Power Integrations (Nasdaq: POWI) today announced financial results for the quarter and year ended December 31, 2016. Net revenues for the fourth quarter were $101.1 million, a decrease of three percent from the prior quarter, and an increase of 16 percent from the fourth quarter of 2015. Net income was $13.6 million or $0.46 per diluted share, compared to $0.48 per diluted share in the prior quarter and $0.44 per diluted share in the fourth quarter of 2015. Cash flow from operations for the quarter was $27.7 million.

In addition to its GAAP results, the company provided certain non-GAAP financial measures that exclude stock-based compensation expenses, amortization of intangible assets, other acquisition-related expenses, and the tax effects of these items. Non-GAAP net income for the fourth quarter was $20.2 million or $0.67 per diluted share, compared with $0.72 per diluted share in the prior quarter and $0.58 per diluted share in the fourth quarter of 2015.

For the full year, net revenues were $387.4 million, an increase of 13 percent compared to the prior year. GAAP net income for the year was $1.62 per diluted share, compared with $1.32 per diluted share in the prior year. Non-GAAP net income was $2.49 per diluted share, compared with $2.03 per diluted share in the prior year. Cash flow from operations totaled $97.9 million for the full year.

Commented Balu Balakrishnan, president and CEO of Power Integrations: “We ended 2016 with another strong quarter, and we’re entering 2017 with momentum fueled by innovative products, an expanding addressable market, and dynamic secular trends such as faster charging for mobile devices, smarter homes and appliances, and the continued global push for greater energy efficiency and cleaner energy.”

Additional Highlights

  • The company had $250.5 million in cash and short-term marketable securities at quarter-end, an increase of $23.9 million during the quarter.
  • Power Integrations paid a dividend of $0.13 per share on December 30, 2016. A dividend of $0.14 per share is scheduled to be paid on March 31, 2017, to stockholders of record as of February 28, 2017.
  • Power Integrations was issued 13 U.S. patents during the fourth quarter.

Adoption of New Accounting Standard for 2017

Effective January 1, 2017, Power Integrations adopted the Financial Accounting Standards Board’s new standard for revenue recognition (ASC 606), under which the company is required to recognize revenues on sales to distributors upon shipment (the “sell-in” method) beginning with the first quarter of 2017. Prior to adopting ASC 606, the company utilized the “sell-through” method for a high percentage of its distribution sales; under this method revenue was deferred until distributors reported that they had sold the company’s products to end customers.

In adopting the new standard, Power Integrations elected to use the full retrospective method; accordingly, the company has recast its results for 2015 and 2016 as if the new standard had been in effect during those years. The table below displays the company’s revenues, cost of revenues and GAAP earnings per share for 2015 and 2016 as originally reported and as recast under the new standard. Full recast income statements, balance sheets and cash-flow statements, including reconciliations of non-GAAP measures, are available on the company’s investor website. (See document entitled “Recast Financials.”)

   
FY 2015   FY 2016

(in millions, except per-share data)

Originally
Reported

  

Under New
Standard

  

Originally
Reported

  

Under New
Standard

Net Revenues $ 344.0   $ 344.6 $ 387.4   $ 389.7

Cost of Revenues (GAAP)

$ 170.6 $ 171.3 $ 196.2 $ 197.5

Net income/diluted share (GAAP)

$ 1.32 $ 1.32 $ 1.62 $ 1.65
 

For the fourth quarter of 2016, revenues would have been $102.4 million under the new standard as compared to the $101.1 million originally reported; GAAP net income would have been $0.48 per diluted share as compared to the $0.46 per diluted share originally reported.

Sandeep Nayyar, Power Integrations’ chief financial officer, commented: “We do not expect the adoption of the new accounting standard to have a material impact on our full-year results, though changing to the sell-in method may affect the quarter-to-quarter seasonality of revenues within a given year. For example, our revenue outlook for the first quarter of 2017 reflects the fact that shipments to distributors normally exceed sell-through in the first quarter, resulting in higher first-quarter revenues than we would have expected under the prior accounting rules. If the sell-through method were still in effect, our revenue forecast for the first quarter would be lower by approximately $3 million.”

