Market Overview

Power Integrations Reports Third-Quarter Financial Results

Share:
SAN JOSE, Calif.--(BUSINESS WIRE)--

Power Integrations (Nasdaq:POWI) today announced financial results for the quarter ended September 30, 2012. Net revenues for the quarter were $78.0 million, up two percent from the prior quarter and up four percent compared with the third quarter of 2011. GAAP gross margin for the quarter was 49.7 percent.

As announced earlier this week, the company's third-quarter results include a pre-tax charge of $59.2 million stemming from the likely closure of SemiSouth Laboratories. The expected cash outflow included in the charge is $15.3 million. Including the charge, the company reported a GAAP net loss for the quarter of $44.4 million or $1.54 per share. This compares to a net loss of $0.25 per share in the prior quarter and net income of $0.25 per diluted share in the year-ago quarter. The loss in the prior quarter was driven by the settlement of the company's tax audit for years 2003-2006, which resulted in a one-time net charge of $15.7 million in the second quarter.

In addition to its GAAP results, the company provided certain non-GAAP financial measures that, for the third quarter, exclude stock-based compensation expenses, certain acquisition-related costs and expenses, the charge related to SemiSouth, non-cash interest income, and the tax effects of these items. Non-GAAP gross margin for the third quarter was 52.9 percent. Non-GAAP net income for the quarter was $14.5 million or $0.49 per diluted share, compared with $0.49 per diluted share in the prior quarter and $0.32 per diluted share in the third quarter of 2011.

Commented Balu Balakrishnan, president and CEO of Power Integrations: “While third-quarter revenues were in line with our forecast, we expect lower revenues in the fourth quarter as global economic conditions continue to weigh on end demand across the industry. However, our gross margin expanded again in the third quarter and has improved significantly over the past year thanks to the substantial cost reductions we have achieved, plus the benefit of a more favorable end-market mix. While the impact of mix will fluctuate over time, we expect our gross margin to remain at a similar level in the fourth quarter.”

Mr. Balakrishnan continued: “While the SemiSouth outcome is disappointing, our strategic direction remains unchanged, and we continue to invest in high-power driver and switch technologies to expand our addressable market within the realm of high-voltage power conversion. For example, our acquisition of CT-Concept earlier this year added nearly half a billion dollars to our addressable market and gives us a presence in high-power markets such as industrial motors, renewable energy and electric transportation. With our first full quarter as a combined company now behind us, we believe we are on track to realizing the strategic and financial benefits we expected from the acquisition.”

Additional Highlights

  • Earlier this month Power Integrations' board of directors authorized the use of up to $50 million for the repurchase of the company's common stock.
  • The company paid a dividend of $0.05 per share on September 28, 2012. The next dividend of $0.05 per share will be paid on December 31, 2012, to stockholders of record as of November 30.
  • Power Integrations received 15 U.S. patents and 28 non-U.S. patents during the quarter and had a total of 511 U.S. patents and 388 non-U.S. patents as of September 30, 2012.

Financial Outlook

The company issued the following forecast for the fourth quarter of 2012:

  • Fourth-quarter revenues are expected to be between $71 million and $77 million.
  • Gross margins are expected to be similar to third-quarter levels.
  • Non-GAAP operating expenses are expected to be between $24.5 million and $25 million. (Excludes from GAAP operating expenses approximately $4 million of stock-based compensation expenses and $1 million of amortization expense for acquisition-related intangible assets.) GAAP operating expenses are expected to be between $29.5 million and $30 million.
  • The non-GAAP and GAAP effective tax rates are expected to be approximately 13 percent and 18 percent, respectively.

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 1-877-303-9795 from within the United States or 1-631-291-4581 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 driver systems 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, the charge associated with SemiSouth, non-cash interest income, the tax effects of the above items, and the one-time tax charge described above. 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 financial measures differently, limiting their usefulness as comparative measures.

