Power Integrations Reports First-Quarter Financial Results

Power Integrations (Nasdaq: POWI) today announced financial results for the quarter ended March 31, 2019. Net revenues for the first quarter were $89.2 million, down four percent from the prior quarter and down 13 percent from the first quarter of 2018. Net income was $7.2 million or $0.25 per diluted share compared to $0.77 per share in the prior quarter and $0.46 in the first quarter of 2018. (The prior quarter’s results included a tax benefit from the revision of prior estimates of the transition tax from the 2017 U.S. tax legislation.) Cash flow from operations was $1.1 million for the first quarter.

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. Non-GAAP net income for the first quarter of 2019 was $12.1 million or $0.41 per diluted share, compared with $0.54 per diluted share in the prior quarter and $0.67 per diluted share in the first quarter of 2018.

Commented Balu Balakrishnan, president and CEO of Power Integrations: “As expected, our first-quarter results reflect the slowdown being felt across the industry. However, we expect strong sequential growth in the second quarter driven largely by increased demand from fast-charging applications in the smartphone market. With the arrival of USB PD technology, we expect adoption of faster chargers to accelerate as OEMs look for new ways to differentiate their products.”

Additional Highlights

• Power Integrations repurchased approximately 121,000 shares of its common stock during the first quarter, utilizing $7.3 million. At quarter end, $43.9 million remained available in the company’s repurchase authorization.
• The company paid a dividend of $0.17 per share on March 29, 2019. A dividend of $0.17 per share will be paid on June 28, 2019 to stockholders of record as of May 31.

Financial Outlook

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

• Revenues are expected to be $100 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 $42.5 million and $43 million; non-GAAP operating expenses are expected to be between $36 million and $36.5 million. (Non-GAAP expenses are expected to exclude approximately $6.1 million of stock-based compensation and $0.4 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, the tax effects of these items, and tax 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 second-quarter financial performance and expectations for a sequential recovery in the second quarter driven largely by increased demand from fast-charging applications in the smartphone market 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 13, 2019. 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
				March 31, 2019				December 31, 2018				March 31, 2018
NET REVENUES				$	89,188			$	93,307			$	103,081
COST OF REVENUES					43,714				45,302				49,537
GROSS PROFIT					45,474				48,005				53,544
OPERATING EXPENSES:
Research and development					17,946				17,965				17,481
Sales and marketing					12,590				12,746				12,574
General and administrative					8,390				8,796				9,014
Amortization of acquisition-related intangible assets					427				455				514
		Total operating expenses			39,353				39,962				39,583
INCOME FROM OPERATIONS					6,121				8,043				13,961
Other income, net					1,152				1,297				836
INCOME BEFORE INCOME TAXES					7,273				9,340				14,797
PROVISION (BENEFIT) FOR INCOME TAXES					40				(13,396	)			597
NET INCOME				$	7,233			$	22,736			$	14,200
EARNINGS PER SHARE:
		Basic		$	0.25			$	0.78			$	0.48
		Diluted		$	0.25			$	0.77			$	0.46
SHARES USED IN PER-SHARE CALCULATION:
		Basic			28,951				29,164				29,799
		Diluted			29,446				29,651				30,552
SUPPLEMENTAL INFORMATION:
Stock-based compensation expenses included in:
		Cost of revenues		$	271			$	313			$	249
		Research and development			1,632				1,944				1,839
		Sales and marketing			1,061				1,222				1,276
		General and administrative			1,443				1,963				2,261
		Total stock-based compensation expense		$	4,407			$	5,442			$	5,625
Cost of revenues includes:
		Amortization of acquisition-related intangible assets		$	794			$	813			$	813
General & administrative expenses include:
		Patent-litigation expenses		$	2,317			$	2,304			$	1,897
REVENUE MIX BY END MARKET
		Communications			18	%			20	%			19	%
		Computer			5	%			6	%			5	%
		Consumer			39	%			34	%			40	%
		Industrial			38	%			40	%			36	%

POWER INTEGRATIONS, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP RESULTS
(in thousands, except per-share amounts)
						Three Months Ended
						March 31, 2019				December 31, 2018				March 31, 2018
RECONCILIATION OF GROSS PROFIT
GAAP gross profit						$	45,474			$	48,005			$	53,544
		GAAP gross margin					51.0	%			51.4	%			51.9	%
Stock-based compensation included in cost of revenues							271				313				249
Amortization of acquisition-related intangible assets							794				813				813
Non-GAAP gross profit						$	46,539			$	49,131			$	54,606
		Non-GAAP gross margin					52.2	%			52.7	%			53.0	%
RECONCILIATION OF OPERATING EXPENSES
GAAP operating expenses						$	39,353			$	39,962			$	39,583
Less:		Stock-based compensation expense included in operating expenses
				Research and development			1,632				1,944				1,839
				Sales and marketing			1,061				1,222				1,276
				General and administrative			1,443				1,963				2,261
				Total			4,136				5,129				5,376
		Amortization of acquisition-related intangible assets					427				455				514
Non-GAAP operating expenses						$	34,790			$	34,378			$	33,693
RECONCILIATION OF INCOME FROM OPERATIONS
GAAP income from operations						$	6,121			$	8,043			$	13,961
		GAAP operating margin					6.9	%			8.6	%			13.5	%
Add:		Total stock-based compensation					4,407				5,442				5,625
		Amortization of acquisition-related intangible assets					1,221				1,268				1,327
Non-GAAP income from operations						$	11,749			$	14,753			$	20,913
		Non-GAAP operating margin					13.2	%			15.8	%			20.3	%
RECONCILIATION OF PROVISION (BENEFIT) FOR INCOME TAXES
GAAP provision (benefit) for income taxes						$	40			$	(13,396	)		$	597
		GAAP effective tax rate					0.5	%			-143.4	%			4.0	%
Impact of U.S. tax legislation							-				(9,687	)			-
Tax effect of adjustments to GAAP results							(799	)			(3,846	)			(789	)
Non-GAAP provision for income taxes						$	839			$	137			$	1,386
		Non-GAAP effective tax rate					6.5	%			0.9	%			6.4	%
RECONCILIATION OF NET INCOME PER SHARE (DILUTED)
GAAP net income						$	7,233			$	22,736			$	14,200
Adjustments to GAAP net income
		Stock-based compensation					4,407				5,442				5,625
		Amortization of acquisition-related intangible assets					1,221				1,268				1,327
		Impact of U.S. tax legislation					-				(9,687	)			-
		Tax effect of items excluded from non-GAAP results					(799	)			(3,846	)			(789	)
Non-GAAP net income						$	12,062			$	15,913			$	20,363
Average shares outstanding for calculation of non-GAAP net income per share (diluted)							29,446				29,651				30,552
Non-GAAP net income per share (diluted)						$	0.41			$	0.54			$	0.67
GAAP net income per share						$	0.25			$	0.77			$	0.46