Financial Outlook

The company issued the following forecast for the first quarter of 2017:

  • Revenues (as calculated under the new revenue-recognition standard) are expected to be flat plus or minus three percent compared to the recast fourth-quarter revenues of $102.4 million.
  • GAAP gross margin is expected to be between 47.9 percent and 48.4 percent; non-GAAP gross margin is expected to be between 49 percent and 49.5 percent. (The difference between the expected GAAP and non-GAAP gross margins is composed of approximately 0.9 percentage points from amortization of acquisition-related intangible assets and 0.2 percentage points from stock-based compensation.)
  • GAAP operating expenses are expected to be between $35.6 million and $36.6 million; non-GAAP operating expenses are expected to be between $31 million and $32 million. (Non-GAAP expenses exclude approximately $4.0 million of stock-based compensation expenses and $0.6 million of amortization of acquisition-related intangible assets.)

Conference Call Tomorrow at 8:00 a.m. Pacific Time

Power Integrations management will hold a conference call tomorrow, February 2, at 8:00 a.m. PT. Members of the investment community can join the call by dialing 1-647-788-4901. 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 write-up of acquired inventory, acquisition expenses, severance and transition expenses, amortization of in-place lease intangible assets, and the tax effects of these items. The company uses these measures in its own financial and operational decision-making 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 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 measures differently, limiting their usefulness as comparative measures.

Note Regarding Forward-Looking Statements

The statements in this press release 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, 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 to decrease its selling prices for its products; the outcome and cost of patent litigation, which may affect sales of the company’s products or could result in higher expenses and charges than currently expected; 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 11, 2016. 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 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 Twelve Months Ended

December 31, 2016

September 30, 2016

December 31, 2015

December 31, 2016

December 31, 2015

NET REVENUES $ 101,108 $ 103,790 $ 87,289 $ 387,393 $ 343,989
 
COST OF REVENUES   51,724     52,597     44,373     196,232     170,602  
 
GROSS PROFIT   49,384     51,193     42,916     191,161     173,387  
 
OPERATING EXPENSES:
Research and development 15,766 15,906 13,856 62,310 57,000
Sales and marketing 11,941 11,447 10,449 45,535 43,786
General and administrative 8,257 8,789 6,896 33,029 29,720
Amortization of acquisition-related intangible assets 584 582 666 2,443 2,775
Acquisition expenses, severance and transition costs   -     -     -     -     1,113  
Total operating expenses   36,548     36,724     31,867     143,317     134,394  
 
INCOME FROM OPERATIONS 12,836 14,469 11,049 47,844 38,993
 
Other income, net   299     282     206     1,078     425  
 
INCOME BEFORE INCOME TAXES 13,135 14,751 11,255 48,922 39,418
 
PROVISION FOR INCOME TAXES   (482 )   586     (1,446 )   1,032     271  
 
NET INCOME $ 13,617   $ 14,165   $ 12,701   $ 47,890   $ 39,147  
 
EARNINGS PER SHARE:
Basic $ 0.47   $ 0.49   $ 0.45   $ 1.66   $ 1.35  
Diluted $ 0.46   $ 0.48   $ 0.44   $ 1.62   $ 1.32  
 
SHARES USED IN PER-SHARE CALCULATION:
Basic 29,196 28,972 28,483 28,925 29,001
Diluted 29,914 29,625 29,126 29,619 29,696
 
 
SUPPLEMENTAL INFORMATION:
 
Stock-based compensation expenses included in:
Cost of revenues $ 417 $ 348 $ 208 $ 1,148 $ 933
Research and development 1,966 1,934 1,281 7,309 5,255
Sales and marketing 1,260 1,303 877 4,489 3,644
General and administrative   2,025     2,204     899     7,939     4,935  
Total stock-based compensation expense $ 5,668   $ 5,789   $ 3,265   $ 20,885   $ 14,767  
 
Cost of revenues includes:
Amortization of write-up of acquired inventory $ -   $ -   $ -   $ -   $ 309  
Amortization of acquisition-related intangible assets $ 939   $ 939   $ 961   $ 3,785   $ 3,844  
 
General & administrative expenses include:
Patent-litigation expenses $ 2,150   $ 1,894   $ 1,517   $ 6,861   $ 5,975  
 
Other income, net includes:
Amortization of in-place lease intangible assets $ 90   $ 90   $ 90   $ 360   $ 120  
 
 
REVENUE MIX BY END MARKET
Communications 30 % 28 % 26 % 27 % 24 %
Computer 6 % 5 % 7 % 6 % 7 %
Consumer 35 % 37 % 34 % 36 % 36 %
Industrial 29 % 30 % 33 % 31 % 33 %
 
