Power Integrations Reports Third-Quarter Financial Results

Quarterly Revenues Grew 26 Percent Year-Over-Year to $75.5 Million


SAN JOSE, Calif., Oct. 27, 2010 (GLOBE NEWSWIRE) -- Power Integrations (Nasdaq:POWI), the leader in high-voltage integrated circuits for energy-efficient power conversion, today announced financial results for the quarter ended September 30, 2010.

Net revenues for the third quarter were $75.5 million, up 26 percent compared with the third quarter of 2009, and down six percent compared with the second quarter of 2010. Net income was $12.6 million or $0.43 per diluted share, compared with $9.2 million or $0.32 per diluted share in the year-ago quarter and $15.6 million or $0.53 per diluted share in the second quarter of 2010. Gross margin for the third quarter was 51.7 percent; operating margin was 20.2 percent.

In addition to its GAAP results, the company provided certain non-GAAP financial measures that exclude stock-based compensation expenses and the related tax effects. Non-GAAP net income for the third quarter was $15.5 million or $0.53 per diluted share, compared with $10.4 million or $0.36 per diluted share in the year-ago quarter and $17.7 million or $0.60 per diluted share, in the second quarter of 2010. Non-GAAP gross margin for the third quarter was 51.9 percent; non-GAAP operating margin was 24.1 percent.

Commented Balu Balakrishnan, president and CEO of Power Integrations, "As discussed in our earnings announcement last quarter, a transition in our European distribution relationships caused some sales to be accelerated into the second quarter at the expense of third-quarter sales. We believe this timing issue accounted for most of the sequential decrease in our third-quarter revenues. Nevertheless, revenues increased 26 percent versus last year's strong third quarter, and we believe we are on track for full-year revenue growth of between 36 percent and 39 percent."

Balakrishnan continued: "Like many of our peers, we are seeing a moderation in sales as the supply chain digests an apparent excess of inventory. Cyclical fluctuations notwithstanding, we believe we are continuing to gain share in the power-supply market by enabling customers to meet increasingly stringent efficiency specs without adding cost and complexity. In fact, designers looking to cut standby waste all the way to zero can now do so with our new 'Zero' series of products. Our new LinkZero™-AX family, used in conjunction with our recently introduced CapZero™ and SenZero™ power-saving products, enables designers to achieve 0.00 watts of standby waste in appliances, TVs and other products that utilize an auxiliary power supply."

Additional Highlights

  • Power Integrations paid a quarterly dividend of $0.05 per share on September 30, 2010. The next quarterly dividend of $0.05 per share will be paid on December 31, 2010 to stockholders of record as of November 30, 2010. 
  • Power Integrations received and acquired a total of 20 U.S. patents and 5 foreign patents during the quarter, and had a total of 329 U.S. patents and 201 foreign patents as of September 30, 2010.
  • On October 22, Power Integrations announced a strategic investment in SemiSouth Laboratories, a Mississippi-based manufacturer of high-voltage silicon-carbide (SiC) power devices. Power Integrations' commitment of $30 million, which includes an equity investment in SemiSouth, a technology license and other financial commitments, will help drive the continued expansion of SemiSouth's SiC fabrication facility. The companies will collaborate to drive adoption of SemiSouth's SiC technology, which enables ultra-efficient power conversion for solar and wind inverters, hybrid/electric vehicles and other very high-power applications that benefit from exceptionally high energy efficiency.

Financial Outlook

The company expects its fourth-quarter revenues to be between $67 million and $73 million. Fourth-quarter gross margin is expected to be between 49 percent and 50 percent, with operating expenses between $24 million and $25 million including approximately $3 million of stock-based compensation expenses.

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 1-877-303-9795 from within the United States or 1-631-291-4581 from outside the U.S. The call will be available via a live and archived webcast on the investor section of the company's website, http://investors.powerint.com/">http://investors.powerint.com.

About Power Integrations

Power Integrations is the leading supplier of high-voltage analog integrated circuits used in energy-efficient power conversion. The company's innovative technology enables compact, energy-efficient power supplies in a wide range of electronic products, in AC-DC, DC-DC and LED lighting applications. Since its introduction in 1998, Power Integrations' EcoSmart™ energy-efficiency technology has saved an estimated $4.4 billion of standby energy waste and prevented millions of tons of CO2 emissions. The company's Green Room web site (www.powerint.com/greenroom) provides a wealth of information about "energy vampires" and the issue of standby energy waste, along with a comprehensive guide to energy-efficiency standards around the world. Reflecting the environmental benefits of EcoSmart technology, Power Integrations is included in clean-technology stock indices sponsored by the Cleantech Group (Amex:CTIUS) and Clean Edge (Nasdaq:CELS). For more information, please visit www.powerint.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 Accounting Standard Codification 718-20 ("ASC 718-20"), and the related tax effects. The company uses these non-GAAP measures in its own financial and operational decision-making processes and, with respect to one measure, in setting performance targets for employee-compensation purposes. Further, the company believes that these non-GAAP measures offer an important analytical tool to help investors understand the company's core operating results and trends, and to facilitate comparability with the operating results of other companies that provide similar non-GAAP measures. These non-GAAP measures have certain 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 financial measures differently, limiting their usefulness as comparative measures.

