, up 14 percent from the prior quarter and also up 14 percent compared to the second quarter of 2015. Net income was $11.3 million or $0.38 per diluted share, compared to $0.30 per diluted share in the prior quarter and $0.29 per diluted share in the second quarter of 2015. Cash flow from operations for the second quarter was $23.6 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 second quarter was $17.7 million or $0.60 per diluted share, compared with $0.50 per diluted share in the prior quarter and $0.47 per diluted share in the second quarter of 2015.

Commented Balu Balakrishnan, president and CEO of Power Integrations: “We achieved record quarterly revenues, with sequential growth across all four end-market categories. Growth was strongest in the communications market, where our InnoSwitch™ products continue to make gains in rapid-charging applications for the mobile-device market. In spite of a challenging demand environment for the semiconductor industry, our first-half revenues increased nine percent from the prior year, and we expect healthy year-over-year growth to continue in the second half of the year.”

Additional Highlights

  • Power Integrations paid a dividend of $0.13 per share on June 30, 2016. A dividend of $0.13 per share is scheduled to be paid on September 30, 2016 to stockholders of record as of August 31, 2016.
  • The company had $202.2 million in cash and short-term marketable securities at quarter-end, an increase of $17.1 million during the quarter.
  • Power Integrations received 18 U.S. patents during the second quarter.

Financial Outlook

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

  • Revenues are expected to be in a range of $96 million to $102 million.
  • GAAP gross margin is expected to be between 48.7 percent and 49.2 percent. Non-GAAP gross margin is expected to be between 50.0 percent and 50.5 percent. (The difference between the expected GAAP and non-GAAP gross margins is composed of approximately 1.0 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 $36.5 million. Non-GAAP operating expenses are expected to be approximately $31 million. (Non-GAAP operating expenses exclude approximately $4.9 million of stock-based compensation expenses and $0.6 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. PT. Members of the investment community can join the call by dialing 1-617-826-1698. 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, 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 third-quarter financial performance and expected second-half revenue growth 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, 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 Six Months Ended

June 30, 2016

March 31, 2016

June 30, 2015

June 30, 2016

June 30, 2015

NET REVENUES $ 97,169 $ 85,326 $ 85,265 $ 182,495 $ 167,822
 
COST OF REVENUES   49,532     42,379     41,247     91,911     81,512  
 
GROSS PROFIT   47,637     42,947     44,018     90,584     86,310  
 
OPERATING EXPENSES:
Research and development 15,859 14,779 14,683 30,638 29,256
Sales and marketing 11,407 10,740 11,567 22,147 22,874
General and administrative 8,133 7,850 7,480 15,983 15,463
Amortization of acquisition-related intangible assets 611 666 693 1,277 1,443
Acquisition expenses, severance and transition costs           391         1,113  
Total operating expenses   36,010     34,035     34,814     70,045     70,149  
 
INCOME FROM OPERATIONS 11,627 8,912 9,204 20,539 16,161
 
Other income, net   236     261     14     497     (209 )
 
INCOME BEFORE INCOME TAXES 11,863 9,173 9,218 21,036 15,952
 
PROVISION FOR INCOME TAXES   598     330     628     928     1,019  
 
NET INCOME $ 11,265   $ 8,843   $ 8,590   $ 20,108   $ 14,933  
 
EARNINGS PER SHARE:
Basic $ 0.39   $ 0.31   $ 0.29   $ 0.70   $ 0.51  
Diluted $ 0.38   $ 0.30   $ 0.29   $ 0.68   $ 0.50  
 
SHARES USED IN PER-SHARE CALCULATION:
Basic 28,850 28,679 29,368 28,765 29,339
Diluted 29,422 29,244 30,034 29,361 30,075
 
 
SUPPLEMENTAL INFORMATION:
 
Stock-based compensation expenses included in:
Cost of revenues $ 293 $ 90 $ 257 $ 383 $ 506
Research and development 1,940 1,469 1,306 3,409 2,697
Sales and marketing 899 1,027 878 1,926 1,890
General and administrative   1,880     1,830     1,309     3,710     3,048  
Total stock-based compensation expense $ 5,012   $ 4,416   $ 3,750   $ 9,428   $ 8,141  
 
Cost of revenues includes:
Amortization of write-up of acquired inventory $   $   $   $   $ 309  
Amortization of acquisition-related intangible assets $ 946   $ 961   $ 961   $ 1,907   $ 1,922  
 
General & administrative expenses include:
Patent-litigation expenses $ 1,658   $ 1,159   $ 1,501   $ 2,817   $ 2,958  
 
