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Power Integrations Reports Record Quarterly Revenues and Earnings

Revenues increased 18 percent year-over-year to a record $91.7 million; non-GAAP earnings grew 45% year-over-year to a record $0.71 per diluted share; GAAP earnings were $0.54 per diluted share

Cash flow from operations was $29.0 million; company raises quarterly dividend by 25 percent to 10 cents per share effective Q1 2014

SAN JOSE, Calif. — (BUSINESS WIRE) — October 30, 2013 — Power Integrations (Nasdaq: POWI) today announced financial results for the quarter ended September 30, 2013. Net revenues for the quarter were $91.7 million, up four percent from the prior quarter and 18 percent from the third quarter of 2012. GAAP net income for the quarter was $16.7 million or $0.54 per diluted share, compared with income of $0.45 per diluted share in the prior quarter and a net loss of $1.54 per share in the third quarter of 2012. GAAP gross margin for the third quarter was 53.2 percent; operating margin was 18.1 percent.

In addition to its GAAP results, the company provided non-GAAP financial measures that exclude stock-based compensation expenses, certain charges, gains and expenses related to acquisitions and strategic investments, non-cash interest income, the tax effects of these items, and a one-time tax-related charge incurred in 2012. Non-GAAP net income for the third quarter of 2013 was $21.8 million or $0.71 per diluted share, compared with $0.61 per diluted share in the prior quarter and $0.49 per diluted share in the third quarter of 2012. Non-GAAP gross margin for the third quarter was 54.2 percent; non-GAAP operating margin was 24.6 percent.

Commented Balu Balakrishnan, president and CEO of Power Integrations: “Our third-quarter results featured record revenues, with sequential growth across all four end-market categories. Compared to a year ago, sales were up 18 percent, with all four end markets contributing double-digit growth. We also reported record earnings and strong cash flow in the third quarter, fueled by the continued expansion of our gross-profit margins.

“Our fourth-quarter revenues are likely to be modestly lower compared to the third quarter due primarily to seasonal trends. Nevertheless, we are on pace for a double-digit revenue increase in 2013, substantially ahead of the growth rate of the overall analog semiconductor industry. We believe we are well positioned for further growth as we continue to increase our penetration across the broader power supply market while aggressively pursuing emerging opportunities in areas like LED lighting, rapid charging and high power.”

Additional Highlights

Financial Outlook

The company issued the following forecast for the fourth quarter of 2013:

Conference Call Today at 1:45 p.m. Pacific Time

Power Integrations management will hold a conference call today at 1:45 p.m. Pacific time. Members of the investment community can join the call by dialing 1-877-317-6789 from within the United States or 1-412-317-6789 from outside the U.S. The call will be available via a live and archived webcast on the investor section of the company's website, http://investors.powerint.com.

About Power Integrations

Power Integrations, Inc., is a Silicon Valley-based supplier of high-performance electronic components used in high-voltage power-conversion systems. The company’s integrated circuits and diodes enable compact, energy-efficient AC-DC power supplies for a vast range of electronic products including mobile devices, TVs, PCs, appliances, smart utility meters and LED lights. CONCEPT IGBT drivers enhance the efficiency, reliability and cost of high-power applications such as industrial motor drives, solar and wind energy systems, electric vehicles and high-voltage DC transmission. Since its introduction in 1998, Power Integrations’ EcoSmart® energy-efficiency technology has prevented billions of dollars’ worth of energy waste and millions of tons of carbon emissions. Reflecting the environmental benefits of the company’s products, Power Integrations’ stock is included in the NASDAQ® Clean Edge® Green Energy Index, The Cleantech Index®, and the Ardour Global IndexSM. For more information, including design-support tools and resources, please visit www.powerint.com; visit Power Integrations’ Green Room for a comprehensive guide to energy-efficiency standards around the world.

