Net Revenues Grew 8 Percent Year-over-Year to a Record
$53.8 Million; GAAP Gross Margin Expanded to 54.2 Percent
Company's Board Initiates Quarterly Dividend, Authorizes
Additional $50 Million for Share Repurchases
SAN JOSE, Calif., Oct. 23, 2008 (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, 2008. The company's net revenues for the quarter were $53.8 million, up 8 percent compared with $49.8 million in the third quarter of 2007, and up slightly compared with $53.6 million in the second quarter of 2008.
Third-quarter gross margin under generally accepted accounting principles (GAAP) was 54.2 percent, compared with 53.0 percent in the third quarter of 2007 and 53.7 percent in the second quarter of 2008. GAAP net income was $7.6 million, or $0.23 per diluted share, compared with $6.8 million or $0.22 per diluted share in the year-ago quarter, and flat compared with the second quarter of 2008.
On a non-GAAP basis, third-quarter gross margin was 54.9 percent, compared with 53.7 percent in the third quarter of 2007 and 54.6 percent in the second quarter of 2008. Non-GAAP net income was $11.0 million, or $0.34 per diluted share, compared with non-GAAP net income of $10.1 million or $0.32 per share in the year-ago quarter and $10.7 million or $0.33 per share in the second quarter of 2008. Non-GAAP financial measures exclude stock-based compensation expenses and the related tax effects.
Cash flow from operations totaled $6.6 million for the quarter. The company ended the quarter with $225.3 million in cash and investments, a decrease of $12.2 million during the quarter. The company repurchased 788,400 shares during the quarter for a total of $20.2 million. Including purchases made through October 22, the company has repurchased a total of 1.9 million shares for approximately $45 million since initiating a $50 million repurchase program in February 2008.
"The slowdown that began for us in May persisted through the third quarter, and the seasonal ramp that we typically expect did not materialize," said Balu Balakrishnan, president and CEO of Power Integrations. "Consequently, revenues grew only slightly on a sequential basis in the third quarter. Orders have slowed further in October, and as a result we expect a significant decline in revenues in the fourth quarter.
"In the face of a very challenging macro environment, we're staying focused on the factors that we can affect - winning designs, developing new products, controlling costs and expenses, and prudently deploying our cash," continued Balakrishnan. "Design activity has continued unabated, and we had a record quarter in terms of design wins. Tightening energy-efficiency specifications and rising labor costs are working in our favor, and we continue to invest in emerging opportunities such as high-power products and LED lighting.
"Meanwhile, our gross margin expanded in the third quarter, and we reduced operating expenses significantly compared to the second quarter," added Balakrishnan. "We've also put our strong balance sheet to work with a substantial share repurchase and the initiation of a quarterly dividend."
Revenue mix by end market for the third quarter was 31 percent consumer, 26 percent communications, 21 percent computer, 15 percent industrial and 7 percent other. By product family, revenue mix was 44 percent TinySwitch(r), 26 percent TOPSwitch(r), 28 percent LinkSwitch(r) and 2 percent DPA-Switch(r).
Additional Highlights
* The company's board of directors has authorized the use of an additional $50 million for share repurchases. The company's board has also declared a quarterly dividend of 2.5 cents per share, with the first quarterly dividend payable on December 31, 2008 to shareholders of record as of November 28. * In September, the U.S. District Court for the District of Delaware ruled that all four patents asserted by Power Integrations in its 2004 patent-infringement lawsuit against Fairchild Semiconductor are enforceable. Delaware juries had earlier found the four patents to be valid and willfully infringed, and Power Integrations has been awarded approximately $34 million in damages. The company has requested an injunction against the infringing parts, as well as enhanced damages based on the jury's finding of willful infringement. * Power Integrations received 8 U.S. patents during the third quarter. The company had a total of 235 U.S. patents and 103 foreign patents as of September 30, 2008.
Fourth-Quarter Outlook
The company expects its revenues for the fourth quarter of 2008 to be down 15 to 25 percent compared to the third quarter. GAAP gross margin is expected to be between 53 percent and 54 percent, including an impact of approximately one percentage point from stock-based compensation. Fourth-quarter GAAP operating expenses are expected to be approximately flat compared to the third quarter, and are expected to include approximately $3.5 million of stock-based compensation expenses and $1 million of expenses related to patent litigation.
Conference Call at 1:30 pm Pacific Time
Power Integrations management will hold a conference call today at 1:30 pm PDT. Members of the investment community can access the call by dialing 877-741-4241 from within the U.S., or 719-325-4766 from outside the U.S. A telephonic replay will be available for 48 hours following the conclusion of the call by dialing 888-203-1112 (U.S.) or 719-457-0820 (non-U.S.) The replay access code is 3001343. The call will also be available via a live and archived webcast on the investor section of the company's website, http://investors.powerint.com.
