Power Integrations Reports Third-Quarter Financial Results

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Power Integrations (NASDAQ: POWI) today announced financial results for the quarter ended September 30, 2022. Net revenues for the third quarter were $160.2 million, down 13 percent compared to the prior quarter and down nine percent from the third quarter of 2021. Net income for the third quarter was $46.0 million or $0.80 per diluted share compared to $0.96 per diluted share in the prior quarter and $0.69 per diluted share in the third quarter of 2021. Cash flow from operations for the third quarter was $49.8 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, net other operating expenses of $1.1 million in the second quarter of 2022 stemming from a patent-litigation settlement and an offsetting recovery from the liquidation of SemiSouth Laboratories, and the tax effects of these items. Non-GAAP net income for the third quarter of 2022 was $48.3 million or $0.84 per diluted share compared with $1.03 per diluted share in the prior quarter and $0.84 per diluted share in the third quarter of 2021. A reconciliation of GAAP to non-GAAP financial results is included with the tables accompanying this press release.

Commented Balu Balakrishnan, president and CEO of Power Integrations: “Demand has continued to weaken, particularly in appliances and other consumer applications, and inventories have accumulated in the supply chain. While our near-term revenue outlook is therefore muted, we continue to gain market share across a broad set of end markets while making excellent progress on growth initiatives like automotive, motor drive, and our proprietary GaN technology. Our board of directors has committed $100 million to share repurchases, reflecting our strong balance sheet and our high level of confidence in our long-term growth prospects.”

Additional Highlights

Power Integrations’ board of directors has authorized the use of $100 million for the repurchase of the company’s common stock, subject to pre-determined price/volume thresholds. The authorization does not have an expiration date.
The company paid a dividend of $0.18 per share on September 30, 2022. A dividend of $0.18 per share is to be paid on December 30, 2022, to stockholders of record as of November 30, 2022.

Financial Outlook

The company issued the following forecast for the fourth quarter of 2022:

Revenues are expected to be $125 million plus or minus $5 million.
GAAP gross margin is expected to be between 55.5 percent and 56 percent. Non-GAAP gross margin is expected to be between 56 percent and 56.5 percent. The difference between GAAP and non-GAAP gross margins is approximately equally attributable to stock-based compensation and amortization of acquisition-related intangible assets.
GAAP operating expenses are expected to be between $49.5 million and $50 million; non-GAAP operating expenses are expected to be between $42 million and $42.5 million. Non-GAAP expenses are expected to exclude approximately $7.5 million of stock-based compensation.

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: https://conferencingportals.com/event/iobnvsok. A live 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, net other operating expenses of $1.1 million in the second quarter of 2022 stemming from a patent-litigation settlement and an offsetting recovery from the liquidation of SemiSouth Laboratories, 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 fourth-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 pandemic 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 and geopolitical conditions, including such factors as inflation, armed conflicts and 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, 2022. The company is under no obligation (and expressly disclaims any obligation) to update or alter its forward-looking statements, whether because 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									Nine Months Ended
		September 30, 2022			June 30, 2022			September 30, 2021			September 30, 2022			September 30, 2021
NET REVENUES		$	160,233		$	183,986		$	176,776		$	526,368		$	530,623

COST OF REVENUES			68,198			77,143			85,037			226,815			263,160

GROSS PROFIT			92,035			106,843			91,739			299,553			267,463

OPERATING EXPENSES:
Research and development			23,205			23,507			21,137			70,390			62,905
Sales and marketing			14,700			15,985			15,443			46,840			44,447
General and administrative			5,759			6,059			9,386			21,432			28,767
Amortization of acquisition-related intangible assets			–			60			181			241			590
Other operating expenses, net			–			1,130			–			1,130			–
	Total operating expenses		43,664			46,741			46,147			140,033			136,709

INCOME FROM OPERATIONS			48,371			60,102			45,592			159,520			130,754

OTHER INCOME			1,001			674			206			2,229			976

INCOME BEFORE INCOME TAXES			49,372			60,776			45,798			161,749			131,730

PROVISION FOR INCOME TAXES			3,408			4,952			3,764			13,713			8,017

NET INCOME		$	45,964		$	55,824		$	42,034		$	148,036		$	123,713

EARNINGS PER SHARE:
	Basic	$	0.80		$	0.97		$	0.70		$	2.55		$	2.05
	Diluted	$	0.80		$	0.96		$	0.69		$	2.52		$	2.01

