07.02.2019 22:02:00

Power Integrations Reports Fourth-Quarter Financial Results

Power Integrations (Nasdaq: POWI) today announced financial results for the quarter and year ended December 31, 2018. Net revenues for the fourth quarter were $93.3 million, down 15 percent from the prior quarter and down 14 percent from the fourth quarter of 2017. Net income was $22.7 million or $0.77 per diluted share, including a tax benefit reflecting the revision of prior estimates of the transition tax from the 2017 U.S. tax legislation. This compares to net income of $0.59 per diluted share in the prior quarter and a net loss of $0.57 per share in the fourth quarter of 2017, in which the company incurred a charge associated with the tax legislation. Cash flow from operations was $18.3 million for the fourth quarter.

For the full year, net revenues were $416.0 million, a decrease of four percent compared to 2017. GAAP net income for the full year was $70.0 million or $2.32 per diluted share, compared to $0.90 per diluted share in 2017. Cash flow from operations for the full year was $84.0 million.

In addition to its GAAP results, the company provided certain non-GAAP measures that exclude stock-based compensation, amortization of acquisition-related intangible assets, the tax effects of these items, and the above-mentioned tax benefit and charge associated with the 2017 tax legislation. Non-GAAP net income for the fourth quarter of 2018 was $15.9 million or $0.54 per diluted share, compared with $0.77 per diluted share in the prior quarter and $0.74 per diluted share in the fourth quarter of 2017. Non-GAAP net income for the full year was $81.7 million or $2.71 per diluted share, compared to $2.84 per diluted share in 2017.

Commented Balu Balakrishnan, president and CEO of Power Integrations: "Our fourth-quarter results and first-quarter outlook reflect the current slowdown in demand across the industry. Nevertheless, we are well positioned to capitalize on a range of secular opportunities in the year ahead, including faster charging for mobile devices, energy efficiency, smart homes and appliances, renewable energy, and battery-powered tools and transportation. Our new BridgeSwitch™ ICs expand our opportunity in appliances and other motor-drive applications, adding about half a billion dollars to our addressable market.”

Additional Highlights

  • Power Integrations repurchased approximately 488,000 shares of its common stock during the fourth quarter, utilizing $28.8 million. At quarter end, $51.2 million remained available in the company’s repurchase authorization.
  • The company paid a dividend of $0.16 per share on December 31, 2018. The company’s board has declared dividends of $0.17 per share for each quarter of 2019, the first of which is scheduled to be paid on March 29 to stockholders of record as of February 28.

Financial Outlook

The company issued the following forecast for the first quarter of 2019:

  • Revenues are expected to be $90 million plus or minus $3 million.
  • GAAP gross margin is expected to be approximately 51 percent. Non-GAAP gross margin is expected to be approximately 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 $41 million and $41.5 million; non-GAAP operating expenses are expected to be between $35 million and $35.5 million. (Non-GAAP expenses are expected to exclude approximately $5.5 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 tax charges and benefits associated with the 2017 U.S. 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 above statements regarding the company’s forecast for its first-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, BridgeSwitch 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, 2018

September 30, 2018

December 31, 2017

December 31, 2018

December 31, 2017

NET REVENUES $ 93,307 $ 110,085 $ 108,249 $ 415,955 431,755
 
COST OF REVENUES   45,302     53,080     54,221     201,167     218,091  
 
GROSS PROFIT   48,005     57,005     54,028     214,788     213,664  
 
OPERATING EXPENSES:
Research and development 17,965 17,236 17,180 70,580 68,501
Sales and marketing 12,746 12,823 12,743 51,165 49,237
General and administrative 8,796 8,466 9,127 35,496 36,142
Amortization of acquisition-related intangible assets   455     455     513     1,899     2,147  
Total operating expenses   39,962     38,980     39,563     159,140     156,027  
 
INCOME FROM OPERATIONS 8,043 18,025 14,465 55,648 57,637
 
Other income, net   1,297     1,098     796     4,116     2,662  
 
INCOME BEFORE INCOME TAXES 9,340 19,123 15,261 59,764 60,299
 
PROVISION (BENEFIT) FOR INCOME TAXES   (13,396 )   1,456     32,159     (10,220 )   32,690  
 
NET INCOME (LOSS) $ 22,736   $ 17,667   $ (16,898 ) $ 69,984   $ 27,609  
 
EARNINGS PER SHARE:
Basic $ 0.78   $ 0.60   $ (0.57 ) $ 2.38   $ 0.93  
Diluted $ 0.77   $ 0.59   $ (0.57 ) $ 2.32   $ 0.90  
 
SHARES USED IN PER-SHARE CALCULATION:
Basic 29,164 29,365 29,759 29,456 29,674
Diluted 29,651 29,998 29,759 30,147 30,545
 
 
SUPPLEMENTAL INFORMATION:
 
