Business Wire | Jul 30, 2020 04:02PM EDT

Power Integrations Reports Second-Quarter Financial Results

Jul. 30, 2020

SAN JOSE, Calif.--(BUSINESS WIRE)--Jul. 30, 2020--Power Integrations (Nasdaq: POWI) today announced financial results for the quarter ended June 30, 2020. Net revenues for the second quarter were $106.8 million, down three percent compared to the prior quarter and up four percent from the second quarter of 2019. Net income for the second quarter was $13.2 million or $0.44 per diluted share compared to $0.53 per diluted share in the prior quarter and $0.37 per diluted share in the second quarter of 2019. Cash flow from operations for the second quarter was $36.7 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 and the tax effects of these items. Non-GAAP net income for the second quarter of 2020 was $19.9 million or $0.66 per diluted share compared with $0.76 per diluted share in the prior quarter and $0.56 per diluted share in the second quarter of 2019. A reconciliation of GAAP to non-GAAP financial results appears at the end of this press release.

Commented Balu Balakrishnan, president and CEO of Power Integrations: "Revenues increased four percent year-over-year in spite of a challenging demand environment, driven by growth in the communications and industrial categories. While the pandemic continues to weigh on end-market demand, we continue to gain share across a wide range of power-conversion applications and we are on track to outperform the analog semiconductor industry again this year."

The company announced a 2:1 stock split in the form of a stock dividend of one share of common stock per outstanding share. The additional shares will be distributed on August 18, 2020 to stockholders of record as of August 14, 2020. The split will double the number of outstanding common shares; common shares and per-share data in this press release have not been adjusted for the impact of the split.

Power Integrations paid a cash dividend of $0.21 per share on June 30, 2020. Following the stock split, the company will pay a dividend of $0.11 per share (equivalent to $0.22 on a pre-split basis) on September 30, 2020 to stockholders of record as of August 31, 2020.

Financial Outlook

The company issued the following forecast for the third quarter of 2020:

* Revenues are expected to be $115 million plus or minus $5 million. * GAAP gross margin is expected to be between 49.5 percent and 50 percent. Non-GAAP gross margin is expected to be between 50.5 percent and 51 percent. (The difference between the expected GAAP and non-GAAP gross margins comprises 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 approximately $43 million; non-GAAP operating expenses are expected to be approximately $36 million. (Non-GAAP expenses are expected to exclude approximately $6.8 million of stock-based compensation and $0.2 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 register for the call by visiting the following link: http://www.directeventreg.com/registration/event/6141529. A webcast of 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 tax effects of these items. 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. 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 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: the impact of the COVID-19 crisis on demand for the company's products, its ability to supply products and its ability to conduct other aspects of its business such as competing for new design wins; 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; 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 7, 2020. 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 law.

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 Six Months Ended June 30, March 31, June 30, June 30, June 30, 2020 2020 2019 2020 2019NET REVENUES $ 106,832 $ 109,664 $ 102,865 $ 216,496 $ 192,053

COST OF REVENUES 53,296 53,184 51,293 106,480 95,007

GROSS PROFIT 53,536 56,480 51,572 110,016 97,046

OPERATING EXPENSES:Research and 19,770 19,152 19,269 38,922 37,215 developmentSales and marketing 12,807 13,216 12,815 26,023 25,405

General and 7,804 8,761 9,334 16,565 17,724 administrativeAmortization of 230 257 394 487 821 acquisition-relatedintangible assetsTotal operating 40,611 41,386 41,812 81,997 81,165 expenses INCOME FROM 12,925 15,094 9,760 28,019 15,881 OPERATIONS OTHER INCOME 1,480 1,777 1,310 3,257 2,462

INCOME BEFORE 14,405 16,871 11,070 31,276 18,343 INCOME TAXES PROVISION FOR 1,213 985 225 2,198 265 INCOME TAXES NET INCOME $ 13,192 $ 15,886 $ 10,845 $ 29,078 $ 18,078

EARNINGS PER SHARE:Basic $ 0.44 $ 0.54 $ 0.37 $ 0.98 $ 0.62

Diluted $ 0.44 $ 0.53 $ 0.37 $ 0.96 $ 0.61

SHARES USED INPER-SHARECALCULATION:Basic 29,856 29,602 29,297 29,729 29,125

Diluted 30,312 30,134 29,702 30,232 29,597

SUPPLEMENTAL Three Months Ended Six Months EndedINFORMATION: June 30, March 31, June 30, June 30, June 30, 2020 2020 2019 2020 2019Stock-basedcompensationexpenses includedin:Cost of revenues $ 252 $ 396 $ 273 $ 648 $ 544

Research and 2,351 2,109 2,144 4,460 3,776 developmentSales and marketing 1,258 1,392 1,141 2,650 2,202

