Power Integrations Reports Second-Quarter Financial Results

Revenues increased four percent year-over-year to $106.8 million; GAAP earnings were $0.44 per diluted share; non-GAAP earnings were $0.66 per diluted share

Announces 2:1 stock split and dividend increase

SAN JOSE, Calif. — (BUSINESS WIRE) — July 30, 2020 — Power Integrations (Nasdaq: POWI) today announced financial results for the quarter ended June 30, 2020. Net revenues for the second quarter were $106.8 million, down three percent compared to the prior quarter and up four percent from the second quarter of 2019. Net income for the second quarter was $13.2 million or $0.44 per diluted share compared to $0.53 per diluted share in the prior quarter and $0.37 per diluted share in the second quarter of 2019. Cash flow from operations for the second quarter was $36.7 million.

In addition to its GAAP results, the company provided certain non-GAAP measures that exclude stock-based compensation, amortization of acquisition-related intangible assets and the tax effects of these items. Non-GAAP net income for the second quarter of 2020 was $19.9 million or $0.66 per diluted share compared with $0.76 per diluted share in the prior quarter and $0.56 per diluted share in the second quarter of 2019. A reconciliation of GAAP to non-GAAP financial results appears at the end of this press release.

Commented Balu Balakrishnan, president and CEO of Power Integrations: “Revenues increased four percent year-over-year in spite of a challenging demand environment, driven by growth in the communications and industrial categories. While the pandemic continues to weigh on end-market demand, we continue to gain share across a wide range of power-conversion applications and we are on track to outperform the analog semiconductor industry again this year.”

The company announced a 2:1 stock split in the form of a stock dividend of one share of common stock per outstanding share. The additional shares will be distributed on August 18, 2020 to stockholders of record as of August 14, 2020. The split will double the number of outstanding common shares; common shares and per-share data in this press release have not been adjusted for the impact of the split.

Power Integrations paid a cash dividend of $0.21 per share on June 30, 2020. Following the stock split, the company will pay a dividend of $0.11 per share (equivalent to $0.22 on a pre-split basis) on September 30, 2020 to stockholders of record as of August 31, 2020.

Financial Outlook

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

Revenues are expected to be $115 million plus or minus $5 million.
GAAP gross margin is expected to be between 49.5 percent and 50 percent. Non-GAAP gross margin is expected to be between 50.5 percent and 51 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 $43 million; non-GAAP operating expenses are expected to be approximately $36 million. (Non-GAAP expenses are expected to exclude approximately $6.8 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 register for the call by visiting the following link: http://www.directeventreg.com/registration/event/6141529. A webcast of 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, and the tax effects of these items. 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. 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 third-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: the impact of the COVID-19 crisis on demand for the company’s products, its ability to supply products and its ability to conduct other aspects of its business such as competing for new design wins; 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 7, 2020. 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 law.

Power Integrations 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									Six Months Ended
	June 30, 2020			March 31, 2020			June 30, 2019			June 30, 2020			June 30, 2019
NET REVENUES	$	106,832		$	109,664		$	102,865		$	216,496		$	192,053

COST OF REVENUES		53,296			53,184			51,293			106,480			95,007

GROSS PROFIT		53,536			56,480			51,572			110,016			97,046

OPERATING EXPENSES:
Research and development		19,770			19,152			19,269			38,922			37,215
Sales and marketing		12,807			13,216			12,815			26,023			25,405
General and administrative		7,804			8,761			9,334			16,565			17,724
Amortization of acquisition-related intangible assets		230			257			394			487			821
Total operating expenses		40,611			41,386			41,812			81,997			81,165

INCOME FROM OPERATIONS		12,925			15,094			9,760			28,019			15,881

OTHER INCOME		1,480			1,777			1,310			3,257			2,462

INCOME BEFORE INCOME TAXES		14,405			16,871			11,070			31,276			18,343

PROVISION FOR INCOME TAXES		1,213			985			225			2,198			265

NET INCOME	$	13,192		$	15,886		$	10,845		$	29,078		$	18,078

EARNINGS PER SHARE:
Basic	$	0.44		$	0.54		$	0.37		$	0.98		$	0.62
Diluted	$	0.44		$	0.53		$	0.37		$	0.96		$	0.61

SHARES USED IN PER-SHARE CALCULATION:
Basic		29,856			29,602			29,297			29,729			29,125
Diluted		30,312			30,134			29,702			30,232			29,597



