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.
$
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
%
$
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
$
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
$
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
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