Other income, net includes:
Amortization of in-place lease intangible assets $ 90   $ 90   $   $ 180   $  
 
 
REVENUE MIX BY END MARKET
Communications 27 % 23 % 21 % 25 % 21 %
Computer 6 % 6 % 7 % 6 % 7 %
Consumer 35 % 39 % 36 % 37 % 37 %
Industrial 32 % 32 % 36 % 32 % 35 %
 
 
POWER INTEGRATIONS, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP RESULTS
(in thousands, except per-share amounts)
           
Three Months Ended Six Months Ended

June 30, 2016

March 31, 2016

June 30, 2015

June 30, 2016

June 30, 2015

RECONCILIATION OF GROSS PROFIT
GAAP gross profit $ 47,637 $ 42,947 $ 44,018 $ 90,584 $ 86,310
GAAP gross margin 49.0 % 50.3 % 51.6 % 49.6 % 51.4 %
 
Stock-based compensation included in cost of revenues 293 90 257 383 506
Amortization of write-up of acquired inventory 309
Amortization of acquisition-related intangible assets   946     961     961     1,907     1,922  
 
Non-GAAP gross profit $ 48,876   $ 43,998   $ 45,236   $ 92,874   $ 89,047  
Non-GAAP gross margin 50.3 % 51.6 % 53.1 % 50.9 % 53.1 %
 
 
RECONCILIATION OF OPERATING EXPENSES
GAAP operating expenses $ 36,010 $ 34,035 $ 34,814 $ 70,045 $ 70,149
 
Less:Stock-based compensation expense included in operating expenses
Research and development 1,940 1,469 1,306 3,409 2,697
Sales and marketing 899 1,027 878 1,926 1,890
General and administrative   1,880     1,830     1,309     3,710     3,048  
Total   4,719     4,326     3,493     9,045     7,635  
 
Amortization of acquisition-related intangible assets   611     666     693     1,277     1,443  
 
Acquisition expenses, severance and transition costs           391         1,113  
 
Non-GAAP operating expenses $ 30,680   $ 29,043   $ 30,237   $ 59,723   $ 59,958  
 
 
RECONCILIATION OF INCOME FROM OPERATIONS
GAAP income from operations $ 11,627 $ 8,912 $ 9,204 $ 20,539 $ 16,161
GAAP operating margin 12.0 % 10.4 % 10.8 % 11.3 % 9.6 %
 
Add:Total stock-based compensation 5,012 4,416 3,750 9,428 8,141
Amortization of write-up of acquired inventory 309
Amortization of acquisition-related intangible assets 1,557 1,627 1,654 3,184 3,365
Acquisition expenses, severance and transition costs           391         1,113  
 
Non-GAAP income from operations $ 18,196   $ 14,955   $ 14,999   $ 33,151   $ 29,089  
Non-GAAP operating margin 18.7 % 17.5 % 17.6 % 18.2 % 17.3 %
 
 
RECONCILIATION OF PROVISION FOR INCOME TAXES
GAAP provision for income taxes $ 598 $ 330 $ 628 $ 928 $ 1,019
GAAP effective tax rate 5.0 % 3.6 % 6.8 % 4.4 % 6.4 %
 
Tax effect of adjustments to GAAP results   (225 )   (301 )   (197 )   (526 )   (718 )
 
Non-GAAP provision for income taxes $ 823   $ 631   $ 825   $ 1,454   $ 1,737  
Non-GAAP effective tax rate 4.4 % 4.1 % 5.5 % 4.3 % 6.0 %
 
 
RECONCILIATION OF NET INCOME PER SHARE (DILUTED)
GAAP net income $ 11,265 $ 8,843 $ 8,590 $ 20,108 $ 14,933
 
Adjustments to GAAP net income
Stock-based compensation 5,012 4,416 3,750 9,428 8,141
Amortization of write-up of acquired inventory 309
Amortization of acquisition-related intangible assets 1,557 1,627 1,654 3,184 3,365
Acquisition expenses, severance and transition costs 391 1,113
Amortization of in-place lease intangible assets 90 90 180
Tax effect of items excluded from non-GAAP results   (225 )   (301 )   (197 )   (526 )   (718 )
 
Non-GAAP net income $ 17,699   $ 14,675   $ 14,188   $ 32,374   $ 27,143  
 

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

  29,422     29,244     30,034     29,361     30,075  
 
Non-GAAP net income per share (diluted) $ 0.60   $ 0.50   $ 0.47   $ 1.10   $ 0.90  
 
