Power Integrations Reports Fourth-Quarter and Full-Year Financial Results

SAN JOSE, Calif.--(BUSINESS WIRE)--January 30, 2020--Power Integrations (Nasdaq: POWI) today announced financial results for the quarter and year ended December 31, 2019. The results include the previously announced settlement of the company’s patent disputes with ON Semiconductor, which resulted in a payment to the company of $175 million in October 2019.

Net revenues for the fourth quarter were $114.5 million, flat compared to the prior quarter and up 23 percent from the fourth quarter of 2018. Net income for the fourth quarter was $158.3 million or $5.28 per diluted share compared to $0.57 per share in the prior quarter and $0.77 in the fourth quarter of 2018. Cash flow from operations was $182.2 million for the fourth 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 a 2018 tax benefit stemming from U.S. tax-reform legislation. Non-GAAP net income for the fourth quarter of 2019 was $167.9 million or $5.60 per diluted share (including a benefit of $4.78 per share from the litigation settlement), compared with $0.78 per diluted share in the prior quarter and $0.54 per diluted share in the fourth quarter of 2018. A reconciliation of GAAP to non-GAAP financial results appears at the end of this press release.

For the full year, net revenues were $420.7 million, an increase of one percent compared to 2018. Net income for the year was $193.5 million or $6.49 per diluted share compared to $2.32 per diluted share in 2018. Non-GAAP net income for the full year was $219.9 million or $7.38 per diluted share (including a benefit of $4.81 per share from the settlement) compared to $2.71 per diluted share in 2018. Cash flow from operations for the full year 2019 was $224.5 million.

Power Integrations paid a dividend of $0.19 per share on December 31, 2019. The next dividend of $0.19 will be paid on March 31, 2020 to stockholders of record as of February 28, 2020.

Commented Balu Balakrishnan, president and CEO of Power Integrations: “Revenues grew 23 percent year-over-year in the fourth quarter driven by our continued success in rapid-charging for mobile devices and a return to growth in consumer appliances. While sales for the analog semiconductor industry fell in 2019, we delivered positive growth for the year, and we’re entering 2020 with momentum fueled by innovative products such as our InnoSwitch™3 ICs – including our latest devices incorporating GaN technology – and a broad set of opportunities including rapid charging, connected homes, renewable energy and smarter, more efficient appliances.”