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 Accounting Standard Codification 718-10, acquisition-related expenses, amortization of acquisition-related intangible assets and the fair-value write-up of acquired inventory, certain charges and gains associated with strategic investments, non-cash interest income, the tax effects of the above items, and a one-time tax related charge incurred in the second quarter of 2012. The company uses these non-GAAP measures in its own financial and operational decision-making processes 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 non-GAAP 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 in Mr. Balakrishnan’s quote and under the caption “Financial Outlook” relating to the company’s projected 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 forward-looking 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; unfavorable fluctuations in component costs resulting from changes in commodity prices and/or the exchange rate between the U.S. dollar and the Japanese yen; and the challenges inherent in integrating and forecasting the performance of acquired businesses. 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 Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission (SEC) on August 1, 2013. 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, EcoSmart 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 OPERATIONS
(in thousands, except per-share amounts)
             
 
Three Months Ended Nine Months Ended

September 30,
2013

June 30,
2013

September 30,
2012

September 30,
2013

September 30,
2012

NET REVENUES $ 91,715 $ 87,922 $ 78,045 $ 256,677 $ 226,200
 
COST OF REVENUES   42,941     41,715     39,294     121,832     115,101  
 
GROSS PROFIT   48,774     46,207     38,751     134,845     111,099  
 
OPERATING EXPENSES:
Research and development 12,984 13,489 11,428 38,745 34,134
Sales and marketing 10,091 10,242 9,206 29,992 25,736
General and administrative 7,984 8,066 7,912 23,784 21,203
Amortization of acquisition-related intangible assets 1,121 1,122 1,123 3,365 1,908
Charge related to SemiSouth - - 25,300 - 25,300
Acquisition expenses   -     -     29     -     931  
Total operating expenses   32,180     32,919     54,998     95,886     109,212  
 
INCOME (LOSS) FROM OPERATIONS 16,594 13,288 (16,247 ) 38,959 1,887
 
Non-cash interest income - - 665 - 1,445
Cost of acquisition-related currency option - - - - (635 )
Gain (charge) related to SemiSouth - 497 (33,937 ) 497 (33,937 )
Other income (expense), net   82     68     172     367     837  
 
INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME TAXES 16,676 13,853 (49,347 ) 39,823 (30,403 )
 
PROVISION (BENEFIT) FOR INCOME TAXES   22     181     (4,941 )   (1,406 )   13,718  
 
NET INCOME (LOSS) $ 16,654   $ 13,672   $ (44,406 ) $ 41,229   $ (44,121 )
 
EARNINGS (LOSS) PER SHARE:
Basic $ 0.56   $ 0.47   $ (1.54 ) $ 1.41   $ (1.54 )
Diluted $ 0.54   $ 0.45   $ (1.54 ) $ 1.36   $ (1.54 )
 
SHARES USED IN PER-SHARE CALCULATION:
Basic 29,762 29,178 28,908 29,235 28,586
Diluted 30,652 30,158 28,908 30,237 28,586
 
 
SUPPLEMENTAL INFORMATION:
 
Stock-based compensation expenses included in:
Cost of revenues $ 296 $ 264 $ 271 $ 824 $ 772
Research and development 1,485 1,640 1,467 4,231 4,154
Sales and marketing 964 795 940 2,588 2,433
General and administrative   1,446     1,629     1,169     4,512     3,161  
Total stock-based compensation expense $ 4,191   $ 4,328   $ 3,847   $ 12,155   $ 10,520  
 
Cost of revenues includes:
Amortization of write-up of acquired inventory $ -   $ -   $ 1,597   $ -   $ 2,813  
Amortization of acquisition-related intangible assets $ 645   $ 645   $ 645   $ 1,935   $ 1,189  
 
Operating expenses include:
Patent-litigation expenses $ 1,667   $ 807   $ 1,885   $ 3,873   $ 4,590  
 
 
REVENUE MIX BY END MARKET
Communications 21 % 21 % 23 % 21 % 25 %
Computer 10 % 10 % 10 % 10 % 11 %
Consumer 34 % 34 % 36 % 35 % 37 %
Industrial 35 % 35 % 31 % 34 % 27 %
 

 
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,
2013

June 30,
2013

September 30,
2012

September 30,
2013

September 30,
2012

RECONCILIATION OF GROSS PROFIT
GAAP gross profit $ 48,774 $ 46,207 $ 38,751 $ 134,845 $ 111,099
GAAP gross profit margin 53.2 % 52.6 % 49.7 % 52.5 % 49.1 %
 
Stock-based compensation included in cost of revenues 296 264 271 824 772
Amortization of write-up of acquired inventory - - 1,597 - 2,813
Amortization of acquisition-related intangible assets   645     645     645     1,935     1,189  
 
Non-GAAP gross profit $ 49,715   $ 47,116   $ 41,264   $ 137,604   $ 115,873  
Non-GAAP gross profit margin 54.2 % 53.6 % 52.9 % 53.6 % 51.2 %
 