Note Regarding Forward-Looking Statements

The statements in this press release relating to the company's projected fourth-quarter 2010 financial performance and its future collaborative efforts with SemiSouth are forward-looking statements, reflecting management's current forecast. These forward-looking statements are based on current information that is, by its nature, subject to rapid and even abrupt changes. Due to risks and uncertainties associated with the company's business, actual results could differ materially from those projected or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to: changes in global macroeconomic conditions that may impact the level of demand for the company's products; the ability of the company to obtain sufficient quantities of wafers in a timely manner from its suppliers; 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 company's ability to maintain and establish strategic relationships; the effects of competition; customer reaction to the effects of design wins may not be as the company expects; the risks inherent in the development and delivery of complex technologies; the outcome and cost of patent litigation; the company's ability to attract, retain and motivate qualified personnel; the emergence of new markets for the company's products and services; the company's ability to compete in those markets based on timeliness, cost and market demand; unforeseen costs and expenses; fluctuations in currency exchange rates; and SemiSouth's progress in the development of its technology. 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 are more fully explained under the caption "Risk Factors" in the company's most recent quarterly report on Form 10-Q, filed with the Securities and Exchange Commission (SEC) on August 6, 2010. 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, EcoSmart, LinkZero, CapZero, SenZero and the Power Integrations logo are trademarks or registered trademarks of Power Integrations, Inc. All other trademarks are the property of their respective owners.

POWER INTEGRATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per-share amounts)
(unaudited)
           
           
  Three Months Ended Nine Months Ended
  September 30, 2010 June 30, 2010 September 30, 2009 September 30, 2010 September 30, 2009
NET REVENUES  $ 75,452  $ 79,858  $ 60,024  $ 226,817  $ 149,563
           
COST OF REVENUES  36,447  38,369  30,901  110,402  75,311
           
GROSS PROFIT  39,005  41,489  29,123  116,415  74,252
           
OPERATING EXPENSES:          
Research and development  9,348  8,674  6,846  26,133  22,259
Sales and marketing  7,657  7,527  5,744  22,104  17,891
General and administrative  6,746  6,465  5,465  19,223  16,740
Total operating expenses  23,751  22,666  18,055  67,460  56,890
           
INCOME FROM OPERATIONS  15,254  18,823  11,068  48,955  17,362
           
OTHER INCOME, net  415  471  178  1,379  1,756
           
INCOME BEFORE PROVISION FOR INCOME TAXES  15,669  19,294  11,246  50,334  19,118
           
PROVISION FOR INCOME TAXES  3,035  3,707  2,094  9,800  5,033
           
NET INCOME  $ 12,634  $ 15,587  $ 9,152  $ 40,534  $ 14,085
           
EARNINGS PER SHARE:          
Basic  $ 0.45  $ 0.56  $ 0.34  $ 1.46  $ 0.52
Diluted  $ 0.43  $ 0.53  $ 0.32  $ 1.38  $ 0.50
           
SHARES USED IN PER-SHARE CALCULATION:          
Basic  27,894  27,844  26,723  27,737  26,857
Diluted  29,283  29,535  28,431  29,406  28,108
           
           
SUPPLEMENTAL INFORMATION:          
           
Stock-based compensation expenses included in:          
Cost of revenues  $ 153  $ 173  $ 188  $ 481  $ 614
Research and development  1,125  929  340  2,782  3,256
Sales and marketing  727  639  173  1,776  1,729
General and administrative  930  775  705  2,438  2,446
 Total stock-based compensation expense  $ 2,935  $ 2,516  $ 1,406  $ 7,477  $ 8,045
           
           
Operating expenses include the following:          
Patent-litigation expenses  $ 1,801  $ 1,516  $ 1,473  $ 4,404  $ 3,238
           
           
REVENUE MIX BY PRODUCT FAMILY          
TOPSwitch 23% 25% 24% 24% 24%
TinySwitch 37% 39% 43% 38% 44%
LinkSwitch 39% 35% 32% 37% 31%
Other 1% 1% 1% 1% 1%
           
REVENUE MIX BY END MARKET          
Communications 30% 28% 32% 30% 32%
Computer 11% 12% 14% 12% 15%
Consumer 37% 40% 37% 38% 36%
Industrial 22% 20% 17% 20% 17%
POWER INTEGRATIONS, INC. 
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP RESULTS
(in thousands, except per-share amounts)
(unaudited)
           