Stock-based compensation expenses included in:
Cost of revenues $ 313 $ 243 $ 436 $ 1,097 $ 1,321
Research and development 1,944 1,634 2,338 7,688 8,496
Sales and marketing 1,222 1,105 1,470 4,729 5,197
General and administrative   1,963     1,416     2,611     8,066     9,663  
Total stock-based compensation expense $ 5,442   $ 4,398   $ 6,855   $ 21,580   $ 24,677  
 
Cost of revenues includes:
Amortization of acquisition-related intangible assets $ 813   $ 814   $ 939   $ 3,253   $ 3,756  
 
General & administrative expenses include:
Patent-litigation expenses $ 2,304   $ 2,305   $ 1,914   $ 8,525   $ 7,839  
 
Other income, net includes:
Amortization of in-place lease intangible assets $ -   $ -   $ -   $ -   $ 180  
 
 
REVENUE MIX BY END MARKET
Communications 20 % 22 % 25 % 20 % 24 %
Computer 6 % 6 % 5 % 5 % 5 %
Consumer 34 % 35 % 37 % 38 % 38 %
Industrial 40 % 37 % 33 % 37 % 33 %
 

             
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, 2018

September 30, 2018

December 31, 2017

December 31, 2018

December 31, 2017

RECONCILIATION OF GROSS PROFIT
GAAP gross profit $ 48,005 $ 57,005 $ 54,028 $ 214,788 $ 213,664
GAAP gross margin 51.4 % 51.8 % 49.9 % 51.6 % 49.5 %
 
Stock-based compensation included in cost of revenues 313 243 436 1,097 1,321
Amortization of acquisition-related intangible assets   813     814     939     3,253     3,756  
 
Non-GAAP gross profit $ 49,131   $ 58,062   $ 55,403   $ 219,138   $ 218,741  
Non-GAAP gross margin 52.7 % 52.7 % 51.2 % 52.7 % 50.7 %
 
 
RECONCILIATION OF OPERATING EXPENSES
GAAP operating expenses $ 39,962 $ 38,980 $ 39,563 $ 159,140 $ 156,027
 
Less:Stock-based compensation expense included in operating expenses
Research and development 1,944 1,634 2,338 7,688 8,496
Sales and marketing 1,222 1,105 1,470 4,729 5,197
General and administrative   1,963     1,416     2,611     8,066     9,663  
Total   5,129     4,155     6,419     20,483     23,356  
 
Amortization of acquisition-related intangible assets   455     455     513     1,899     2,147  
 
Non-GAAP operating expenses $ 34,378   $ 34,370   $ 32,631   $ 136,758   $ 130,524  
 
 
RECONCILIATION OF INCOME FROM OPERATIONS
GAAP income from operations $ 8,043 $ 18,025 $ 14,465 $ 55,648 $ 57,637
GAAP operating margin 8.6 % 16.4 % 13.4 % 13.4 % 13.3 %
 
Add:Total stock-based compensation 5,442 4,398 6,855 21,580 24,677
Amortization of acquisition-related intangible assets   1,268     1,269     1,452     5,152     5,903  
 
Non-GAAP income from operations $ 14,753   $ 23,692   $ 22,772   $ 82,380   $ 88,217  
Non-GAAP operating margin 15.8 % 21.5 % 21.0 % 19.8 % 20.4 %
 
 
RECONCILIATION OF PROVISION (BENEFIT) FOR INCOME TAXES
GAAP provision (benefit) for income taxes $ (13,396 ) $ 1,456 $ 32,159 $ (10,220 ) $ 32,690
GAAP effective tax rate -143.4 % 7.6 % 210.7 % -17.1 % 54.2 %
 
Impact of U.S. tax legislation (9,687 ) - 37,524 (9,687 ) 37,524
Tax effect of adjustments to GAAP results   (3,846 )   (167 )   (6,267 )   (5,361 )   (9,287 )
 
Non-GAAP provision (benefit) for income taxes $ 137   $ 1,623   $ 902   $ 4,828   $ 4,453  
Non-GAAP effective tax rate 0.9 % 6.5 % 3.8 % 5.6 % 4.9 %
 
 
RECONCILIATION OF NET INCOME (LOSS) PER SHARE (DILUTED)
GAAP net income (loss) $ 22,736 $ 17,667 $ (16,898 ) $ 69,984 $ 27,609
 
Adjustments to GAAP net income (loss)
Stock-based compensation 5,442 4,398 6,855 21,580 24,677
Amortization of acquisition-related intangible assets 1,268 1,269 1,452 5,152 5,903
Amortization of in-place lease intangible assets - - - - 180
Impact of U.S. tax legislation (9,687 ) - 37,524 (9,687 ) 37,524
Tax effect of items excluded from non-GAAP results   (3,846 )   (167 )   (6,267 )   (5,361 )   (9,287 )
 