About Power Integrations
Power Integrations, Inc. is the leading supplier of high-voltage analog integrated circuits used in power conversion. The company's breakthrough integrated-circuit technology enables compact, energy-efficient power supplies in a wide range of electronic products, in AC-DC, DC-DC and LED lighting applications. The company's EcoSmart(r) energy-efficiency technology, which dramatically reduces energy waste, has saved consumers and businesses around the world more than an estimated $3 billion on their electricity bills since its introduction in 1998. Reflecting the environmental benefits of EcoSmart technology, the company's stock is included in clean-tech stock indices sponsored by Nasdaq (Nasdaq:CELS) and the American Stock Exchange (AMEX:CTIUS). For more information, visit the company's website at 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 expenses (and the related tax effects thereof) recorded under SFAS 123R, "Share-based Payment," which requires the recognition of expenses relating to share-based payments such as stock options. 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 company's historical results and 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 other companies in Power Integrations' industry, may calculate non-GAAP financial measures differently than the company, limiting their usefulness as a comparative measure.
Note Regarding Forward-Looking Statements
The statements in this press release relating to the company's projected fourth-quarter financial performance 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 management's forward-looking statements. These risks and uncertainties include, but are not limited to: decreases in customer demand as a result of the current credit and economic crisis; changes and shifts in customer demand away from products that utilize the company's integrated circuits to 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; and fluctuations in currency 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 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 on March 10, 2008, and in the company's most recent quarterly report on Form 10-Q, filed on August 8, 2008. 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.
POWER INTEGRATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per-share amounts)
Three Months Ended Nine Months Ended
Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30,
2008 2008 2007 2008 2007
-------- -------- -------- --------- ---------
NET REVENUES $ 53,816 $ 53,635 $ 49,806 $ 159,291 $ 138,363
COST OF REVENUES 24,659 24,829 23,409 73,206 62,897
-------- -------- -------- --------- ---------
GROSS PROFIT 29,157 28,806 26,397 86,085 75,466
-------- -------- -------- --------- ---------
OPERATING EXPENSES:
Research and
development 7,022 7,979 6,664 22,753 18,474
Sales and
marketing 7,058 7,852 6,976 22,329 19,488
General and
administrative 6,418 5,950 6,475 18,056 18,403
-------- -------- -------- --------- ---------
Total operating
expenses 20,498 21,781 20,115 63,138 56,365
-------- -------- -------- --------- ---------
INCOME FROM
OPERATIONS 8,659 7,025 6,282 22,947 19,101
OTHER INCOME, net 1,600 2,265 1,917 5,877 5,946
INCOME BEFORE
PROVISION FOR
INCOME TAXES 10,259 9,290 8,199 28,824 25,047
PROVISION FOR
INCOME TAXES 2,622 1,679 1,446 6,367 5,011
-------- -------- -------- --------- ---------
NET INCOME $ 7,637 $ 7,611 $ 6,753 $ 22,457 $ 20,036
======== ======== ======== ========= =========
EARNINGS PER SHARE
Basic $ 0.25 $ 0.25 $ 0.23 $ 0.74 $ 0.70
======== ======== ======== ========= =========
Diluted $ 0.23 $ 0.23 $ 0.22 $ 0.69 $ 0.65
======== ======== ======== ========= =========
SHARES USED IN PER-
SHARE CALCULATION:
Basic 30,791 30,529 28,789 30,515 28,708
Diluted 32,582 32,762 31,342 32,548 30,987
SUPPLEMENTAL
INFORMATION:
Stock-based
compensation
expenses included
in:
Cost of revenues $ 385 $ 467 $ 326 $ 1,277 $ 938
Research and
development 1,396 1,146 1,088 4,021 2,649
Sales and
marketing 1,243 1,305 1,452 3,886 3,317
General and
administrative 1,023 989 1,041 2,895 2,542
-------- -------- -------- --------- ---------
Total stock-
based
compensation
expense $ 4,048 $ 3,907 $ 3,907 $ 12,079 $ 9,446
======== ======== ======== ========= =========
Operating expenses
include the
following:
Patent-
litigation
expenses $ 735 $ 633 $ 574 $ 2,403 $ 1,683
======== ======== ======== ========= =========
REVENUE MIX BY
PRODUCT FAMILY
TOPSwitch 26% 26% 26% 25% 29%
