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Power Integrations Reports Second-Quarter Financial Results

Non-GAAP earnings were $0.47/diluted share; GAAP earnings were $0.29/diluted share

Cash flow from operations was $25.1 million for the quarter; company announces new $30 million share-repurchase plan

SAN JOSE, Calif. — (BUSINESS WIRE) — July 29, 2015 — Power Integrations (Nasdaq: POWI) today announced financial results for the quarter ended June 30, 2015. Net revenues for the second quarter were $85.3 million, up three percent from the prior quarter and down four percent from the second quarter of 2014. GAAP gross margin for the second quarter was 51.6 percent; operating margin was 10.8 percent. Net income for the quarter was $8.6 million or $0.29 per diluted share, compared with $0.21 per diluted share in the prior quarter and $0.54 per diluted share in the second quarter of 2014. (GAAP net income for the year-ago quarter included a non-recurring tax benefit of $3.3 million.)

In addition to its GAAP results, the company provided non-GAAP financial measures that exclude stock-based compensation expenses, certain acquisition-related expenses, the tax effects of these items, and the above-mentioned tax benefit recognized in 2014. Non-GAAP gross margin for the second quarter was 53.1 percent; operating margin was 17.6 percent. Non-GAAP net income for the quarter was $14.2 million or $0.47 per diluted share, compared with $0.43 per diluted share in the prior quarter and $0.61 per diluted share in the second quarter of 2014.

Commented Balu Balakrishnan, president and CEO of Power Integrations: “Like many of our industry peers, we experienced lower-than-expected demand in the second quarter. However, we proactively adjusted our operating expenses during the quarter and delivered solid earnings and strong cash flow.

“While macroeconomic factors remain a concern, we did see an uptick in sales and bookings in the latter part of the second quarter. We anticipate sequential revenue growth in the third quarter, led by adoption of our new InnoSwitch™ product family, which continues to ramp into the mobile-device market and is now gaining adoption by customers in our other end-markets as well.”

Additional Highlights

Financial Outlook

The company issued the following forecast for the third quarter of 2015:

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

Power Integrations management will hold a conference call today at 1:45 p.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, the tax effects of these items, and the above-mentioned tax benefit recognized in 2014. 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 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 Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission (SEC) on April 30, 2015. 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, 2015

March 31, 2015

June 30, 2014

June 30, 2015

June 30, 2014

NET REVENUES $ 85,265 $ 82,557 $ 88,985 $ 167,822 $ 172,058
 
COST OF REVENUES   41,247     40,265     40,249     81,512     77,345  
 
GROSS PROFIT   44,018     42,292     48,736     86,310     94,713  
 
OPERATING EXPENSES:
Research and development 14,683 14,573 14,366 29,256 27,856
Sales and marketing 11,567 11,307 11,434 22,874 22,409
General and administrative 7,480 7,983 7,813 15,463 15,459
Amortization of acquisition-related intangible assets 693 750 798 1,443 1,933
Acquisition expenses, severance and transition costs   391     722     -     1,113     -  
Total operating expenses   34,814     35,335     34,411     70,149     67,657  
 
INCOME FROM OPERATIONS 9,204 6,957 14,325 16,161 27,056
 
Other income (expense), net   14     (223 )   198     (209 )   455  
 
INCOME BEFORE INCOME TAXES 9,218 6,734 14,523 15,952 27,511
 
PROVISION (BENEFIT) FOR INCOME TAXES   628     391     (2,193 )   1,019     (1,568 )
 
NET INCOME $ 8,590   $ 6,343   $ 16,716   $ 14,933   $ 29,079  
 
EARNINGS PER SHARE:
Basic $ 0.29   $ 0.22   $ 0.55   $ 0.51   $ 0.96  
Diluted $ 0.29   $ 0.21   $ 0.54   $ 0.50   $ 0.93  
 
SHARES USED IN PER-SHARE CALCULATION:
Basic 29,368 29,309 30,310 29,339 30,275
Diluted 30,034 30,058 31,110 30,075 31,150
 
 
SUPPLEMENTAL INFORMATION:
 
Stock-based compensation expenses included in:
Cost of revenues $ 257 $ 249 $ 298 $ 506 $ 517
Research and development 1,306 1,391 1,339 2,697 2,551
Sales and marketing 878 1,012 864 1,890 1,799
General and administrative   1,309     1,739     1,674     3,048     3,223  
Total stock-based compensation expense $ 3,750   $ 4,391   $ 4,175   $ 8,141   $ 8,090  
 
Cost of revenues includes:
Amortization of write-up of acquired inventory $ -   $ 309   $ -   $ 309   $ -  
Amortization of acquisition-related intangible assets $ 961   $ 961   $ 645   $ 1,922   $ 1,290  
 