 
POWER INTEGRATIONS, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP RESULTS
(in thousands, except per-share amounts)
         
Three Months Ended Twelve Months Ended

December 31, 2016

September 30, 2016

December 31, 2015

December 31, 2016

December 31, 2015

RECONCILIATION OF GROSS PROFIT
GAAP gross profit $ 49,384 $ 51,193 $ 42,916 $ 191,161 $ 173,387
GAAP gross margin 48.8 % 49.3 % 49.2 % 49.3 % 50.4 %
 
Stock-based compensation included in cost of revenues 417 348 208 1,148 933
Amortization of write-up of acquired inventory - - - - 309
Amortization of acquisition-related intangible assets   939     939     961     3,785     3,844  
 
Non-GAAP gross profit $ 50,740   $ 52,480   $ 44,085   $ 196,094   $ 178,473  
Non-GAAP gross margin 50.2 % 50.6 % 50.5 % 50.6 % 51.9 %
 
 
RECONCILIATION OF OPERATING EXPENSES
GAAP operating expenses $ 36,548 $ 36,724 $ 31,867 $ 143,317 $ 134,394
 
Less:Stock-based compensation expense included in operating expenses
Research and development 1,966 1,934 1,281 7,309 5,255
Sales and marketing 1,260 1,303 877 4,489 3,644
General and administrative   2,025     2,204     899     7,939     4,935  
Total   5,251     5,441     3,057     19,737     13,834  
 
Amortization of acquisition-related intangible assets   584     582     666     2,443     2,775  
 
Acquisition expenses, severance and transition costs   -     -     -     -     1,113  
 
Non-GAAP operating expenses $ 30,713   $ 30,701   $ 28,144   $ 121,137   $ 116,672  
 
 
RECONCILIATION OF INCOME FROM OPERATIONS
GAAP income from operations $ 12,836 $ 14,469 $ 11,049 $ 47,844 $ 38,993
GAAP operating margin 12.7 % 13.9 % 12.7 % 12.4 % 11.3 %
 
Add:Total stock-based compensation 5,668 5,789 3,265 20,885 14,767
Amortization of write-up of acquired inventory - - - - 309
Amortization of acquisition-related intangible assets 1,523 1,521 1,627 6,228 6,619
Acquisition expenses, severance and transition costs   -     -     -     -     1,113  
 
Non-GAAP income from operations $ 20,027   $ 21,779   $ 15,941   $ 74,957   $ 61,801  
Non-GAAP operating margin 19.8 % 21.0 % 18.3 % 19.3 % 18.0 %
 
 
RECONCILIATION OF PROVISION FOR INCOME TAXES
GAAP provision for income taxes $ (482 ) $ 586 $ (1,446 ) $ 1,032 $ 271
GAAP effective tax rate -3.7 % 4.0 % -12.8 % 2.1 % 0.7 %
 
Tax effect of adjustments to GAAP results   (724 )   (328 )   (796 )   (1,578 )   (1,824 )
 
Non-GAAP provision for income taxes $ 242   $ 914   $ (650 ) $ 2,610   $ 2,095  
Non-GAAP effective tax rate 1.2 % 4.1 % -4.0 % 3.4 % 3.4 %
 
 
RECONCILIATION OF NET INCOME PER SHARE (DILUTED)
GAAP net income $ 13,617 $ 14,165 $ 12,701 $ 47,890 $ 39,147
 
Adjustments to GAAP net income
Stock-based compensation 5,668 5,789 3,265 20,885 14,767
Amortization of write-up of acquired inventory - - - - 309
Amortization of acquisition-related intangible assets 1,523 1,521 1,627 6,228 6,619
Acquisition expenses, severance and transition costs - - - - 1,113
Amortization of in-place lease intangible assets 90 90 90 360 120
Tax effect of items excluded from non-GAAP results   (724 )   (328 )   (796 )   (1,578 )   (1,824 )
 
Non-GAAP net income $ 20,174   $ 21,237   $ 16,887   $ 73,785   $ 60,251  
 

Average shares outstanding for calculation of non-GAAP income per share (diluted)

  29,914     29,625     29,126     29,619     29,696  
 
Non-GAAP net income per share (diluted) $ 0.67   $ 0.72   $ 0.58   $ 2.49   $ 2.03  
 
GAAP income per share $ 0.46   $ 0.48   $ 0.44   $ 1.62   $ 1.32  
 
 
POWER INTEGRATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
     
 