General and 2,120 2,813 1,938 4,933 3,381 administrativeTotal stock-based $ 5,981 $ 6,710 $ 5,496 $ 12,691 $ 9,903 compensationexpense Cost of revenuesincludes:Amortization of $ 799 $ 799 $ 794 $ 1,598 $ 1,588 acquisition-relatedintangible assets Three Months Ended Six Months EndedREVENUE MIX BY END June 30, March 31, June 30, June 30, June 30,MARKET 2020 2020 2019 2020 2019Communications 28 % 22 % 24 % 25 % 21 %

Computer 6 % 4 % 6 % 5 % 6 %

Consumer 31 % 41 % 37 % 36 % 38 %

Industrial 35 % 33 % 33 % 34 % 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, March 31, June 30, June 30, June 30, 2020 2020 2019 2020 2019RECONCILIATION OFGROSS PROFITGAAP gross profit $ 53,536 $ 56,480 $ 51,572 $ 110,016 $ 97,046

GAAP gross margin 50.1 % 51.5 % 50.1 % 50.8 % 50.5 %

Stock-basedcompensation 252 396 273 648 544 included in cost ofrevenuesAmortization of 799 799 794 1,598 1,588 acquisition-relatedintangible assets Non-GAAP gross $ 54,587 $ 57,675 $ 52,639 $ 112,262 $ 99,178 profitNon-GAAP gross 51.1 % 52.6 % 51.2 % 51.9 % 51.6 %margin Three Months Ended Six Months EndedRECONCILIATION OF June 30, March 31, June 30, June 30, June 30,OPERATING EXPENSES 2020 2020 2019 2020 2019GAAP operating $ 40,611 $ 41,386 $ 41,812 $ 81,997 $ 81,165 expenses Less: Stock-basedcompensationexpense included inoperating expensesResearch and 2,351 2,109 2,144 4,460 3,776 developmentSales and marketing 1,258 1,392 1,141 2,650 2,202

General and 2,120 2,813 1,938 4,933 3,381 administrativeTotal 5,729 6,314 5,223 12,043 9,359

Amortization of 230 257 394 487 821 acquisition-relatedintangible assets Non-GAAP operating $ 34,652 $ 34,815 $ 36,195 $ 69,467 $ 70,985 expenses Three Months Ended Six Months EndedRECONCILIATION OF June 30, March 31, June 30, June 30, June 30,INCOME FROM 2020 2020 2019 2020 2019OPERATIONSGAAP income from $ 12,925 $ 15,094 $ 9,760 $ 28,019 $ 15,881 operationsGAAP operating 12.1 % 13.8 % 9.5 % 12.9 % 8.3 %margin Add: Total 5,981 6,710 5,496 12,691 9,903 stock-basedcompensationAmortization of 1,029 1,056 1,188 2,085 2,409 acquisition-relatedintangible assets Non-GAAP income $ 19,935 $ 22,860 $ 16,444 $ 42,795 $ 28,193 from operationsNon-GAAP operating 18.7 % 20.8 % 16.0 % 19.8 % 14.7 %margin Three Months Ended Six Months EndedRECONCILIATION OF June 30, March 31, June 30, June 30, June 30,PROVISION FOR 2020 2020 2019 2020 2019INCOME TAXESGAAP provision for $ 1,213 $ 985 $ 225 $ 2,198 $ 265 income taxesGAAP effective tax 8.4 % 5.8 % 2.0 % 7.0 % 1.4 %rate Tax effect of (272 ) (751 ) (837 ) (1,023 ) (1,636 )adjustments to GAAPresults Non-GAAP provision $ 1,485 $ 1,736 $ 1,062 $ 3,221 $ 1,901 for income taxesNon-GAAP effective 6.9 % 7.0 % 6.0 % 7.0 % 6.2 %tax rate Three Months Ended Six Months EndedRECONCILIATION OF June 30, March 31, June 30, June 30, June 30,NET INCOME PER 2020 2020 2019 2020 2019SHARE (DILUTED)GAAP net income $ 13,192 $ 15,886 $ 10,845 $ 29,078 $ 18,078

Adjustments to GAAPnet incomeStock-based 5,981 6,710 5,496 12,691 9,903 compensationAmortization of 1,029 1,056 1,188 2,085 2,409 acquisition-relatedintangible assetsTax effect of items (272 ) (751 ) (837 ) (1,023 ) (1,636 )excluded fromnon-GAAP results Non-GAAP net income $ 19,930 $ 22,901 $ 16,692 $ 42,831 $ 28,754

Average sharesoutstanding for 30,312 30,134 29,702 30,232 29,597 calculation ofnon-GAAP net incomeper share (diluted) Non-GAAP net income $ 0.66 $ 0.76 $ 0.56 $ 1.42 $ 0.97 per share (diluted) GAAP net income per $ 0.44 $ 0.53 $ 0.37 $ 0.96 $ 0.61 share

POWER INTEGRATIONS, INC.CONSOLIDATED BALANCE SHEETS(in thousands) June 30, March 31, December 31, 2020 2020 2019ASSETSCURRENT ASSETS:Cash and cash equivalents $ 251,325 $ 190,459 $ 178,690