TinySwitch 44% 45% 51% 45% 54%
LinkSwitch 28% 27% 21% 28% 15%
DPA-Switch 2% 2% 2% 2% 2%
REVENUE MIX BY END
MARKET
Communications 26% 26% 26% 27% 27%
Computer 21% 23% 23% 21% 21%
Consumer 31% 30% 29% 31% 30%
Industrial 15% 15% 15% 15% 15%
Other 7% 6% 7% 6% 7%
POWER INTEGRATIONS, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP RESULTS
(in thousands, except per-share amounts)
Three Months Ended Nine Months Ended
Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30,
2008 2008 2007 2008 2007
-------- -------- -------- --------- ---------
RECONCILIATION OF
GROSS PROFIT
MARGIN
GAAP gross
profit $ 29,157 $ 28,806 $ 26,397 $ 86,085 $ 75,466
GAAP gross
profit margin 54.2% 53.7% 53.0% 54.0% 54.5%
Stock-based
compensation
expense
included in
cost of
revenues 385 467 326 1,277 938
-------- -------- -------- --------- ---------
Non-GAAP gross
profit
excluding stock-
based compensa-
tion 29,542 29,273 26,723 87,362 76,404
-------- -------- -------- --------- ---------
Non-GAAP gross
profit margin 54.9% 54.6% 53.7% 54.8% 55.2%
RECONCILIATION OF
OPERATING MARGIN
GAAP income from
operations $ 8,659 $ 7,025 $ 6,282 $ 22,947 $ 19,101
GAAP operating
margin 16.1% 13.1% 12.6% 14.4% 13.8%
Stock-based
compensation
expense included
in cost of
revenues and
operating
expenses:
Cost of
revenues 385 467 326 1,277 938
Research and
development 1,396 1,146 1,088 4,021 2,649
Sales and
marketing 1,243 1,305 1,452 3,886 3,317
General and
administrative 1,023 989 1,041 2,895 2,542
-------- -------- -------- --------- ---------
Total 4,048 3,907 3,907 12,079 9,446
-------- -------- -------- --------- ---------
Non-GAAP income
from operations
excluding stock-
based
compensation 12,707 10,932 10,189 35,026 28,547
-------- -------- -------- --------- ---------
Non-GAAP
operating
margin 23.6% 20.4% 20.5% 22.0% 20.6%
RECONCILIATION OF
NET INCOME PER
SHARE (DILUTED)
GAAP net income $ 7,637 $ 7,611 $ 6,753 $ 22,457 $ 20,036
Adjustments to
GAAP net income
Total stock-
based compen-
sation 4,048 3,907 3,907 12,079 9,446
Difference be-
tween GAAP
and non-GAAP
provision for
income taxes (727) (829) (512) (2,308) (1,042)
Non-GAAP net
income $ 10,958 $ 10,689 $ 10,148 $ 32,228 $ 28,440
-------- -------- -------- --------- ---------
Average shares
outstanding for
calculation of
non-GAAP income
per share
(diluted) 32,582 32,762 31,342 32,548 30,987
-------- -------- -------- --------- ---------
Non-GAAP income
per share
excluding stock-
based compensa-
tion (diluted) $ 0.34 $ 0.33 $ 0.32 $ 0.99 $ 0.92
======== ======== ======== ========= =========
Note on use of non-GAAP financial measures:
Effective January 1, 2006, Power Integrations adopted SFAS 123R,
which requires the company to recognize compensation expenses
relating to stock-based payments. 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 expenses recognized under SFAS 123R, 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 company's historical
results and 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)
September 30, December 31,
2008 2007
------------ -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 218,301 $ 118,353
Restricted cash 250 1,300
Short-term investments 6,992 85,821
Accounts receivable 16,974 14,221
Inventories 26,427 19,696
Deferred tax assets 1,367 1,259
Prepaid expenses and other current
assets 8,427 2,957
--------- ---------
Total current assets 278,738 243,607
--------- ---------
NOTE RECEIVABLE 10,000 10,000
PROPERTY AND EQUIPMENT, net 57,419 56,740
INTANGIBLE ASSETS, NET 5,958 6,731
GOODWILL 1,824 1,824
DEFERRED TAX ASSETS 14,660 15,544
OTHER ASSETS 180 653
--------- ---------
Total assets $ 368,779 $ 335,099
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 14,538 $ 10,792
Accrued payroll and related expenses 5,646 9,212
Income taxes payable 294 852
Deferred income on sales to
distributors 7,068 5,226
Accrued professional & other fees 1,787 1,844
Other accrued liabilities 368 641
--------- ---------
Total current liabilities 29,701 28,567
--------- ---------
LONG-TERM LIABILITIES
Income taxes payable 19,101 16,893
Deferred income taxes 149 149
--------- ---------
Total liabilities 48,951 45,609
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock 30 30
Additional paid-in capital 184,237 176,282
Cumulative translation adjustment 11 85
Retained earnings 135,550 113,093
--------- ---------
Total stockholders' equity 319,828 289,490
--------- ---------
Total liabilities
stockholders' equity $ 368,779 $ 335,099
========= =========