           
  Three Months Ended Nine Months Ended
  Sept. 30, 2010 June 30, 2010 Sept. 30, 2009 Sept. 30,
2010
Sept. 30, 2009
RECONCILIATION OF GROSS PROFIT          
GAAP gross profit  $ 39,005  $ 41,489  $ 29,123  $ 116,415  $ 74,252
GAAP gross profit margin 51.7% 52.0% 48.5% 51.3% 49.6%
           
Stock-based compensation included in cost of revenues  153  173  188  481  614
           
Non-GAAP gross profit  $ 39,158  $ 41,662  $ 29,311  $ 116,896  $ 74,866
Non-GAAP gross profit margin 51.9% 52.2% 48.8% 51.5% 50.1%
           
           
RECONCILIATION OF OPERATING EXPENSES          
GAAP operating expenses  $ 23,751  $ 22,666  $ 18,055  $ 67,460  $ 56,890
           
Less: Stock-based compensation included in operating expenses:          
Research and development  1,125  929  340  2,782  3,256
Sales and marketing  727  639  173  1,776  1,729
General and administrative  930  775  705  2,438  2,446
Total  2,782  2,343  1,218  6,996  7,431
           
Non-GAAP operating expenses  $ 20,969  $ 20,323  $ 16,837  $ 60,464  $ 49,459
           
           
RECONCILIATION OF INCOME FROM OPERATIONS          
GAAP income from operations  $ 15,254  $ 18,823  $ 11,068  $ 48,955  $ 17,362
GAAP operating margin 20.2% 23.6% 18.4% 21.6% 11.6%
           
Stock-based compensation included in cost of revenues  153  173  188  481  614
Stock-based compensation included in operating expenses  2,782  2,343  1,218  6,996  7,431
           
Non-GAAP income from operations  $ 18,189  $ 21,339  $ 12,474  $ 56,432  $ 25,407
Non-GAAP operating margin 24.1% 26.7% 20.8% 24.9% 17.0%
           
           
RECONCILIATION OF PROVISION FOR INCOME TAXES          
GAAP provision for income taxes  $ 3,035  $ 3,707  $ 2,094  $ 9,800  $ 5,033
GAAP effective tax rate 19.4% 19.2% 18.6% 19.5% 26.3%
           
Tax effect of items excluded from non-GAAP results  (93)  (356)  (202)  (455)  (959)
           
Non-GAAP provision for income taxes  $ 3,128  $ 4,063  $ 2,296  $ 10,255  $ 5,992
Non-GAAP effective tax rate 16.8% 18.6% 18.1% 17.7% 22.1%
           
           
RECONCILIATION OF NET INCOME PER SHARE (DILUTED)          
GAAP net income  $ 12,634  $ 15,587  $ 9,152  $ 40,534  $ 14,085
           
Adjustments to GAAP net income          
Total stock-based compensation  2,935  2,516  1,406  7,477  8,045
Tax effect of items excluded from non-GAAP results  (93)  (356)  (202)  (455)  (959)
           
Non-GAAP net income  $ 15,476  $ 17,747  $ 10,356  $ 47,556  $ 21,171
           
           
Average shares outstanding for calculation
of non-GAAP income per share (diluted)
 29,283  29,535  28,431  29,406  28,108
           
Non-GAAP income per share (diluted)          
   $ 0.53  $ 0.60  $ 0.36  $ 1.62  $ 0.75
           
Note on use of non-GAAP financial measures:          
In addition to the company's consolidated financial statements, which are prepared according to GAAP, the company provides certain non-GAAP financial information that excludes stock-based compensation expenses recognized under Accounting Standard Codification ("ASC") 718-20 and the related tax effects. The company uses these non-GAAP measures in its own financial and operational decision-making processes and, with respect to one measure, in setting performance targets for employee-compensation purposes. Further, the company believes that these non-GAAP measures offer an important analytical tool to help investors understand the company's core operating results and trends, and to facilitate comparability with the operating results of other companies that provide similar non-GAAP measures. These non-GAAP measures have certain limitations as analytical tools and are not meant to be considered in isolation or as a substitute for GAAP financial information.
POWER INTEGRATIONS, INC. 
CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
       
  September 30, 2010 June 30, 2010 December 31, 2009
ASSETS      
CURRENT ASSETS:      
Cash and cash equivalents   $ 164,083  $ 159,775  $ 134,974
Short-term investments   16,039  12,273  20,567
Accounts receivable   7,925  18,282  21,756
Inventories   49,120  35,724  26,248
Notes receivable  5,000  4,750  --
Deferred tax assets   1,452  1,474  1,389
Prepaid expenses and other current assets   6,279  7,394  10,941
 Total current assets  249,898  239,672  215,875
       