Note Regarding Forward-Looking Statements

The statements in this press release relating to the company's projected fourth-quarter financial performance and realizing the benefits of the CT-Concept acquisition 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 changes. 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 7, 2012. 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, 2012

June 30, 2012

September 30, 2011

September 30, 2012

September 30, 2011

NET REVENUES $ 78,045 $ 76,382 $ 75,063 $ 226,200 $ 232,009
 
COST OF REVENUES   39,294     38,627     40,020     115,101     122,917  
 
GROSS PROFIT   38,751     37,755     35,043     111,099     109,092  
 
OPERATING EXPENSES:
Research and development 11,428 12,066 10,345 34,134 30,563
Sales and marketing 9,206 8,419 7,962 25,736 24,258
General and administrative 7,912 6,687 6,145 21,203 18,761
Charge related to SemiSouth 25,300 - - 25,300 -
Amortization of acquisition-related intangible assets 1,123 757 28 1,908 84
Acquisition expenses   29     413     -     931     -  
Total operating expenses   54,998     28,342     24,480     109,212     73,666  
 
INCOME (LOSS) FROM OPERATIONS (16,247 ) 9,413 10,563 1,887 35,426
 
Charge related to SemiSouth (33,937 ) - - (33,937 )
Non-cash interest income 665 623 - 1,445 -
Cost of acquisition-related currency option - (635 ) - (635 ) -
Other income (expense), net   172     207     552     837     1,455  
 
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES (49,347 ) 9,608 11,115 (30,403 ) 36,881
 
PROVISION (BENEFIT) FOR INCOME TAXES   (4,941 )   16,784     3,603     13,718     8,916  
 
NET INCOME (LOSS) $ (44,406 ) $ (7,176 ) $ 7,512   $ (44,121 ) $ 27,965  
 
EARNINGS (LOSS) PER SHARE:
Basic $ (1.54 ) $ (0.25 ) $ 0.26   $ (1.54 ) $ 0.97  
Diluted $ (1.54 ) $ (0.25 ) $ 0.25   $ (1.54 ) $ 0.93  
 
SHARES USED IN PER-SHARE CALCULATION:
Basic 28,908 28,619 28,799 28,586 28,789
Diluted 28,908 28,619 29,879 28,586 30,195
 
 
SUPPLEMENTAL INFORMATION:
 
Stock-based compensation expenses included in:
Cost of revenues $ 271 $ 256 $ 128 $ 772 $ 584
Research and development 1,467 1,566 564 4,154 2,354
Sales and marketing 940 746 449 2,433 1,659
General and administrative   1,169     1,074     527     3,161     2,020  
Total stock-based compensation expense $ 3,847   $ 3,642   $ 1,668   $ 10,520   $ 6,617  
 
Cost of revenues includes:
Amortization of write-up of acquired inventory $ 1,597   $ 1,136   $ 150   $ 2,813   $ 360  
Amortization of acquisition-related intangible assets $ 645   $ 459   $ 85   $ 1,189   $ 255  
 
Operating expenses include:
Patent-litigation expenses $ 1,885   $ 1,409   $ 1,751   $ 4,590   $ 4,218  
 
 
REVENUE MIX BY END MARKET
Communications 23 % 24 % 26 % 25 % 29 %
Computer 10 % 12 % 12 % 11 % 12 %
Consumer 36 % 36 % 39 % 37 % 37 %
Industrial 31 % 28 % 23 % 27 % 22 %

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, 2012

June 30, 2012

September 30, 2011

September 30, 2012

September 30, 2011

RECONCILIATION OF GROSS PROFIT
GAAP gross profit $ 38,751 $ 37,755 $ 35,043 $ 111,099 $ 109,092
GAAP gross profit margin 49.7 % 49.4 % 46.7 % 49.1 % 47.0 %
 
Stock-based compensation included in cost of revenues 271 256 128 772 584
Amortization of write-up of acquired inventory 1,597 1,136 150 2,813 360
Amortization of acquisition-related intangible assets   645     459     85     1,189     255  
 
Non-GAAP gross profit $ 41,264   $ 39,606   $ 35,406   $ 115,873   $ 110,291  
Non-GAAP gross profit margin 52.9 % 51.9 % 47.2 % 51.2 % 47.5 %
 
 
RECONCILIATION OF OPERATING EXPENSES
GAAP operating expenses $ 54,998 $ 28,342 $ 24,480 $ 109,212 $ 73,666
 
Less: Stock-based compensation expense included in operating expenses
Research and development 1,467 1,566 564 4,154 2,354
Sales and marketing 940 746 449 2,433 1,659
General and administrative   1,169     1,074     527     3,161     2,020  
Total   3,576     3,386     1,540     9,748     6,033  
 
