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

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 EndedTwelve Months Ended
December 31, 2019September 30, 2019December 31, 2018December 31, 2019December 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 EndedTwelve Months Ended
December 31, 2019September 30, 2019December 31, 2018December 31, 2019December 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 EndedTwelve Months Ended
REVENUE MIX BY END MARKETDecember 31, 2019September 30, 2019December 31, 2018December 31, 2019December 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 EndedTwelve Months Ended
December 31, 2019September 30, 2019December 31, 2018December 31, 2019December 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 EndedTwelve Months Ended
RECONCILIATION OF OPERATING EXPENSESDecember 31, 2019September 30, 2019December 31, 2018December 31, 2019December 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 EndedTwelve Months Ended
RECONCILIATION OF INCOME FROM OPERATIONSDecember 31, 2019September 30, 2019December 31, 2018December 31, 2019December 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 EndedTwelve Months Ended
RECONCILIATION OF PROVISION (BENEFIT) FOR INCOME TAXESDecember 31, 2019September 30, 2019December 31, 2018December 31, 2019December 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 EndedTwelve Months Ended
RECONCILIATION OF NET INCOME PER SHARE (DILUTED)December 31, 2019September 30, 2019December 31, 2018December 31, 2019December 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 EndedTwelve Months Ended
December 31, 2019September 30, 2019December 31, 2018December 31, 2019December 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, 2019September 30, 2019December 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 EndedTwelve Months Ended
December 31, 2019September 30, 2019December 31, 2018December 31, 2019December 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

 

Contacts:

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

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