INVESTMENTS  44,023  56,609  40,100
PROPERTY AND EQUIPMENT, net   74,280  70,739  62,381
GOODWILL AND INTANGIBLE ASSETS  15,316  4,579  4,923
DEFERRED TAX ASSETS  14,280  13,796  14,590
OTHER ASSETS  5,550  6,686  6,698
 Total assets  $ 403,347  $ 392,081  $ 344,567
       
LIABILITIES AND STOCKHOLDERS' EQUITY      
CURRENT LIABILITIES:      
Accounts payable   $ 16,505  $ 23,109  $ 16,944
Accrued payroll and related expenses   5,864  6,922  6,145
Taxes payable   1,220  251  478
Deferred income on sales to distributors   14,849  14,926  9,040
Other accrued liabilities   3,496  3,481  3,309
 Total current liabilities  41,934  48,689  35,916
       
LONG-TERM LIABILITIES:      
Income taxes payable  27,457  26,188  23,859
       
 Total liabilities  69,391  74,877  59,775
       
STOCKHOLDERS' EQUITY:      
Common stock   28  28  27
Additional paid-in capital  162,764  157,354  150,021
Cumulative translation adjustment   54  (51)  4
Retained earnings  171,110  159,873  134,740
 Total stockholders' equity  333,956  317,204  284,792
 Total liabilities stockholders' equity  $ 403,347  $ 392,081  $ 344,567
POWER INTEGRATIONS, INC. 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 (unaudited)
  Three Months Ended Nine Months Ended
  Sept. 30, 2010 Sept. 30, 2009 Sept. 30, 2010 Sept. 30, 2009
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net income  $ 12,634  $ 9,152  $ 40,534  $ 14,085
Adjustments to reconcile net income to net cash provided by operating activities        
Depreciation and amortization  3,343  2,572 9,478 7,550
Loss (gain) on sale of property and equipment  5  --  (344) (10)
Stock-based compensation expense  2,916  1,406 7,459 8,046
Amortization of premium on held-to-maturity investments  479  54 1,337 105
Deferred income taxes  (461)  1,148 249 1,428
Decrease in accounts receivable and other allowances  (7)  (89) (25) (4)
Excess tax benefit from stock options exercised  (48)  (87) (939) (102)
Tax benefit associated with employee stock plans  (89)  371 1,951 554
Change in operating assets and liabilities:        
 Accounts receivable 10,362 (5,976) 13,854 (7,393)
 Inventories (13,336) 1,976 (22,796) 8,010
 Prepaid expenses and other assets 1,048 (2,332) 4,610 (6,151)
 Accounts payable (4,360) 4,674 93 5,514
 Taxes payable and other accrued liabilities 1,299 1,965 4,305 1,173
 Deferred income on sales to distributors  (77)  1,259  5,808  2,524
 Net cash provided by operating activities  13,708  16,093  65,574  35,329
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Purchases of property and equipment  (8,320)  (4,079) (21,833) (7,567)
Proceeds from sale of property and equipment  --  -- 1,415  --
Acquisition  (8,598)  -- (8,598)  --
Notes to third parties  (2,000)  -- (6,750)  --
Purchases of held-to-maturity investments  --  (22,865) (27,224)  (25,620)
Proceeds from held-to-maturity investments  8,341  2,499  26,491  6,349
Net cash used in investing activities  (10,577)  (24,445)  (36,499)  (26,838)
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Net proceeds from issuance of common stock  2,524  8,444 17,987 13,698
Repurchase of common stock  --  (2,135) (13,960) (28,674)
Repurchase of stock options  --  --  -- (9,048)
Retirement of performance shares for income tax withholding  --  --  (769)  --
Payments of dividends to stockholders  (1,395)  (672) (4,163)  (2,017)
Excess tax benefit from stock options exercised  48  87  939  102
Net cash provided by (used in) financing activities  1,177  5,724  34  (25,939)
         
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS  4,308  (2,628)  29,109  (17,448)
         
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD  159,775  152,652  134,974  167,472
         
CASH AND CASH EQUIVALENTS AT END OF PERIOD  $ 164,083  $ 150,024  $ 164,083  $ 150,024
         
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:         
Unpaid property and equipment, net  $ 1,008  $ 305  $ 1,008  $ 44
Conversion of notes receivable in connection with acquisition  $ 1,752  $ --   $ 1,752  $ -- 
Application of prepayment to acquisition  $ 1,200  $ --   $ 1,200  $ -- 
         
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION        
Cash paid for interest  $ --   $ --   $ --   $ 397
Cash paid for income taxes, net of refunds  $ 1,337  $ (267)  $ 1,951  $ 86

            

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