Acquisition expenses   29     413     -     931     -  
 
Amortization of acquisition-related intangible assets   1,123     757     28     1,908     84  
 
Charge related to SemiSouth   25,300     -     -     25,300     -  
 
Non-GAAP operating expenses $ 24,970   $ 23,786   $ 22,912   $ 71,325   $ 67,549  
 
 
RECONCILIATION OF INCOME FROM OPERATIONS
GAAP income (loss) from operations $ (16,247 ) $ 9,413 $ 10,563 $ 1,887 $ 35,426
GAAP operating margin -20.8 % 12.3 % 14.1 % 0.8 % 15.3 %
 
Add: Total stock-based compensation 3,847 3,642 1,668 10,520 6,617
Amortization of write-up of acquired inventory 1,597 1,136 150 2,813 360
Amortization of acquisition-related intangible assets 1,768 1,216 113 3,097 339
Acquisition expenses 29 413 - 931 -
Charge related to SemiSouth   25,300     -     -     25,300     -  
 
Non-GAAP income from operations $ 16,294   $ 15,820   $ 12,494   $ 44,548   $ 42,742  
Non-GAAP operating margin 20.9 % 20.7 % 16.6 % 19.7 % 18.4 %
 
 
RECONCILIATION OF PROVISION FOR INCOME TAXES
GAAP provision for income taxes $ (4,941 ) $ 16,784 $ 3,603 $ 13,718 $ 8,916
GAAP effective tax rate 10.0 % 174.7 % 32.4 % -45.1 % 24.2 %
 
One-time charge associated with tax settlement - 15,749 - 15,749 -
Tax effect of other adjustments to GAAP results   (6,873 )   (405 )   85     (7,582 )   (544 )
 
Non-GAAP provision for income taxes $ 1,932   $ 1,440   $ 3,518   $ 5,551   $ 9,460  
Non-GAAP effective tax rate 11.7 % 9.0 % 27.0 % 12.2 % 21.4 %
 
 
RECONCILIATION OF NET INCOME (LOSS) PER SHARE (DILUTED)
GAAP net income (loss) $ (44,406 ) $ (7,176 ) $ 7,512 $ (44,121 ) $ 27,965
 
Adjustments to GAAP net income (loss)
Stock-based compensation 3,847 3,642 1,668 10,520 6,617
Amortization of write-up of acquired inventory 1,597 1,136 150 2,813 360
Amortization of acquisition-related intangible assets 1,768 1,216 113 3,097 339
Acquisition expenses 29 413 - 931 -
Non-cash interest income (665 ) (623 ) - (1,445 ) -
Cost of acquisition-related currency option - 635 - 635 -
Charge related to SemiSouth 59,237 - - 59,237 -
One-time charge associated with tax settlement - 15,749 - 15,749 -
Tax effect of items excluded from non-GAAP results   (6,873 )   (405 )   85     (7,582 )   (544 )
 
Non-GAAP net income $ 14,534   $ 14,587   $ 9,528   $ 39,834   $ 34,737  
 
Average shares outstanding for calculation
of non-GAAP income per share (diluted)   29,809     29,792     29,879     29,740     30,195  
 
Non-GAAP net income per share (diluted) $ 0.49   $ 0.49   $ 0.32   $ 1.34   $ 1.15  
 
GAAP income (loss) per share $ (1.54 ) $ (0.25 ) $ 0.25   $ (1.54 ) $ 0.93  

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

September 30, 2012

June 30, 2012

December 31, 2011

ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 74,747 $ 73,360 $ 139,836
Short-term marketable securities 35,605 60,068 40,899
Accounts receivable 11,106 17,966 9,396
Inventories 46,928 48,555 52,010
Deferred tax assets 892 893 892
Prepaid expenses and other current assets   17,659   7,758   7,068
Total current assets   186,937   208,600   250,101
 
MARKETABLE SECURITIES - - 32,041
PROPERTY AND EQUIPMENT, net 90,355 91,738 88,241
INTANGIBLE ASSETS, net 49,580 51,422 8,852
GOODWILL 78,278 77,354 14,786
DEFERRED TAX ASSETS 7,410 7,120 12,387
OTHER ASSETS   4,042   43,380   26,511
Total assets $ 416,602 $ 479,614 $ 432,919
 