GAAP income per share $ 0.38   $ 0.30   $ 0.29   $ 0.68   $ 0.50  
 
 
POWER INTEGRATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
     
 

June 30, 2016

March 31, 2016

December 31, 2015

ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 105,343 $ 94,735 $ 90,092
Short-term marketable securities 96,891 90,419 83,769
Accounts receivable 14,010 11,294 7,818
Inventories 46,749 45,665 51,934
Prepaid expenses and other current assets   6,478     7,295     6,790  
Total current assets   269,471     249,408     240,403  
 
PROPERTY AND EQUIPMENT, net 95,746 97,723 99,381
INTANGIBLE ASSETS, net 34,726 36,373 38,165
GOODWILL 91,849 91,849 91,849
DEFERRED TAX ASSETS 11,342 11,779 11,843
OTHER ASSETS   6,372     5,664     5,896  
Total assets $ 509,506   $ 492,796   $ 487,537  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 24,367 $ 19,862 $ 21,660
Accrued payroll and related expenses 10,463 7,986 9,327
Taxes payable 247 3,326 3,620
Deferred income on sales to distributors 16,888 17,102 15,101
Other accrued liabilities   2,548     2,217     2,285  
Total current liabilities   54,513     50,493     51,993  
 
LONG-TERM LIABILITIES:
Income taxes payable 2,666 2,695 2,511
Deferred tax liabilities 1,004 1,141 1,291
Other liabilities   3,315     3,246     3,123  
Total liabilities   61,498     57,575     58,918  
 
STOCKHOLDERS’ EQUITY:
Common stock 28 28 28
Additional paid-in capital 151,806 146,655 145,366
Accumulated other comprehensive loss (1,527 ) (1,652 ) (1,851 )
Retained earnings   297,701     290,190     285,076  
Total stockholders’ equity   448,008     435,221     428,619  
Total liabilities and stockholders’ equity $ 509,506   $ 492,796   $ 487,537  
 
 
POWER INTEGRATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
         
Three Months Ended Six Months Ended

June 30, 2016

March 31, 2016

June 30, 2015

June 30, 2016

June 30, 2015

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 11,265 $ 8,843 $ 8,590 $ 20,108 $ 14,933
Adjustments to reconcile net income to cash provided by operating activities
Depreciation 4,206 4,315 4,035 8,521 8,067
Amortization of intangible assets 1,647 1,792 1,729 3,439 3,515
Loss on disposal of property and equipment 70 78 148
Stock-based compensation expense 5,012 4,416 3,750 9,428 8,141
Amortization of premium on marketable securities 169 260 265 429 551
Deferred income taxes 300 (86 ) 9 214 86
Increase (decrease) in accounts receivable allowances 104 89 (80 ) 193 (85 )
Tax shortfall associated with employee stock plans (189 )
Change in operating assets and liabilities:
Accounts receivable (2,820 ) (3,565 ) (500 ) (6,385 ) (1,050 )
Inventories (1,084 ) 6,269 779 5,185 1,203
Prepaid expenses and other assets 229 (868 ) 2,077 (639 ) 1,850
Accounts payable 4,879 (1,840 ) 5,954 3,039 6,303
Taxes payable and other accrued liabilities (153 ) (1,413 ) (751 ) (1,566 ) (1,827 )
Deferred income on sales to distributors   (214 )   2,001     (796 )   1,787     1,235  

Net cash provided by operating activities

  23,610     20,291     25,061     43,901     42,733  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (2,795 ) (2,095 ) (1,822 ) (4,890 ) (5,144 )
Payment for acquisition, net of cash acquired (184 ) (15,549 )
Purchases of marketable securities (20,984 ) (45,227 ) (9,993 ) (66,211 ) (9,993 )
Proceeds from sales and maturities of marketable securities   14,390     38,531     2,250     52,921     29,035  
Net cash used in investing activities   (9,389 )   (8,791 )   (9,749 )   (18,180 )   (1,651 )
 
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common stock 491 2,957 856 3,448 4,375
Repurchase of common stock (350 ) (6,085 ) (22,335 ) (6,435 ) (23,176 )
Payments of dividends to stockholders   (3,754 )   (3,729 )   (3,529 )   (7,483 )   (7,048 )
Net cash used in financing activities   (3,613 )   (6,857 )   (25,008 )   (10,470 )   (25,849 )
 
NET INCREASE IN CASH AND CASH EQUIVALENTS 10,608 4,643 (9,696 ) 15,251 15,233
 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD   94,735     90,092     85,637     90,092     60,708  
 
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 105,343   $ 94,735   $ 75,941   $ 105,343   $ 75,941  

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