SHARES USED IN PER-SHARE CALCULATION:
	Basic		57,172			57,731			60,319			58,039			60,350
	Diluted		57,603			58,305			61,363			58,635			61,466



SUPPLEMENTAL INFORMATION:		Three Months Ended									Nine Months Ended
		September 30, 2022			June 30, 2022			September 30, 2021			September 30, 2022			September 30, 2021
Stock-based compensation expenses included in:
	Cost of revenues	$	172		$	235		$	664		$	727		$	1,935
	Research and development		2,334			2,323			3,055			7,712			8,605
	Sales and marketing		1,267			1,177			2,201			4,392			5,540
	General and administrative		(755	)		(56	)		3,725			2,879			11,245
	Total stock-based compensation expense	$	3,018		$	3,679		$	9,645		$	15,710		$	27,325

Cost of revenues includes:
	Amortization of acquisition-related intangible assets	$	482		$	482		$	552		$	1,446		$	1,925

		Three Months Ended									Nine Months Ended
REVENUE MIX BY END MARKET		September 30, 2022			June 30, 2022			September 30, 2021			September 30, 2022			September 30, 2021
	Communications		16	%		18	%		25	%		20	%		33	%
	Computer		11	%		9	%		11	%		10	%		9	%
	Consumer		32	%		38	%		34	%		35	%		31	%
	Industrial		41	%		35	%		30	%		35	%		27	%

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

	Three Months Ended									Nine Months Ended
	September 30, 2022			June 30, 2022			September 30, 2021			September 30, 2022			September 30, 2021
RECONCILIATION OF GROSS PROFIT
GAAP gross profit	$	92,035		$	106,843		$	91,739		$	299,553		$	267,463
GAAP gross margin		57.4	%		58.1	%		51.9	%		56.9	%		50.4	%

Stock-based compensation included in cost of revenues		172			235			664			727			1,935
Amortization of acquisition-related intangible assets		482			482			552			1,446			1,925

Non-GAAP gross profit	$	92,689		$	107,560		$	92,955		$	301,726		$	271,323
Non-GAAP gross margin		57.8	%		58.5	%		52.6	%		57.3	%		51.1	%


	Three Months Ended									Nine Months Ended
RECONCILIATION OF OPERATING EXPENSES	September 30, 2022			June 30, 2022			September 30, 2021			September 30, 2022			September 30, 2021
GAAP operating expenses	$	43,664		$	46,741		$	46,147		$	140,033		$	136,709

Less: Stock-based compensation expense included in operating expenses
Research and development		2,334			2,323			3,055			7,712			8,605
Sales and marketing		1,267			1,177			2,201			4,392			5,540
General and administrative		(755	)		(56	)		3,725			2,879			11,245
Total		2,846			3,444			8,981			14,983			25,390

Amortization of acquisition-related intangible assets		–			60			181			241			590
Other operating expenses, net		–			1,130			–			1,130			–

Non-GAAP operating expenses	$	40,818		$	42,107		$	36,985		$	123,679		$	110,729


	Three Months Ended									Nine Months Ended
RECONCILIATION OF INCOME FROM OPERATIONS	September 30, 2022			June 30, 2022			September 30, 2021			September 30, 2022			September 30, 2021
GAAP income from operations	$	48,371		$	60,102		$	45,592		$	159,520		$	130,754
GAAP operating margin		30.2	%		32.7	%		25.8	%		30.3	%		24.6	%

Add: Total stock-based compensation		3,018			3,679			9,645			15,710			27,325
Amortization of acquisition-related intangible assets		482			542			733			1,687			2,515
Other operating expenses, net		–			1,130			–			1,130			–

Non-GAAP income from operations	$	51,871		$	65,453		$	55,970		$	178,047		$	160,594
Non-GAAP operating margin		32.4	%		35.6	%		31.7	%		33.8	%		30.3	%


	Three Months Ended									Nine Months Ended
RECONCILIATION OF PROVISION FOR INCOME TAXES	September 30, 2022			June 30, 2022			September 30, 2021			September 30, 2022			September 30, 2021
GAAP provision for income taxes	$	3,408		$	4,952		$	3,764		$	13,713		$	8,017
GAAP effective tax rate		6.9	%		8.1	%		8.2	%		8.5	%		6.1	%