Financial Outlook

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

• Revenues are expected to be $110 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 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 $41.5 million; non-GAAP operating expenses are expected to be approximately $35.5 million. (Non-GAAP expenses are expected to exclude approximately $5.8 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 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, with respect to the prior-year results, a tax benefit related to the 2017 U.S. tax-reform 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. Notwithstanding these considerations, the company is including the impact of its litigation settlement in its non-GAAP results in order to be consistent with its historical practice of including litigation-related expenses in its non-GAAP results. 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; 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, InnoSwitch 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, 2019					September 30, 2019					December 31, 2018					December 31, 2019				December 31, 2018
NET REVENUES				$	114,457				$	114,159				$	93,307				$	420,669			$	415,955
COST OF REVENUES					56,232					56,028					45,302					207,267				201,167
GROSS PROFIT					58,225					58,131					48,005					213,402				214,788
OPERATING EXPENSES:
Research and development					18,298					17,957					17,965					73,470				70,580
Sales and marketing					14,241					13,074					12,746					52,720				51,165
General and administrative					10,634					9,224					8,796					37,582				35,496
Amortization of acquisition-related intangible assets					378					378					455					1,577				1,899
Litigation settlement					(168,969	)				-					-					(168,969	)			-
	Total operating expenses				(125,418	)				40,633					39,962					(3,620	)			159,140
INCOME FROM OPERATIONS					183,643					17,498					8,043					217,022				55,648
OTHER INCOME					1,852					1,078					1,297					5,392				4,116
INCOME BEFORE INCOME TAXES					185,495					18,576					9,340					222,414				59,764
PROVISION (BENEFIT) FOR INCOME TAXES					27,204					1,477					(13,396	)				28,946				(10,220	)
NET INCOME				$	158,291				$	17,099				$	22,736				$	193,468			$	69,984
EARNINGS PER SHARE:
	Basic			$	5.38				$	0.58				$	0.78				$	6.61			$	2.38
	Diluted			$	5.28				$	0.57				$	0.77				$	6.49			$	2.32
SHARES USED IN PER-SHARE CALCULATION:
	Basic				29,427					29,385					29,164					29,267				29,456
	Diluted				30,005					29,866					29,651					29,816				30,147
SUPPLEMENTAL INFORMATION:				Three Months Ended															Twelve Months Ended
				December 31, 2019					September 30, 2019					December 31, 2018					December 31, 2019				December 31, 2018
Stock-based compensation expenses included in:
	Cost of revenues			$	413				$	280				$	313				$	1,237			$	1,097
	Research and development				2,754					1,893					1,944					8,423				7,688
	Sales and marketing				1,602					1,211					1,222					5,015				4,729
	General and administrative				3,569					1,722					1,963					8,672				8,066
	Total stock-based compensation expense			$	8,338				$	5,106				$	5,442				$	23,347			$	21,580
Cost of revenues includes:
	Amortization of acquisition-related intangible assets			$	955				$	940				$	813				$	3,483			$	3,253
General & administrative expenses include:
	Patent-litigation expenses			$	2,253				$	2,573				$	2,304				$	9,425			$	8,525
				Three Months Ended															Twelve Months Ended
REVENUE MIX BY END MARKET				December 31, 2019					September 30, 2019					December 31, 2018					December 31, 2019				December 31, 2018
	Communications				29	%				29	%				20	%				26	%			20	%
	Computer				6	%				5	%				6	%				5	%			5	%
	Consumer				35	%				32	%				34	%				35	%			38	%
	Industrial				30	%				34	%				40	%				34	%			37	%

