Power Integrations Reports Fourth-Quarter Financial Results

By: Power Integrations, Inc. via Business Wire News Releases

February 04, 2015 at 16:03 PM EST

Power Integrations (Nasdaq: POWI) today announced financial results for the quarter and year ended December 31, 2014. Net revenues for the fourth quarter were $86.6 million, down four percent from both the prior quarter and the fourth quarter of 2013. GAAP gross margin for the fourth quarter was 52.9 percent; operating margin was 13.7 percent. Net income for the quarter was $14.4 million or $0.48 per diluted share, compared with $0.52 per diluted share in both the prior quarter and the fourth quarter of 2013.

In addition to its GAAP results, the company provided non-GAAP financial measures that exclude stock-based compensation expenses, acquisition-related expenses, a 2013 gain on assets held for sale, the related tax effects of these items, and a benefit stemming from the completion of a tax audit in the second quarter of 2014. Non-GAAP gross margin for the fourth quarter was 53.9 percent; operating margin was 20.3 percent. Non-GAAP net income for the quarter was $17.8 million or $0.59 per diluted share, compared with $0.65 per diluted share in the prior quarter and $0.66 per diluted share in the fourth quarter of 2013.

For the full year 2014, the company reported net revenues of $348.8 million, a slight increase compared with $347.1 million in 2013. GAAP net income for the year was $1.93 per diluted share compared with $1.88 per diluted share in 2013. Non-GAAP net income for the year was $2.40 per diluted share compared with $2.46 per diluted share in 2013.

Commented Balu Balakrishnan, president and CEO of Power Integrations: “While disappointed with our 2014 results overall, we closed out the year with a solid quarter and now look forward to renewed growth in 2015. We are embarking on a promising new product cycle led by the revolutionary InnoSwitch™ family, which brings an unprecedented level of integration to a wide range of AC-DC applications. At the same time, secular trends such as energy efficiency, renewable energy and faster charging of mobile devices continue to drive adoption of our highly integrated power-conversion products across the appliance, electronics, industrial and lighting markets.”

Additional Highlights

Power Integrations repurchased approximately 728,000 shares of its common stock during the fourth quarter for $35.5 million. As of December 31, 2014, the company had $23.7 million remaining on its repurchase authorization.
The company paid a dividend of $0.12 per share on December 31, 2014. The company’s board has declared dividends of $0.12 per share for each quarter of 2015, the first of which will be paid on March 31, 2015, to stockholders of record as of February 27.
Power Integrations had $175.3 million in cash and investments at quarter-end, a decrease of $38.6 million during the quarter.
In January 2015 Power Integrations acquired Cambridge Semiconductor, a UK-based supplier of controller chips for low-power AC-DC power supplies.
Power Integrations received nine U.S. patents during the fourth quarter of 2014 and had 677 U.S. patents at year-end.

Financial Outlook

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

First-quarter revenues are expected to be between $82 million and $88 million.
Non-GAAP gross margin is expected to be between 53 percent and 53.5 percent. (Excludes approximately $0.3 million of stock-based compensation, $1 million of amortization of acquisition-related intangibles and $0.3 million for amortization of the write-up of acquired inventory.) GAAP gross margin is expected to be between 51 percent and 51.5 percent.
Non-GAAP operating expenses are expected to be approximately $31 million. (Excludes approximately $4.2 million of stock-based compensation, $0.8 million of amortization of acquisition-related intangibles and $1 million of other acquisition-related expenses.) GAAP operating expenses are expected to be approximately $37 million.