POWER INTEGRATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
				March 31, 2019				December 31, 2018
ASSETS
		CURRENT ASSETS:
		Cash and cash equivalents		$	125,795			$	134,137
		Short-term marketable securities			92,901				94,451
		Accounts receivable, net			20,545				11,072
		Inventories			85,080				80,857
		Prepaid expenses and other current assets			16,798				11,915
		Total current assets			341,119				332,432
		PROPERTY AND EQUIPMENT, net			113,713				114,117
		INTANGIBLE ASSETS, net			20,073				21,152
		GOODWILL			91,849				91,849
		DEFERRED TAX ASSETS			5,733				6,906
		OTHER ASSETS			28,018				22,241
		Total assets		$	600,505			$	588,697
LIABILITIES AND STOCKHOLDERS’ EQUITY
		CURRENT LIABILITIES:
		Accounts payable		$	33,432			$	31,552
		Accrued payroll and related expenses			11,512				12,131
		Taxes payable			706				933
		Other accrued liabilities			5,271				3,750
		Total current liabilities			50,921				48,366
		LONG-TERM LIABILITIES:
		Income taxes payable			8,789				8,652
		Deferred tax liabilities			204				216
		Other liabilities			9,290				4,391
		Total liabilities			69,204				61,625
STOCKHOLDERS' EQUITY:
		Common stock			28				28
		Additional paid-in capital			127,769				126,164
		Accumulated other comprehensive loss			(1,361	)			(1,689	)
		Retained earnings			404,865				402,569
		Total stockholders' equity			531,301				527,072
		Total liabilities and stockholders' equity		$	600,505			$	588,697

POWER INTEGRATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
				Three Months Ended
				March 31, 2019				December 31, 2018				March 31, 2018
CASH FLOWS FROM OPERATING ACTIVITIES:
		Net income		$	7,233			$	22,736			$	14,200
		Adjustments to reconcile net income to cash provided by operating activities
		Depreciation			4,610				4,549				4,931
		Amortization of intangible assets			1,255				1,300				1,348
		Loss on disposal of property and equipment			96				98				38
		Stock-based compensation expense			4,407				5,442				5,625
		Amortization of premium (accretion of discount) on marketable securities			(110	)			(115	)			262
		Deferred income taxes			1,161				(3,070	)			(140	)
		Increase (decrease) in accounts receivable allowances			(180	)			(198	)			5
		Change in operating assets and liabilities:
		Accounts receivable			(9,293	)			2,868				(934	)
		Inventories			(4,223	)			(6,656	)			(6,121	)
		Prepaid expenses and other assets			(4,229	)			1,226				(3,141	)
		Accounts payable			1,220				(1,311	)			233
		Taxes payable and other accrued liabilities			(871	)			(8,540	)			(577	)
		Net cash provided by operating activities			1,076				18,329				15,729
CASH FLOWS FROM INVESTING ACTIVITIES:
		Purchases of property and equipment			(3,459	)			(5,557	)			(6,491	)
		Acquisition of technology licenses			(214	)			-				(500	)
		Purchases of marketable securities			(4,793	)			(4,612	)			-
		Proceeds from sales and maturities of marketable securities			6,787				10,050				52,366
		Net cash provided by (used in) investing activities			(1,679	)			(119	)			45,375
CASH FLOWS FROM FINANCING ACTIVITIES
		Net proceeds from issuance of common stock			4,500				803				4,657
		Repurchase of common stock			(7,302	)			(28,776	)			(33,314	)
		Payments of dividends to stockholders			(4,937	)			(4,651	)			(4,775	)
		Proceeds from draw on line of credit			-				-				8,000
		Payments on line of credit			-				-				(8,000	)
		Net cash used in financing activities			(7,739	)			(32,624	)			(33,432	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS					(8,342	)			(14,414	)			27,672
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD					134,137				148,551				93,655
CASH AND CASH EQUIVALENTS AT END OF PERIOD				$	125,795			$	134,137			$	121,327

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