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

Fourth-quarter revenues increased 23 percent year-over-year to $114.5 million

Fourth-quarter GAAP earnings were $5.28/diluted share; non-GAAP earnings were $5.60/diluted share; GAAP and non-GAAP earnings include benefit of $4.78/share from litigation settlement

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 Ended Twelve 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 MARKET December 31, 2019 September 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 EXPENSES December 31, 2019 September 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 OPERATIONS December 31, 2019 September 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 TAXES December 31, 2019 September 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

 

...