SUPPLEMENTAL INFORMATION:	Three Months Ended									Six Months Ended
	June 30, 2020			March 31, 2020			June 30, 2019			June 30, 2020			June 30, 2019
Stock-based compensation expenses included in:
Cost of revenues	$	252		$	396		$	273		$	648		$	544
Research and development		2,351			2,109			2,144			4,460			3,776
Sales and marketing		1,258			1,392			1,141			2,650			2,202
General and administrative		2,120			2,813			1,938			4,933			3,381
Total stock-based compensation expense	$	5,981		$	6,710		$	5,496		$	12,691		$	9,903

Cost of revenues includes:
Amortization of acquisition-related intangible assets	$	799		$	799		$	794		$	1,598		$	1,588


	Three Months Ended									Six Months Ended
REVENUE MIX BY END MARKET	June 30, 2020			March 31, 2020			June 30, 2019			June 30, 2020			June 30, 2019
Communications		28	%		22	%		24	%		25	%		21	%
Computer		6	%		4	%		6	%		5	%		6	%
Consumer		31	%		41	%		37	%		36	%		38	%
Industrial		35	%		33	%		33	%		34	%		35	%

POWER INTEGRATIONS, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP RESULTS
(in thousands, except per-share amounts)

	Three Months Ended									Six Months Ended
	June 30, 2020			March 31, 2020			June 30, 2019			June 30, 2020			June 30, 2019
RECONCILIATION OF GROSS PROFIT
GAAP gross profit	$	53,536		$	56,480		$	51,572		$	110,016		$	97,046
GAAP gross margin		50.1	%		51.5	%		50.1	%		50.8	%		50.5	%

Stock-based compensation included in cost of revenues		252			396			273			648			544
Amortization of acquisition-related intangible assets		799			799			794			1,598			1,588

Non-GAAP gross profit	$	54,587		$	57,675		$	52,639		$	112,262		$	99,178
Non-GAAP gross margin		51.1	%		52.6	%		51.2	%		51.9	%		51.6	%


	Three Months Ended									Six Months Ended
RECONCILIATION OF OPERATING EXPENSES	June 30, 2020			March 31, 2020			June 30, 2019			June 30, 2020			June 30, 2019
GAAP operating expenses	$	40,611		$	41,386		$	41,812		$	81,997		$	81,165

Less: Stock-based compensation expense included in operating expenses
Research and development		2,351			2,109			2,144			4,460			3,776
Sales and marketing		1,258			1,392			1,141			2,650			2,202
General and administrative		2,120			2,813			1,938			4,933			3,381
Total		5,729			6,314			5,223			12,043			9,359

Amortization of acquisition-related intangible assets		230			257			394			487			821

Non-GAAP operating expenses	$	34,652		$	34,815		$	36,195		$	69,467		$	70,985


	Three Months Ended									Six Months Ended
RECONCILIATION OF INCOME FROM OPERATIONS	June 30, 2020			March 31, 2020			June 30, 2019			June 30, 2020			June 30, 2019
GAAP income from operations	$	12,925		$	15,094		$	9,760		$	28,019		$	15,881
GAAP operating margin		12.1	%		13.8	%		9.5	%		12.9	%		8.3	%

Add: Total stock-based compensation		5,981			6,710			5,496			12,691			9,903
Amortization of acquisition-related intangible assets		1,029			1,056			1,188			2,085			2,409

Non-GAAP income from operations	$	19,935		$	22,860		$	16,444		$	42,795		$	28,193
Non-GAAP operating margin		18.7	%		20.8	%		16.0	%		19.8	%		14.7	%


	Three Months Ended									Six Months Ended
RECONCILIATION OF PROVISION FOR INCOME TAXES	June 30, 2020			March 31, 2020			June 30, 2019			June 30, 2020			June 30, 2019
GAAP provision for income taxes	$	1,213		$	985		$	225		$	2,198		$	265
GAAP effective tax rate		8.4	%		5.8	%		2.0	%		7.0	%		1.4	%

Tax effect of adjustments to GAAP results		(272	)		(751	)		(837	)		(1,023	)		(1,636	)

Non-GAAP provision for income taxes	$	1,485		$	1,736		$	1,062		$	3,221		$	1,901
Non-GAAP effective tax rate		6.9	%		7.0	%		6.0	%		7.0	%		6.2	%


	Three Months Ended									Six Months Ended
RECONCILIATION OF NET INCOME PER SHARE (DILUTED)	June 30, 2020			March 31, 2020			June 30, 2019			June 30, 2020			June 30, 2019
GAAP net income	$	13,192		$	15,886		$	10,845		$	29,078		$	18,078

Adjustments to GAAP net income
Stock-based compensation		5,981			6,710			5,496			12,691			9,903
Amortization of acquisition-related intangible assets		1,029			1,056			1,188			2,085			2,409
Tax effect of items excluded from non-GAAP results		(272	)		(751	)		(837	)		(1,023	)		(1,636	)