December 31, 2016

September 30, 2016

December 31, 2015

ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 62,134 $ 95,890 $ 90,092
Short-term marketable securities 188,323 130,673 83,769
Accounts receivable 6,961 14,679 7,818
Inventories 52,564 49,941 51,934
Prepaid expenses and other current assets   8,520     7,372     6,790  
Total current assets   318,502     298,555     240,403  
 
PROPERTY AND EQUIPMENT, net 95,296 94,433 99,381
INTANGIBLE ASSETS, net 31,502 33,114 38,165
GOODWILL 91,849 91,849 91,849
DEFERRED TAX ASSETS 12,032 11,064 11,843
OTHER ASSETS   6,157     6,273     5,896  
Total assets $ 555,338   $ 535,288   $ 487,537  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 29,727 $ 30,117 $ 21,660
Accrued payroll and related expenses 10,756 9,011 9,327
Taxes payable 729 251 3,620
Deferred income on sales to distributors 16,207 16,334 15,101
Other accrued liabilities   2,434     3,427     2,285  
Total current liabilities   59,853     59,140     51,993  
 
LONG-TERM LIABILITIES:
Income taxes payable 2,639 2,666 2,511
Deferred tax liabilities 820 1,002 1,291
Other liabilities   3,921     3,422     3,123  
Total liabilities   67,233     66,230     58,918  
 
STOCKHOLDERS' EQUITY:
Common stock 28 28 28
Additional paid-in capital 172,875 162,820 145,366
Accumulated other comprehensive loss (2,710 ) (1,885 ) (1,851 )
Retained earnings   317,912     308,095     285,076  
Total stockholders' equity   488,105     469,058     428,619  
Total liabilities and stockholders' equity $ 555,338   $ 535,288   $ 487,537  
 
 
POWER INTEGRATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
         
Three Months Ended Twelve Months Ended

December 31, 2016

September 30, 2016

December 31, 2015

December 31, 2016

December 31, 2015

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 13,617 $ 14,165 $ 12,701 $ 47,890 $ 39,147
Adjustments to reconcile net income to cash provided by operating activities
Depreciation 4,142 4,149 4,229 16,812 16,464
Amortization of intangible assets 1,612 1,612 1,792 6,663 7,039
Loss on disposal of property and equipment 116 68 91 332 361
Stock-based compensation expense 5,668 5,789 3,265 20,885 14,767
Amortization of premium on marketable securities 71 55 254 555 1,063
Deferred income taxes (1,150 ) 276 (5,568 ) (660 ) (5,416 )
Increase (decrease) in accounts receivable allowances (96 ) 110 (1 ) 207 127
Tax shortfall associated with employee stock plans - - - - (189 )
Change in operating assets and liabilities:
Accounts receivable 7,814 (779 ) 3,243 650 4,131
Inventories (2,623 ) (3,192 ) 3,505 (630 ) 13,500
Prepaid expenses and other assets (1,096 ) (764 ) (887 ) (2,499 ) 3,391
Accounts payable (1,323 ) 5,998 35 7,714 (2,000 )
Taxes payable and other accrued liabilities 1,117 (675 ) 3,503 (1,124 ) (76 )
Deferred income on sales to distributors   (127 )   (554 )   (1,363 )   1,106     (122 )
Net cash provided by operating activities   27,742     26,258     24,799     97,901     92,187  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (4,124 ) (3,184 ) (3,740 ) (12,198 ) (11,359 )
Payment for purchase of building - - - - (10,389 )
Payment for acquisition, net of cash acquired - - - - (15,549 )
Purchases of marketable securities (66,256 ) (56,187 ) (14,815 ) (188,654 ) (29,748 )
Proceeds from sales and maturities of marketable securities   8,295     22,207     21,850     83,423     59,309  
Net cash provided by (used in) investing activities   (62,085 )   (37,164 )   3,295     (117,429 )   (7,736 )
 
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common stock 4,387 5,224 5,678 13,059 12,580
Repurchase of common stock - - - (6,435 ) (53,731 )
Payments of dividends to stockholders   (3,800 )   (3,771 )   (3,415 )   (15,054 )   (13,916 )
Net cash provided by (used in) financing activities   587     1,453     2,263     (8,430 )   (55,067 )
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (33,756 ) (9,453 ) 30,357 (27,958 ) 29,384
 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD   95,890     105,343     59,735     90,092     60,708  
 
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 62,134   $ 95,890   $ 90,092   $ 62,134   $ 90,092