General & administrative expenses include:
Patent-litigation expenses $ 1,501   $ 1,457   $ 1,127   $ 2,958   $ 2,313  
 
 
REVENUE MIX BY END MARKET
Communications 21 % 21 % 15 % 21 % 17 %
Computer 7 % 8 % 12 % 7 % 11 %
Consumer 36 % 38 % 38 % 37 % 37 %
Industrial 36 % 33 % 35 % 35 % 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, 2015

March 31, 2015

June 30, 2014

June 30, 2015

June 30, 2014

RECONCILIATION OF GROSS PROFIT
GAAP gross profit $ 44,018 $ 42,292 $ 48,736 $ 86,310 $ 94,713
GAAP gross margin 51.6 % 51.2 % 54.8 % 51.4 % 55.0 %
 
Stock-based compensation included in cost of revenues 257 249 298 506 517
Amortization of write-up of acquired inventory - 309 - 309 -
Amortization of acquisition-related intangible assets   961     961     645     1,922     1,290  
 
Non-GAAP gross profit $ 45,236   $ 43,811   $ 49,679   $ 89,047   $ 96,520  
Non-GAAP gross margin 53.1 % 53.1 % 55.8 % 53.1 % 56.1 %
 
 
RECONCILIATION OF OPERATING EXPENSES
GAAP operating expenses $ 34,814 $ 35,335 $ 34,411 $ 70,149 $ 67,657
 

Less: Stock-based compensation expense included in operating expenses

Research and development 1,306 1,391 1,339 2,697 2,551
Sales and marketing 878 1,012 864 1,890 1,799
General and administrative   1,309     1,739     1,674     3,048     3,223  
Total   3,493     4,142     3,877     7,635     7,573  
 
Amortization of acquisition-related intangible assets   693     750     798     1,443     1,933  
 
Acquisition expenses, severance and transition costs   391     722     -     1,113     -  
 
Non-GAAP operating expenses $ 30,237   $ 29,721   $ 29,736   $ 59,958   $ 58,151  
 
 
RECONCILIATION OF INCOME FROM OPERATIONS
GAAP income from operations $ 9,204 $ 6,957 $ 14,325 $ 16,161 $ 27,056
GAAP operating margin 10.8 % 8.4 % 16.1 % 9.6 % 15.7 %
 

Add: Total stock-based compensation

3,750 4,391 4,175 8,141 8,090
Amortization of write-up of acquired inventory - 309 - 309 -
Amortization of acquisition-related intangible assets 1,654 1,711 1,443 3,365 3,223
Acquisition expenses, severance and transition costs   391     722     -     1,113     -  
 
Non-GAAP income from operations $ 14,999   $ 14,090   $ 19,943   $ 29,089   $ 38,369  
Non-GAAP operating margin 17.6 % 17.1 % 22.4 % 17.3 % 22.3 %
 
 
RECONCILIATION OF PROVISION (BENEFIT) FOR INCOME TAXES
GAAP provision (benefit) for income taxes $ 628 $ 391 $ (2,193 ) $ 1,019 $ (1,568 )
GAAP effective tax rate 6.8 % 5.8 % -15.1 % 6.4 % -5.7 %
 
Benefit associated with tax settlement - - (3,331 ) - (3,331 )
Tax effect of other adjustments to GAAP results   (197 )   (521 )   (115 )   (718 )   (663 )
 
Non-GAAP provision for income taxes $ 825   $ 912   $ 1,253   $ 1,737   $ 2,426  
Non-GAAP effective tax rate 5.5 % 6.6 % 6.2 % 6.0 % 6.2 %
 
 
RECONCILIATION OF NET INCOME PER SHARE (DILUTED)
GAAP net income $ 8,590 $ 6,343 $ 16,716 $ 14,933 $ 29,079
 
Adjustments to GAAP net income
Stock-based compensation 3,750 4,391 4,175 8,141 8,090
Amortization of write-up of acquired inventory - 309 - 309 -
Amortization of acquisition-related intangible assets 1,654 1,711 1,443 3,365 3,223
Benefit associated with tax settlement - - (3,331 ) - (3,331 )
Acquisition expenses, severance and transition costs 391 722 - 1,113 -
Tax effect of items excluded from non-GAAP results   (197 )   (521 )   (115 )   (718 )   (663 )
 
Non-GAAP net income $ 14,188   $ 12,955   $ 18,888   $ 27,143   $ 36,398  
 

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

  30,034     30,058     31,110     30,075     31,150  
 
Non-GAAP net income per share (diluted) $ 0.47   $ 0.43   $ 0.61   $ 0.90   $ 1.17  
 