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, 2019					September 30, 2019					December 31, 2018					December 31, 2019				December 31, 2018
RECONCILIATION OF GROSS PROFIT
GAAP gross profit					$	58,225				$	58,131				$	48,005				$	213,402			$	214,788
	GAAP gross margin					50.9	%				50.9	%				51.4	%				50.7	%			51.6	%
Stock-based compensation included in cost of revenues						413					280					313					1,237				1,097
Amortization of acquisition-related intangible assets						955					940					813					3,483				3,253
Non-GAAP gross profit					$	59,593				$	59,351				$	49,131				$	218,122			$	219,138
	Non-GAAP gross margin					52.1	%				52.0	%				52.7	%				51.9	%			52.7	%
					Three Months Ended															Twelve Months Ended
RECONCILIATION OF OPERATING EXPENSES					December 31, 2019					September 30, 2019					December 31, 2018					December 31, 2019				December 31, 2018
GAAP operating expenses					$	(125,418	)			$	40,633				$	39,962				$	(3,620	)		$	159,140
Less:	Stock-based compensation expense included in operating expenses
		Research and development				2,754					1,893					1,944					8,423				7,688
		Sales and marketing				1,602					1,211					1,222					5,015				4,729
		General and administrative				3,569					1,722					1,963					8,672				8,066
		Total				7,925					4,826					5,129					22,110				20,483
	Amortization of acquisition-related intangible assets					378					378					455					1,577				1,899
Non-GAAP operating expenses					$	(133,721	)			$	35,429				$	34,378				$	(27,307	)		$	136,758
					Three Months Ended															Twelve Months Ended
RECONCILIATION OF INCOME FROM OPERATIONS					December 31, 2019					September 30, 2019					December 31, 2018					December 31, 2019				December 31, 2018
GAAP income from operations					$	183,643				$	17,498				$	8,043				$	217,022			$	55,648
	GAAP operating margin					160.4	%				15.3	%				8.6	%				51.6	%			13.4	%
Add:	Total stock-based compensation					8,338					5,106					5,442					23,347				21,580
	Amortization of acquisition-related intangible assets					1,333					1,318					1,268					5,060				5,152
Non-GAAP income from operations					$	193,314				$	23,922				$	14,753				$	245,429			$	82,380
	Non-GAAP operating margin					168.9	%				21.0	%				15.8	%				58.3	%			19.8	%
					Three Months Ended															Twelve Months Ended
RECONCILIATION OF PROVISION (BENEFIT) FOR INCOME TAXES					December 31, 2019					September 30, 2019					December 31, 2018					December 31, 2019				December 31, 2018
GAAP provision (benefit) for income taxes					$	27,204				$	1,477				$	(13,396	)			$	28,946			$	(10,220	)
	GAAP effective tax rate					14.7	%				8.0	%				-143.4	%				13.0	%			-17.1	%
Impact of U.S. tax legislation						-					-					(9,687	)				-				(9,687	)
Tax effect of adjustments to GAAP results						(53	)				(266	)				(3,846	)				(1,955	)			(5,361	)
Non-GAAP provision for income taxes					$	27,257				$	1,743				$	137				$	30,901			$	4,828
	Non-GAAP effective tax rate					14.0	%				7.0	%				0.9	%				12.3	%			5.6	%
					Three Months Ended															Twelve Months Ended
RECONCILIATION OF NET INCOME PER SHARE (DILUTED)					December 31, 2019					September 30, 2019					December 31, 2018					December 31, 2019				December 31, 2018
GAAP net income					$	158,291				$	17,099				$	22,736				$	193,468			$	69,984
Adjustments to GAAP net income
	Stock-based compensation					8,338					5,106					5,442					23,347				21,580
	Amortization of acquisition-related intangible assets					1,333					1,318					1,268					5,060				5,152
	Impact of U.S. tax legislation					-					-					(9,687	)				-				(9,687	)
	Tax effect of items excluded from non-GAAP results					(53	)				(266	)				(3,846	)				(1,955	)			(5,361	)
Non-GAAP net income					$	167,909				$	23,257				$	15,913				$	219,920			$	81,668
Average shares outstanding for calculation
	of non-GAAP net income per share (diluted)					30,005					29,866					29,651					29,816				30,147
Non-GAAP net income per share (diluted)					$	5.60				$	0.78				$	0.54				$	7.38			$	2.71
GAAP net income per share					$	5.28				$	0.57				$	0.77				$	6.49			$	2.32
POWER INTEGRATIONS, INC.
CALCULATION OF EARNINGS PER SHARE BENEFIT OF SETTLEMENT
(in thousands, except per-share amounts)
					Three Months Ended															Twelve Months Ended
					December 31, 2019					September 30, 2019					December 31, 2018					December 31, 2019				December 31, 2018
Gain from litigation settlement					$	168,969				$	-				$	-				$	168,969			$	-
Tax expense attributed to settlement						25,543					-					-					25,543				-
Litigation settlement net of tax					$	143,426				$	-				$	-				$	143,426			$	-
Earnings per share benefit of settlement (GAAP and non-GAAP)					$	4.78				$	-				$	-				$	4.81			$	-
Diluted average shares outstanding						30,005					29,866					29,651					29,816				30,147