 
RECONCILIATION OF OPERATING EXPENSES
GAAP operating expenses $ 32,180 $ 32,919 $ 54,998 $ 95,886 $ 109,212
 
Less: Stock-based compensation expense included in operating expenses
Research and development 1,485 1,640 1,467 4,231 4,154
Sales and marketing 964 795 940 2,588 2,433
General and administrative   1,446     1,629     1,169     4,512     3,161  
Total   3,895     4,064     3,576     11,331     9,748  
 
Acquisition expenses   -     -     29     -     931  
 
Amortization of acquisition-related intangible assets   1,121     1,122     1,123     3,365     1,908  
 
Charge related to SemiSouth   -     -     25,300     -     25,300  
 
Non-GAAP operating expenses $ 27,164   $ 27,733   $ 24,970   $ 81,190   $ 71,325  
 
 
RECONCILIATION OF INCOME FROM OPERATIONS
GAAP income (loss) from operations $ 16,594 $ 13,288 $ (16,247 ) $ 38,959 $ 1,887
GAAP operating margin 18.1 % 15.1 % -20.8 % 15.2 % 0.8 %
 
Add: Total stock-based compensation 4,191 4,328 3,847 12,155 10,520
Amortization of write-up of acquired inventory - - 1,597 - 2,813
Amortization of acquisition-related intangible assets 1,766 1,767 1,768 5,300 3,097
Charge related to SemiSouth - - 25,300 - 25,300
Acquisition expenses   -     -     29     -     931  
 
Non-GAAP income from operations $ 22,551   $ 19,383   $ 16,294   $ 56,414   $ 44,548  
Non-GAAP operating margin 24.6 % 22.0 % 20.9 % 22.0 % 19.7 %
 
 
RECONCILIATION OF PROVISION FOR INCOME TAXES
GAAP provision (benefit) for income taxes $ 22 $ 181 $ (4,941 ) $ (1,406 ) $ 13,718
GAAP effective tax rate 0.1 % 1.3 % 10.0 % -3.5 % -45.1 %
 
One-time charge associated with tax settlement - - - - 15,749
Tax effect of other adjustments to GAAP results   (776 )   (802 )   (6,873 )   (3,873 )   (7,582 )
 
Non-GAAP provision for income taxes $ 798   $ 983   $ 1,932   $ 2,467   $ 5,551  
Non-GAAP effective tax rate 3.5 % 5.1 % 11.7 % 4.3 % 12.2 %
 
 
RECONCILIATION OF NET INCOME (LOSS) PER SHARE (DILUTED)
GAAP net income (loss) $ 16,654 $ 13,672 $ (44,406 ) $ 41,229 $ (44,121 )
 
Adjustments to GAAP net income (loss)
Stock-based compensation 4,191 4,328 3,847 12,155 10,520
Amortization of write-up of acquired inventory - - 1,597 - 2,813
Amortization of acquisition-related intangible assets 1,766 1,767 1,768 5,300 3,097
Acquisition expenses - - 29 - 931
Non-cash interest income - - (665 ) - (1,445 )
Cost of acquisition-related currency option - - - - 635
One-time charge associated with tax settlement - - - - 15,749
Charge (gain) related to SemiSouth - (497 ) 59,237 (497 ) 59,237
Tax effect of items excluded from non-GAAP results   (776 )   (802 )   (6,873 )   (3,873 )   (7,582 )
 
Non-GAAP net income $ 21,835   $ 18,468   $ 14,534   $ 54,314   $ 39,834  
 

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

  30,652     30,158     29,809     30,237     29,740  
 
Non-GAAP net income per share (diluted) $ 0.71   $ 0.61   $ 0.49   $ 1.80   $ 1.34  
 
GAAP income (loss) per share $ 0.54   $ 0.45   $ (1.54 ) $ 1.36   $ (1.54 )
 

POWER INTEGRATIONS, INC.
CONSOLIDATED BALANCE SHEETS

(in thousands)

         
 

September 30,
2013

June 30,
2013

December 31,
2012

ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 78,118 $ 85,426 $ 63,394
Short-term marketable securities 102,051 59,630 31,766
Accounts receivable 15,101 15,772 7,326
Inventories 40,212 43,199 44,625
Deferred tax assets 344 344 352
Prepaid expenses and other current assets   15,557     12,097     17,401  
Total current assets   251,383     216,468     164,864  
 