Non-GAAP net income $ 15,913   $ 23,167   $ 22,666   $ 81,668   $ 86,606  
 

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

  29,651     29,998     30,692     30,147     30,545  
 
Non-GAAP net income per share (diluted) $ 0.54   $ 0.77   $ 0.74   $ 2.71   $ 2.84  
 
GAAP net income (loss) per share $ 0.77   $ 0.59   $ (0.57 ) $ 2.32   $ 0.90  
 

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

December 31, 2018

September 30, 2018

December 31, 2017

ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 134,137 $ 148,551 $ 93,655
Short-term marketable securities 94,451 99,766 189,236
Accounts receivable, net 11,072 13,742 16,798
Inventories 80,857 74,201 57,087
Prepaid expenses and other current assets   11,915     12,573     7,758  
Total current assets   332,432     348,833     364,534  
 
PROPERTY AND EQUIPMENT, net 114,117 113,841 111,705
INTANGIBLE ASSETS, net 21,152 22,452 25,419
GOODWILL 91,849 91,849 91,849
DEFERRED TAX ASSETS 6,906 3,673 2,364
OTHER ASSETS   22,241     23,779     25,203  
Total assets $ 588,697   $ 604,427   $ 621,074  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 31,552 $ 34,469 $ 33,211
Accrued payroll and related expenses 12,131 9,706 12,064
Taxes payable 933 1,311 1,767
Other accrued liabilities   3,750     5,019     4,009  
Total current liabilities   48,366     50,505     51,051  
 
LONG-TERM LIABILITIES:
Income taxes payable 8,652 17,952 18,259
Deferred tax liabilities 216 52 138
Other liabilities   4,391     4,786     3,944  
Total liabilities   61,625     73,295     73,392  
 
STOCKHOLDERS' EQUITY:
Common stock 28 28 29
Additional paid-in capital 126,164 148,696 198,384
Accumulated other comprehensive loss (1,689 ) (2,076 ) (2,139 )
Retained earnings   402,569     384,484     351,408  
Total stockholders' equity   527,072     531,132     547,682  
Total liabilities and stockholders' equity $ 588,697   $ 604,427   $ 621,074  
 

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

December 31, 2018

September 30, 2018

December 31, 2017

December 31, 2018

December 31, 2017

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 22,736 $ 17,667 $ (16,898 ) $ 69,984 $ 27,609
Adjustments to reconcile net income (loss) to cash provided by operating activities
Depreciation 4,549 4,678 5,051 18,918 18,374
Amortization of intangible assets 1,300 1,299 1,452 5,267 6,083
Loss on disposal of property and equipment 98 395 36 553 360
Stock-based compensation expense 5,442 4,398 6,855 21,580 24,677
Amortization of premium (accretion of discount) on marketable securities (115 ) (34 ) 297 227 1,100
Deferred income taxes (3,070 ) (495 ) 16,323 (4,465 ) 15,838
Increase (decrease) in accounts receivable allowances (198 ) 153 - (28 ) 209
Change in operating assets and liabilities:
Accounts receivable 2,868 (7,052 ) 394 5,754 (10,479 )
Inventories (6,656 ) (5,377 ) (1,929 ) (23,770 ) (4,523 )
Prepaid expenses and other assets 1,226 (1,333 ) 3,402 (1,495 ) (17,646 )
Accounts payable (1,311 ) 9,923 (4,903 ) 1,336 396
Taxes payable and other accrued liabilities   (8,540 )   (1,013 )   17,362     (9,897 )   20,041  
Net cash provided by operating activities   18,329     23,209     27,442     83,964     82,039  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (5,557 ) (8,607 ) (2,929 ) (24,677 ) (32,496 )
Acquisition of technology licenses - (400 ) - (900 ) -
Purchases of marketable securities (4,612 ) (58,221 ) (5,590 ) (62,833 ) (151,663 )
Proceeds from sales and maturities of marketable securities   10,050     57,148     28,748     157,551     149,443  
Net cash provided by (used in) investing activities   (119 )   (10,080 )   20,229     69,141     (34,716 )
 
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common stock 803 2,915 1,909 9,353 10,020
Repurchase of common stock (28,776 ) (10,988 ) (2,454 ) (103,153 ) (9,188 )
Payments of dividends to stockholders (4,651 ) (4,692 ) (4,171 ) (18,823 ) (16,634 )
Proceeds from draw on line of credit - - - 8,000 5,000
Payments on line of credit   -     -     -     (8,000 )   (5,000 )
Net cash used in financing activities   (32,624 )   (12,765 )   (4,716 )   (112,623 )   (15,802 )
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (14,414 ) 364 42,955 40,482 31,521
 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD   148,551     148,187     50,700     93,655     62,134  
 
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 134,137   $ 148,551   $ 93,655   $ 134,137   $ 93,655  

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