POWER INTEGRATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
			December 31, 2019					September 30, 2019					December 31, 2018
ASSETS
	CURRENT ASSETS:
	Cash and cash equivalents		$	178,690				$	80,162				$	134,137
	Short-term marketable securities			232,398					164,649					94,451
	Accounts receivable, net			24,274					25,819					11,072
	Inventories			90,380					88,710					80,857
	Prepaid expenses and other current assets			15,597					15,316					11,915
	Total current assets			541,339					374,656					332,432
	PROPERTY AND EQUIPMENT, net			116,619					114,930					114,117
	INTANGIBLE ASSETS, net			16,865					18,238					21,152
	GOODWILL			91,849					91,849					91,849
	DEFERRED TAX ASSETS			2,836					5,564					6,906
	OTHER ASSETS			34,388					31,173					22,241
	Total assets		$	803,896				$	636,410				$	588,697
LIABILITIES AND STOCKHOLDERS’ EQUITY
	CURRENT LIABILITIES:
	Accounts payable		$	27,433				$	30,542				$	31,552
	Accrued payroll and related expenses			13,408					10,796					12,131
	Taxes payable			584					597					933
	Other accrued liabilities			9,051					7,717					3,750
	Total current liabilities			50,476					49,652					48,366
	LONG-TERM LIABILITIES:
	Income taxes payable			14,617					9,309					8,652
	Deferred tax liabilities			164					152					216
	Other liabilities			14,093					11,969					4,391
	Total liabilities			79,350					71,082					61,625
STOCKHOLDERS' EQUITY:
	Common stock			28					28					28
	Additional paid-in capital			152,117					143,554					126,164
	Accumulated other comprehensive loss			(3,130	)				(1,084	)				(1,689	)
	Retained earnings			575,531					422,830					402,569
	Total stockholders' equity			724,546					565,328					527,072
	Total liabilities and stockholders' equity		$	803,896				$	636,410				$	588,697

POWER INTEGRATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
		Three Months Ended															Twelve Months Ended
		December 31, 2019					September 30, 2019					December 31, 2018					December 31, 2019				December 31, 2018
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net income	$	158,291				$	17,099				$	22,736				$	193,468			$	69,984
	Adjustments to reconcile net income to cash provided by operating activities
	Depreciation		4,928					4,831					4,549					19,190				18,918
	Amortization of intangible assets		1,373					1,357					1,300					5,213				5,267
	Loss on disposal of property and equipment		35					62					98					249				553
	Stock-based compensation expense		8,338					5,106					5,442					23,347				21,580
	Amortization of premium (accretion of discount) on marketable securities		104					(66	)				(115	)				(192	)			227
	Deferred income taxes		2,741					(381	)				(3,070	)				4,019				(4,465	)
	Increase (decrease) in accounts receivable allowances		-					-					(198	)				57				(28	)
	Change in operating assets and liabilities:
	Accounts receivable		1,545					(351	)				2,868					(13,259	)			5,754
	Inventories		(1,670	)				487					(6,656	)				(9,523	)			(23,770	)
	Prepaid expenses and other assets		902					580					1,226					(2,132	)			(1,495	)
	Accounts payable		(3,920	)				(6,789	)				(1,311	)				(6,556	)			1,336
	Taxes payable and other accrued liabilities		9,492					(91	)				(8,540	)				10,618				(9,897	)
	Net cash provided by operating activities		182,159					21,844					18,329					224,499				83,964
CASH FLOWS FROM INVESTING ACTIVITIES:
	Purchases of property and equipment		(9,789	)				(5,977	)				(5,557	)				(24,114	)			(24,677	)
	Acquisition of technology licenses		(675	)				(100	)				-					(1,026	)			(900	)
	Purchases of marketable securities		(71,952	)				(80,864	)				(4,612	)				(207,240	)			(62,833	)
	Proceeds from sales and maturities of marketable securities		4,150					46,762					10,050					70,334				157,551
	Net cash provided by (used in) investing activities		(78,266	)				(40,179	)				(119	)				(162,046	)			69,141
CASH FLOWS FROM FINANCING ACTIVITIES:
	Net proceeds from issuance of common stock		225					4,005					803					9,908				9,353
	Repurchase of common stock		-					-					(28,776	)				(7,302	)			(103,153	)
	Payments of dividends to stockholders		(5,590	)				(4,999	)				(4,651	)				(20,506	)			(18,823	)
	Proceeds from draw on line of credit		-					-					-					-				8,000
	Payments on line of credit		-					-					-					-				(8,000	)
	Net cash used in financing activities		(5,365	)				(994	)				(32,624	)				(17,900	)			(112,623	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			98,528					(19,329	)				(14,414	)				44,553				40,482
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			80,162					99,491					148,551					134,137				93,655
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	178,690				$	80,162				$	134,137				$	178,690			$	134,137