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 Accounting Standard Codification 718-10, amortization of acquisition-related intangible assets, acquisition-related transaction expenses, a 2013 gain related to asset sales, the tax effects of these items, and a tax benefit recognized in the second quarter of 2014. 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 regarding the company’s forecast for its first-quarter financial performance and its prospects for growth in 2015 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 November 3, 2014. 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									Twelve Months Ended
		December 31, 2014			September 30, 2014			December 31, 2013			December 31, 2014			December 31, 2013
NET REVENUES		$	86,595		$	90,144		$	90,412		$	348,797		$	347,089

COST OF REVENUES			40,790			41,092			42,021			159,227			163,853

GROSS PROFIT			45,805			49,052			48,391			189,570			183,236

OPERATING EXPENSES:
Research and development			13,667			13,458			12,909			54,981			51,654
Sales and marketing			11,262			10,935			10,951			44,606			40,943
General and administrative			7,574			7,155			8,266			30,188			32,050
Amortization of acquisition-related intangible assets			628			629			1,158			3,190			4,523
Acquisition expenses			809			-			-			809			-
	Total operating expenses		33,940			32,177			33,284			133,774			129,170

INCOME FROM OPERATIONS			11,865			16,875			15,107			55,796			54,066

Gain on sale of assets held for sale			-			-			-			-			497
Other income, net			182			381			497			1,018			864

INCOME BEFORE PROVISION (BENEFIT) FOR INCOME TAXES			12,047			17,256			15,604			56,814			55,427

PROVISION (BENEFIT) FOR INCOME TAXES			(2,307	)		1,145			(433	)		(2,730	)		(1,839	)

NET INCOME		$	14,354		$	16,111		$	16,037		$	59,544		$	57,266

EARNINGS PER SHARE:
	Basic	$	0.49		$	0.54		$	0.54		$	1.99		$	1.95
	Diluted	$	0.48		$	0.52		$	0.52		$	1.93		$	1.88

SHARES USED IN PER-SHARE CALCULATION:
	Basic		29,350			30,013			29,974			29,976			29,421
	Diluted		30,051			30,757			30,924			30,829			30,420


SUPPLEMENTAL INFORMATION:

Stock-based compensation expenses included in:
	Cost of revenues	$	231		$	131		$	250		$	879		$	1,074
	Research and development		1,262			971			1,515			4,784			5,746
	Sales and marketing		962			779			1,054			3,540			3,642
	General and administrative		1,157			699			1,511			5,079			6,023
	Total stock-based compensation expense	$	3,612		$	2,580		$	4,330		$	14,282		$	16,485

Cost of revenues includes:
	Amortization of acquisition-related intangible assets	$	646		$	645		$	645		$	2,581		$	2,580

General & administrative expenses include:
	Patent-litigation expenses	$	1,815		$	1,529		$	1,772		$	5,657		$	5,645


REVENUE MIX BY END MARKET
	Communications		21	%		18	%		21	%		18	%		21	%
	Computer		9	%		11	%		11	%		10	%		10	%
	Consumer		37	%		36	%		34	%		37	%		35	%
	Industrial		33	%		35	%		34	%		35	%		34	%

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, 2014			September 30, 2014			December 31, 2013			December 31, 2014			December 31, 2013
RECONCILIATION OF GROSS PROFIT
GAAP gross profit			$	45,805		$	49,052		$	48,391		$	189,570		$	183,236
	GAAP gross margin			52.9	%		54.4	%		53.5	%		54.3	%		52.8	%

Stock-based compensation included in cost of revenues				231			131			250			879			1,074
Amortization of acquisition-related intangible assets				646			645			645			2,581			2,580

Non-GAAP gross profit			$	46,682		$	49,828		$	49,286		$	193,030		$	186,890
	Non-GAAP gross margin			53.9	%		55.3	%		54.5	%		55.3	%		53.8	%


RECONCILIATION OF OPERATING EXPENSES
GAAP operating expenses			$	33,940		$	32,177		$	33,284		$	133,774		$	129,170

Less:	Stock-based compensation expense included in operating expenses
		Research and development		1,262			971			1,515			4,784			5,746
		Sales and marketing		962			779			1,054			3,540			3,642
		General and administrative		1,157			699			1,511			5,079			6,023
		Total		3,381			2,449			4,080			13,403			15,411

	Amortization of acquisition-related intangible assets			628			629			1,158			3,190			4,523