Non-GAAP net income	$	19,930		$	22,901		$	16,692		$	42,831		$	28,754

Average shares outstanding for calculation of non-GAAP net income per share (diluted)		30,312			30,134			29,702			30,232			29,597

Non-GAAP net income per share (diluted)	$	0.66		$	0.76		$	0.56		$	1.42		$	0.97

GAAP net income per share	$	0.44		$	0.53		$	0.37		$	0.96		$	0.61

POWER INTEGRATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)


	June 30, 2020			March 31, 2020			December 31, 2019
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	251,325		$	190,459		$	178,690
Short-term marketable securities		194,556			232,183			232,398
Accounts receivable, net		12,872			20,597			24,274
Inventories		103,963			96,633			90,380
Prepaid expenses and other current assets		14,512			20,570			15,597
Total current assets		577,228			560,442			541,339

PROPERTY AND EQUIPMENT, net		138,572			123,430			116,619
INTANGIBLE ASSETS, net		14,658			15,748			16,865
GOODWILL		91,849			91,849			91,849
DEFERRED TAX ASSETS		1,514			1,739			2,836
OTHER ASSETS		29,956			34,231			34,388
Total assets	$	853,777		$	827,439		$	803,896

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	42,871		$	37,156		$	27,433
Accrued payroll and related expenses		14,365			10,921			13,408
Taxes payable		363			567			584
Other accrued liabilities		7,156			5,826			9,051
Total current liabilities		64,755			54,470			50,476

LONG-TERM LIABILITIES:
Income taxes payable		15,329			14,840			14,617
Deferred tax liabilities		121			162			164
Other liabilities		14,100			14,137			14,093
Total liabilities		94,305			83,609			79,350

STOCKHOLDERS' EQUITY:
Common stock		28			28			28
Additional paid-in capital		168,470			162,343			152,117
Accumulated other comprehensive loss		(1,720	)		(4,314	)		(3,130	)
Retained earnings		592,694			585,773			575,531
Total stockholders' equity		759,472			743,830			724,546
Total liabilities and stockholders' equity	$	853,777		$	827,439		$	803,896

POWER INTEGRATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

	Three Months Ended									Six Months Ended
	June 30, 2020			March 31, 2020			June 30, 2019			June 30, 2020			June 30, 2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	13,192		$	15,886		$	10,845		$	29,078		$	18,078
Adjustments to reconcile net income to cash provided by operating activities
Depreciation		5,581			5,488			4,821			11,069			9,431
Amortization of intangible assets		1,090			1,117			1,228			2,207			2,483
Loss on disposal of property and equipment		262			30			56			292			152
Stock-based compensation expense		5,981			6,710			5,496			12,691			9,903
Amortization of premium (accretion of discount) on marketable securities		167			154			(120	)		321			(230	)
Deferred income taxes		184			1,095			498			1,279			1,659
Increase (decrease) in accounts receivable allowances for credit losses		-			(154	)		237			(154	)		57
Change in operating assets and liabilities:
Accounts receivable		7,725			3,831			(5,160	)		11,556			(14,453	)
Inventories		(7,330	)		(6,253	)		(4,117	)		(13,583	)		(8,340	)
Prepaid expenses and other assets		8,084			(3,992	)		615			4,092			(3,614	)
Accounts payable		(2,967	)		8,828			2,933			5,861			4,153
Taxes payable and other accrued liabilities		4,684			(6,349	)		2,088			(1,665	)		1,217
Net cash provided by operating activities		36,653			26,391			19,420			63,044			20,496

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(10,019	)		(11,603	)		(4,889	)		(21,622	)		(8,348	)
Proceeds from sale of property and equipment		331			-			-			331			-
Acquisition of technology licenses		-			-			(37	)		-			(251	)
Purchases of marketable securities		(2,989	)		(16,838	)		(49,631	)		(19,827	)		(54,424	)
Proceeds from sales and maturities of marketable securities		43,015			15,947			12,635			58,962			19,422
Net cash provided by (used in) investing activities		30,338			(12,494	)		(41,922	)		17,844			(43,601	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock		769			5,529			1,178			6,298			5,678
Repurchase of common stock		(623	)		(2,013	)		-			(2,636	)		(7,302	)
Payments of dividends to stockholders		(6,271	)		(5,644	)		(4,980	)		(11,915	)		(9,917	)
Net cash used in financing activities		(6,125	)		(2,128	)		(3,802	)		(8,253	)		(11,541	)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		60,866			11,769			(26,304	)		72,635			(34,646	)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		190,459			178,690			125,795			178,690			134,137

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	251,325		$	190,459		$	99,491		$	251,325		$	99,491

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