Short-term marketable securities 194,556 232,183 232,398

Accounts receivable, net 12,872 20,597 24,274

Inventories 103,963 96,633 90,380

Prepaid expenses and other current 14,512 20,570 15,597 assetsTotal current assets 577,228 560,442 541,339

PROPERTY AND EQUIPMENT, net 138,572 123,430 116,619

INTANGIBLE ASSETS, net 14,658 15,748 16,865

GOODWILL 91,849 91,849 91,849

DEFERRED TAX ASSETS 1,514 1,739 2,836

OTHER ASSETS 29,956 34,231 34,388

Total assets $ 853,777 $ 827,439 $ 803,896

LIABILITIES AND STOCKHOLDERS'EQUITYCURRENT LIABILITIES:Accounts payable $ 42,871 $ 37,156 $ 27,433

Accrued payroll and related 14,365 10,921 13,408 expensesTaxes payable 363 567 584

Other accrued liabilities 7,156 5,826 9,051

Total current liabilities 64,755 54,470 50,476

LONG-TERM LIABILITIES:Income taxes payable 15,329 14,840 14,617

Deferred tax liabilities 121 162 164

Other liabilities 14,100 14,137 14,093

Total liabilities 94,305 83,609 79,350

STOCKHOLDERS' EQUITY:Common stock 28 28 28

Additional paid-in capital 168,470 162,343 152,117

Accumulated other comprehensive (1,720 ) (4,314 ) (3,130 )lossRetained earnings 592,694 585,773 575,531

Total stockholders' equity 759,472 743,830 724,546

Total liabilities and stockholders' $ 853,777 $ 827,439 $ 803,896 equity

POWER INTEGRATIONS, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) Three Months Ended Six Months Ended June 30, March 31, June 30, June 30, June 30, 2020 2020 2019 2020 2019CASH FLOWSFROM OPERATINGACTIVITIES:Net income $ 13,192 $ 15,886 $ 10,845 $ 29,078 $ 18,078

Adjustments toreconcile netincome to cashprovided byoperatingactivitiesDepreciation 5,581 5,488 4,821 11,069 9,431

Amortization 1,090 1,117 1,228 2,207 2,483 of intangibleassetsLoss ondisposal of 262 30 56 292 152 property andequipmentStock-based 5,981 6,710 5,496 12,691 9,903 compensationexpenseAmortizationof premium(accretion of 167 154 (120 ) 321 (230 )discount) onmarketablesecuritiesDeferred 184 1,095 498 1,279 1,659 income taxesIncrease(decrease) inaccounts - (154 ) 237 (154 ) 57 receivableallowances forcredit lossesChange inoperatingassets andliabilities:Accounts 7,725 3,831 (5,160 ) 11,556 (14,453 )receivableInventories (7,330 ) (6,253 ) (4,117 ) (13,583 ) (8,340 )

Prepaid 8,084 (3,992 ) 615 4,092 (3,614 )expenses andother assetsAccounts (2,967 ) 8,828 2,933 5,861 4,153 payableTaxes payableand other 4,684 (6,349 ) 2,088 (1,665 ) 1,217 accruedliabilitiesNet cashprovided by 36,653 26,391 19,420 63,044 20,496 operatingactivities CASH FLOWSFROM INVESTINGACTIVITIES:Purchases of (10,019 ) (11,603 ) (4,889 ) (21,622 ) (8,348 )property andequipmentProceeds fromsale of 331 - - 331 - property andequipmentAcquisition of - - (37 ) - (251 )technologylicensesPurchases of (2,989 ) (16,838 ) (49,631 ) (19,827 ) (54,424 )marketablesecuritiesProceeds fromsales and 43,015 15,947 12,635 58,962 19,422 maturities ofmarketablesecuritiesNet cashprovided by 30,338 (12,494 ) (41,922 ) 17,844 (43,601 )(used in)investingactivities CASH FLOWSFROM FINANCINGACTIVITIES:Net proceedsfrom issuance 769 5,529 1,178 6,298 5,678 of commonstockRepurchase of (623 ) (2,013 ) - (2,636 ) (7,302 )common stockPayments of (6,271 ) (5,644 ) (4,980 ) (11,915 ) (9,917 )dividends tostockholdersNet cash used (6,125 ) (2,128 ) (3,802 ) (8,253 ) (11,541 )in financingactivities NET INCREASE(DECREASE) IN 60,866 11,769 (26,304 ) 72,635 (34,646 )CASH AND CASHEQUIVALENTS CASH AND CASHEQUIVALENTS AT 190,459 178,690 125,795 178,690 134,137 BEGINNING OFPERIOD CASH AND CASH $ 251,325 $ 190,459 $ 99,491 $ 251,325 $ 99,491 EQUIVALENTS ATEND OF PERIOD

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CONTACT: Joe Shiffler Power Integrations, Inc. (408) 414-8528 joe@power.com