	Acquisition expenses			809			-			-			809			-

Non-GAAP operating expenses			$	29,122		$	29,099		$	28,046		$	116,372		$	109,236


RECONCILIATION OF INCOME FROM OPERATIONS
GAAP income from operations			$	11,865		$	16,875		$	15,107		$	55,796		$	54,066
	GAAP operating margin			13.7	%		18.7	%		16.7	%		16.0	%		15.6	%

Add:	Total stock-based compensation			3,612			2,580			4,330			14,282			16,485
	Amortization of acquisition-related intangible assets			1,274			1,274			1,803			5,771			7,103
	Acquisition expenses			809			-			-			809			-

Non-GAAP income from operations			$	17,560		$	20,729		$	21,240		$	76,658		$	77,654
	Non-GAAP operating margin			20.3	%		23.0	%		23.5	%		22.0	%		22.4	%


RECONCILIATION OF PROVISION (BENEFIT) FOR INCOME TAXES
GAAP provision (benefit) for income taxes			$	(2,307	)	$	1,145		$	(433	)	$	(2,730	)	$	(1,839	)
	GAAP effective tax rate			-19.1	%		6.6	%		-2.8	%		-4.8	%		-3.3	%

Benefit associated with tax settlement				-			-			-			(3,331	)		-
Tax effect of other adjustments to GAAP results				(2,251	)		(120	)		(1,751	)		(3,034	)		(5,624	)

Non-GAAP provision (benefit) for income taxes			$	(56	)	$	1,265		$	1,318		$	3,635		$	3,785
	Non-GAAP effective tax rate			-0.3	%		6.0	%		6.1	%		4.7	%		4.8	%


RECONCILIATION OF NET INCOME PER SHARE (DILUTED)
GAAP net income			$	14,354		$	16,111		$	16,037		$	59,544		$	57,266

Adjustments to GAAP net income
	Stock-based compensation			3,612			2,580			4,330			14,282			16,485
	Amortization of acquisition-related intangible assets			1,274			1,274			1,803			5,771			7,103
	Acquisition expenses			809			-			-			809			-
	Gain on sale of assets held for sale			-			-			-			-			(497	)
	Benefit associated with tax settlement			-			-			-			(3,331	)		-
	Tax effect of items excluded from non-GAAP results			(2,251	)		(120	)		(1,751	)		(3,034	)		(5,624	)

Non-GAAP net income			$	17,798		$	19,845		$	20,419		$	74,041		$	74,733

Average shares outstanding for calculation of non-GAAP income per share (diluted)				30,051			30,757			30,924			30,829			30,420

Non-GAAP net income per share (diluted)			$	0.59		$	0.65		$	0.66		$	2.40		$	2.46

GAAP income per share			$	0.48		$	0.52		$	0.52		$	1.93		$	1.88

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


		December 31, 2014			September 30, 2014			December 31, 2013
ASSETS
	CURRENT ASSETS:
	Cash and cash equivalents	$	60,708		$	60,720		$	92,928
	Short-term marketable securities		114,575			153,144			109,179
	Accounts receivable		10,186			10,381			12,389
	Inventories		64,025			56,958			42,235
	Deferred tax assets		39			2,103			2,059
	Prepaid expenses and other current assets		16,379			8,773			18,632
	Total current assets		265,912			292,079			277,422

	PROPERTY AND EQUIPMENT, net		95,823			96,506			90,141
	INTANGIBLE ASSETS, net		35,524			36,873			40,334
	GOODWILL		80,599			80,599			80,599
	DEFERRED TAX ASSETS		11,562			9,472			9,449
	OTHER ASSETS		4,243			3,887			3,476
	Total assets	$	493,663		$	519,416		$	501,421

LIABILITIES AND STOCKHOLDERS’ EQUITY
	CURRENT LIABILITIES:
	Accounts payable	$	21,980		$	24,777		$	20,772
	Accrued payroll and related expenses		9,071			8,834			8,900
	Taxes payable		2,963			2,753			2,266
	Deferred taxes		2,193			1,103			943
	Deferred income on sales to distributors		15,223			18,744			15,727
	Other accrued liabilities		3,730			2,224			1,810
	Total current liabilities		55,160			58,435			50,418