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 19,697 $ 21,108 $ 16,532
Accrued payroll and related expenses 6,258 6,650 5,911
Taxes payable 1,168 37,936 -
Deferred taxes 1,634 1,961 -
Deferred income on sales to distributors 10,437 11,270 7,883
Other accrued liabilities   17,583   2,514   2,305
Total current liabilities   56,777   81,439   32,631
 
LONG-TERM LIABILITIES
Income taxes payable 7,560 7,364 34,368
Deferred taxes 3,926 4,185 -
Pension liability   663   622   -
 
Total liabilities   68,926   93,610   66,999
 
STOCKHOLDERS' EQUITY:
Common stock 29 29 28
Additional paid-in capital 188,587 181,203 158,646
Accumulated other comprehensive income 287 145 50
Retained earnings   158,773   204,627   207,196
Total stockholders' equity   347,676   386,004   365,920
Total liabilities and stockholders' equity $ 416,602 $ 479,614 $ 432,919

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

Sept. 30, 2012

June 30, 2012

Sept. 30, 2011

Sept. 30, 2012

Sept. 30, 2011

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (44,406 ) $ (7,176 ) $ 7,512 $ (44,121 ) $ 27,965
Adjustments to reconcile net income (loss) to cash provided by operating activities
Depreciation 3,799 3,895 3,865 11,426 11,337
Amortization of intangible assets 1,843 1,290 243 3,322 729
Charge related to SemiSouth 59,237 - - 59,237 -
Gain on sale of property and equipment - - - (1 ) (41 )
Stock-based compensation expense 3,847 3,642 1,668 10,520 6,617
Amortization of premium on marketable securities 171 258 396 738 1,255
Non-cash interest income (665 ) (623 ) - (1,445 ) -
Deferred income taxes (745 ) 5,161 (47 ) 4,089 779
Increase (decrease) in accounts receivable allowances 35 (14 ) (110 ) 21 (74 )
Excess tax benefit from stock options exercised (86 ) (276 ) (32 ) (560 ) (729 )
Tax benefit (deficiency) associated with employee stock plans (118 ) 749 288 1,413 1,826
Change in operating assets and liabilities:
Accounts receivable 6,825 1,964 (2,150 ) 1,489 (4,542 )
Inventories 1,626 4,958 2,269 15,745 10,184
Prepaid expenses and other assets (14,169 ) 1,528 (225 ) (11,335 ) 2,823
Accounts payable 1,047 2,310 3,170 4,842 (1,090 )
Taxes payable and other accrued liabilities (37,039 ) 8,180 3,423 (28,255 ) 4,891
Deferred income on sales to distributors   (833 )   1,897     (883 )   2,554     (1,904 )
Net cash provided by (used in) operating activities   (19,631 )   27,743     19,387     29,679     60,026  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (3,427 ) (1,283 ) (3,710 ) (12,181 ) (16,229 )
Proceeds from sale of property and equipment - - - 2 2,249
Other assets - - (463 ) - (1,271 )
Acquisitions (2,360 ) (113,360 ) - (115,720 ) (6,914 )
Increase in financing lease receivables (37 ) - (157 ) (420 ) (7,978 )
Collections of financing lease receivables 228 - 109 527 314
Loan to SemiSouth - - - (18,000 ) (3,000 )
Collection of note to SemiSouth - - 3,000 - 3,000
Purchases of marketable securities - - (19,761 ) - (31,269 )
Proceeds from maturities of marketable securities   24,320     6,403     8,545     36,788     15,175  
Net cash provided by (used in) investing activities   18,724     (108,240 )   (12,437 )   (109,004 )   (45,923 )
 
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common stock 3,656 7,864 3,972 17,977 18,218
Repurchase of common stock - - (31,435 ) - (35,819 )
Payments of dividends to stockholders (1,448 ) (1,438 ) (1,435 ) (4,301 ) (4,320 )
Excess tax benefit from stock options exercised   86     276     32     560     729  
Net cash provided by (used in) financing activities   2,294     6,702     (28,866 )   14,236     (21,192 )
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,387 (73,795 ) (21,916 ) (65,089 ) (7,089 )
 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD   73,360     147,155     170,494     139,836     155,667  
 
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 74,747   $ 73,360   $ 148,578   $ 74,747   $ 148,578  

Power Integrations, Inc.
Joe Shiffler, 408-414-8528
jshiffler@powerint.com

View Comments and Join the Discussion!