PROPERTY AND EQUIPMENT, net 90,217 89,743 89,724
INTANGIBLE ASSETS, net 42,212 44,054 47,738
GOODWILL 80,599 80,599 80,599
DEFERRED TAX ASSETS 15,263 14,425 11,532
OTHER ASSETS   3,965     4,608     4,673  
Total assets $ 483,639   $ 449,897   $ 399,130  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 20,267 $ 21,347 $ 16,452
Accrued payroll and related expenses 8,157 7,681 6,720
Taxes payable 2,128 1,476 1,213
Deferred taxes 885 748 1,193
Deferred income on sales to distributors 16,861 15,035 11,550
Other accrued liabilities   2,661     2,650     3,439  
Total current liabilities   50,959     48,937     40,567  
 
LONG-TERM LIABILITIES
Income taxes payable 8,916 8,665 7,937
Deferred taxes 7,404 7,646 8,179
Pension liability   1,456     1,366     1,398  
Total liabilities   68,735     66,614     58,081  
 
STOCKHOLDERS' EQUITY:
Common stock 30 29 28
Additional paid-in capital 215,404 198,375 175,668
Accumulated other comprehensive loss (358 ) (687 ) (293 )
Retained earnings   199,828     185,566     165,646  
Total stockholders' equity   414,904     383,283     341,049  
Total liabilities and stockholders' equity $ 483,639   $ 449,897   $ 399,130  
 

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

Sept. 30,
2013

June 30,
2013

Sept. 30,
2012

Sept. 30,
2013

Sept. 30,
2012

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 16,654 $ 13,672 $ (44,406 ) $ 41,229 $ (44,121 )
Adjustments to reconcile net income (loss) to cash provided by operating activities
Depreciation 4,094 3,993 3,799 12,062 11,426
Amortization of intangible assets 1,842 1,842 1,843 5,526 3,322
Loss (gain) on sale of property and equipment - 17 - 17 (1 )
Charge (gain) related to SemiSouth - (497 ) 59,237 (497 ) 59,237
Stock-based compensation expense 4,191 4,328 3,847 12,155 10,520
Amortization of premium on marketable securities 221 147 171 472 738
Non-cash interest income - - (665 ) - (1,445 )
Deferred income taxes (2,418 ) 848 (745 ) (4,806 ) 4,089
Increase (decrease) in accounts receivable allowances 26 (133 ) 35 (127 ) 21
Excess tax benefit from stock options exercised - - (86 ) - (560 )
Tax benefit associated with employee stock plans - - (118 ) - 1,413
Change in operating assets and liabilities:
Accounts receivable 646 (901 ) 6,825 (7,648 ) 1,489
Inventories 2,938 528 1,626 4,359 15,745
Prepaid expenses and other assets (3,603 ) 1,270 (14,169 ) 1,595 (11,335 )
Accounts payable (505 ) 625 1,047 2,952 4,842
Taxes payable and other accrued liabilities 3,088 (1,652 ) (37,039 ) 2,608 (28,255 )
Deferred income on sales to distributors   1,827     548     (833 )   5,311     2,554  
Net cash provided by (used in) operating activities   29,001     24,635     (19,631 )   75,208     29,679  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (4,358 ) (2,942 ) (3,427 ) (11,250 ) (12,181 )
Proceeds from sale of property and equipment - 36 - 36 2
Proceeds from sale of SemiSouth related assets - 959 - 959 -
Acquisition - - (2,360 ) - (115,720 )
Increase in financing lease receivables - - (37 ) - (420 )
Collections of financing lease receivables - - 228 - 527
Loan to SemiSouth - - - - (18,000 )
Purchases of marketable securities (51,048 ) (25,801 ) - (96,271 ) -
Proceeds from maturities of marketable securities   8,600     15,350     24,320     25,450     36,788  
Net cash provided by (used in) investing activities   (46,806 )   (12,398 )   18,724     (81,076 )   (109,004 )
 
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common stock 12,889 6,044 3,656 27,638 17,977
Payments of dividends to stockholders (2,392 ) (2,344 ) (1,448 ) (7,046 ) (4,301 )
Excess tax benefit from stock options exercised   -     -     86     -     560  
Net cash provided by financing activities   10,497     3,700     2,294     20,592     14,236  
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (7,308 ) 15,937 1,387 14,724 (65,089 )
 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD   85,426     69,489     73,360     63,394     139,836  
 
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 78,118   $ 85,426   $ 74,747   $ 78,118   $ 74,747  


Contact:

Power Integrations, Inc.
Joe Shiffler, 408-414-8528
Email Contact