GAAP income per share $ 0.29   $ 0.21   $ 0.54   $ 0.50   $ 0.93  

 
POWER INTEGRATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
     
 

June 30, 2015

March 31, 2015

December 31, 2014

ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 75,941 $ 85,637 $ 60,708
Short-term marketable securities 94,944 87,560 114,575
Accounts receivable 13,212 12,631 10,186
Inventories 64,231 65,009 64,025
Deferred tax assets 38 39 39
Prepaid expenses and other current assets   9,444     11,458     16,379  
Total current assets   257,810     262,334     265,912  
 
PROPERTY AND EQUIPMENT, net 92,913 94,179 95,823
INTANGIBLE ASSETS, net 41,028 42,758 35,524
GOODWILL 91,849 91,849 80,599
DEFERRED TAX ASSETS 11,025 11,265 11,562
OTHER ASSETS   4,894     4,789     4,243  
Total assets $ 499,519   $ 507,174   $ 493,663  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 30,792 $ 23,907 $ 21,980
Accrued payroll and related expenses 9,539 8,815 9,071
Taxes payable 2,237 2,930 2,963
Deferred tax liabilities 2,085 2,187 2,193
Deferred income on sales to distributors 16,457 17,254 15,223
Other accrued liabilities   3,381     3,834     3,730  
Total current liabilities   64,491     58,927     55,160  
 
LONG-TERM LIABILITIES:
Income taxes payable 746 746 743
Deferred tax liabilities 3,928 4,059 4,272
Other liabilities   2,673     2,960     2,812  
Total liabilities   71,838     66,692     62,987  
 
STOCKHOLDERS' EQUITY:
Common stock 29 29 29
Additional paid-in capital 161,089 178,816 171,938
Accumulated other comprehensive loss (1,167 ) (1,031 ) (1,136 )
Retained earnings   267,730     262,668     259,845  
Total stockholders' equity   427,681     440,482     430,676  
Total liabilities and stockholders' equity $ 499,519   $ 507,174   $ 493,663  

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

June 30, 2015

March 31, 2015

June 30, 2014

June 30, 2015

June 30, 2014

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,590 $ 6,343 $ 16,716 $ 14,933 $ 29,079
Adjustments to reconcile net income to cash provided by operating activities
Depreciation 4,035 4,032 3,876 8,067 7,847
Amortization of intangible assets 1,729 1,786 1,518 3,515 3,374
Loss on disposal of property and equipment - - - - 159
Stock-based compensation expense 3,750 4,391 4,175 8,141 8,090
Amortization of premium on marketable securities 265 286 421 551 815
Deferred income taxes 9 77 (3,729 ) 86 135
Decrease in accounts receivable allowances (80 ) (5 ) - (85 ) (15 )
Excess tax benefit from employee stock plans - - (213 ) - (213 )
Tax benefit (deficiency) associated with employee stock plans - (189 ) 364 (189 ) 364
Change in operating assets and liabilities:
Accounts receivable (500 ) (550 ) (22 ) (1,050 ) (4,039 )
Inventories 779 424 (3,294 ) 1,203 (8,946 )
Prepaid expenses and other assets 2,077 (227 ) 3,475 1,850 5,300
Accounts payable 5,954 349 782 6,303 1,870
Taxes payable and other accrued liabilities (751 ) (1,076 ) 881 (1,827 ) (4,743 )
Deferred income on sales to distributors   (796 )   2,031     1,285     1,235     3,401  
Net cash provided by operating activities   25,061     17,672     26,235     42,733     42,478  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,822 ) (3,322 ) (5,420 ) (5,144 ) (9,885 )
Acquisition, net of cash acquired (184 ) (15,365 ) - (15,549 ) -
Purchases of marketable securities (9,993 ) - - (9,993 ) (24,751 )
Proceeds from sales and maturities of marketable securities   2,250     26,785     -     29,035     -  
Net cash provided by (used in) investing activities   (9,749 )   8,098     (5,420 )   (1,651 )   (34,636 )
 
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common stock 856 3,519 2,822 4,375 9,867
Repurchase of common stock (22,335 ) (841 ) (25,731 ) (23,176 ) (25,731 )
Payments of dividends to stockholders (3,529 ) (3,519 ) (3,026 ) (7,048 ) (6,059 )
Excess tax benefit from employee stock plans   -     -     213     -     213  
Net cash used in financing activities   (25,008 )   (841 )   (25,722 )   (25,849 )   (21,710 )
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (9,696 ) 24,929 (4,907 ) 15,233 (13,868 )
 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD   85,637     60,708     83,967     60,708     92,928  
 
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 75,941   $ 85,637   $ 79,060   $ 75,941   $ 79,060  


Contact:

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