	LONG-TERM LIABILITIES
	Income taxes payable		743			2,722			6,885
	Deferred taxes		4,272			4,397			5,273
	Other liabilities		2,812			2,229			2,159
	Total liabilities		62,987			67,783			64,735

STOCKHOLDERS' EQUITY:
	Common stock		29			29			30
	Additional paid-in capital		171,938			203,076			223,660
	Accumulated other comprehensive loss		(1,136	)		(474	)		(470	)
	Retained earnings		259,845			249,002			213,466
	Total stockholders' equity		430,676			451,633			436,686
	Total liabilities and stockholders' equity	$	493,663		$	519,416		$	501,421

POWER INTEGRATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

		Three Months Ended									Twelve Months Ended
		December 31, 2014			September 30, 2014			December 31, 2013			December 31, 2014			December 31, 2013
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net income	$	14,354		$	16,111		$	16,037		$	59,544		$	57,266
	Adjustments to reconcile net income to cash provided by operating activities
	Depreciation		4,035			4,002			4,026			15,884			16,088
	Amortization of intangible assets		1,349			1,349			1,878			6,072			7,404
	Loss (gain) on disposal of property and equipment		80			11			(148	)		250			(131	)
	Gain on sale of assets held for sale		-			-			-			-			(497	)
	Stock-based compensation expense		3,612			2,580			4,330			14,282			16,485
	Amortization of premium on marketable securities		398			481			317			1,694			789
	Deferred income taxes		939			(917	)		2,025			157			(2,781	)
	Increase (decrease) in accounts receivable allowances		(5	)		90			-			70			(127	)
	Excess tax benefit from employee stock plans		-			(224	)		(734	)		(437	)		(734	)
	Tax benefit associated with employee stock plans		-			451			1,284			815			1,284
	Change in operating assets and liabilities:
	Accounts receivable		200			5,972			2,712			2,133			(4,936	)
	Inventories		(7,064	)		(5,693	)		(1,984	)		(21,703	)		2,375
	Prepaid expenses and other assets		(1,744	)		4,655			(3,118	)		8,211			(1,523	)
	Accounts payable		(172	)		639			(485	)		2,337			2,467
	Taxes payable and other accrued liabilities		15			1,486			(1,543	)		(3,242	)		1,065
	Deferred income on sales to distributors		(3,522	)		(384	)		(1,134	)		(505	)		4,177
	Net cash provided by operating activities		12,475			30,609			23,463			85,562			98,671

CASH FLOWS FROM INVESTING ACTIVITIES:
	Purchases of property and equipment		(5,677	)		(7,509	)		(2,710	)		(23,071	)		(13,960	)
	Proceeds from sale of property and equipment		-			-			-			-			36
	Proceeds from sale of assets held for sale		-			-			-			-			959
	Collections of financing lease and other receivables		-			-			433			-			433
	Loan to third party		(6,600	)		-			-			(6,600	)		-
	Other assets		-			(1,261	)		-			(1,261	)		-
	Purchases of marketable securities		-			(20,518	)		(13,211	)		(45,269	)		(109,482	)
	Proceeds from sales and maturities of marketable securities		38,052			-			5,900			38,052			31,350
	Net cash provided by (used in) investing activities		25,775			(29,288	)		(9,588	)		(38,149	)		(90,664	)

CASH FLOWS FROM FINANCING ACTIVITIES
	Net proceeds from issuance of common stock		751			3,237			2,601			13,855			30,239
	Repurchase of common stock		(35,502	)		(19,527	)		-			(80,760	)		-
	Payments of dividends to stockholders		(3,511	)		(3,595	)		(2,400	)		(13,165	)		(9,446	)
	Excess tax benefit from employee stock plans		-			224			734			437			734
	Net cash provided by (used in) financing activities		(38,262	)		(19,661	)		935			(79,633	)		21,527

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			(12	)		(18,340	)		14,810			(32,220	)		29,534

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			60,720			79,060			78,118			92,928			63,394

CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	60,708		$	60,720		$	92,928		$	60,708		$	92,928

Contacts:

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