Tax effect of adjustments to GAAP results		(1,116	)		(1,259	)		(565	)		(2,497	)		(4,244	)

Non-GAAP provision for income taxes	$	4,524		$	6,211		$	4,329		$	16,210		$	12,261
Non-GAAP effective tax rate		8.6	%		9.4	%		7.7	%		9.0	%		7.6	%


	Three Months Ended									Nine Months Ended
RECONCILIATION OF NET INCOME PER SHARE (DILUTED)	September 30, 2022			June 30, 2022			September 30, 2021			September 30, 2022			September 30, 2021
GAAP net income	$	45,964		$	55,824		$	42,034		$	148,036		$	123,713

Adjustments to GAAP net income
Stock-based compensation		3,018			3,679			9,645			15,710			27,325
Amortization of acquisition-related intangible assets		482			542			733			1,687			2,515
Other operating expenses, net		–			1,130			–			1,130			–
Tax effect of items excluded from non-GAAP results		(1,116	)		(1,259	)		(565	)		(2,497	)		(4,244	)

Non-GAAP net income	$	48,348		$	59,916		$	51,847		$	164,066		$	149,309

Average shares outstanding for calculation
of non-GAAP net income per share (diluted)		57,603			58,305			61,363			58,635			61,466

Non-GAAP net income per share (diluted)	$	0.84		$	1.03		$	0.84		$	2.80		$	2.43

GAAP net income per share (diluted)	$	0.80		$	0.96		$	0.69		$	2.52		$	2.01

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


		September 30, 2022			June 30, 2022			December 31, 2021
ASSETS
	CURRENT ASSETS:
	Cash and cash equivalents	$	133,474		$	67,383		$	158,117
	Short-term marketable securities		229,754			260,209			372,235
	Accounts receivable, net		16,075			27,980			41,393
	Inventories		120,092			111,258			99,266
	Prepaid expenses and other current assets		12,634			14,219			15,804
	Total current assets		512,029			481,049			686,815

	PROPERTY AND EQUIPMENT, net		181,224			184,245			179,824
	INTANGIBLE ASSETS, net		7,141			7,684			9,012
	GOODWILL		91,849			91,849			91,849
	DEFERRED TAX ASSETS		23,935			19,830			16,433
	OTHER ASSETS		21,785			24,347			30,554
	Total assets	$	837,963		$	809,004		$	1,014,487

LIABILITIES AND STOCKHOLDERS’ EQUITY
	CURRENT LIABILITIES:
	Accounts payable	$	29,521		$	41,402		$	43,721
	Accrued payroll and related expenses		13,765			14,569			15,492
	Taxes payable		2,960			561			1,210
	Other accrued liabilities		12,613			13,597			11,898
	Total current liabilities		58,859			70,129			72,321

	LONG-TERM LIABILITIES:
	Income taxes payable		16,398			15,739			15,280
	Other liabilities		12,424			12,891			14,854
	Total liabilities		87,681			98,759			102,455

STOCKHOLDERS’ EQUITY:
	Common stock		24			24			28
	Additional paid-in capital		6,123			–			162,301
	Accumulated other comprehensive loss		(11,817	)		(10,060	)		(3,737	)
	Retained earnings		755,952			720,281			753,440
	Total stockholders’ equity		750,282			710,245			912,032
	Total liabilities and stockholders’ equity	$	837,963		$	809,004		$	1,014,487

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

		Three Months Ended									Nine Months Ended
		September 30, 2022			June 30, 2022			September 30, 2021			September 30, 2022			September 30, 2021
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net income	$	45,964		$	55,824		$	42,034		$	148,036		$	123,713
	Adjustments to reconcile net income to cash provided by operating activities
	Depreciation		8,881			8,766			8,126			26,055			23,400
	Amortization of intangible assets		543			604			794			1,871			2,699
	Loss on disposal of property and equipment		128			959			2,162			1,162			2,200
	Stock-based compensation expense		3,018			3,679			9,645			15,710			27,325
	Amortization of premium on marketable securities		771			930			475			2,638			775
	Deferred income taxes		(4,108	)		(2,346	)		(1,194	)		(7,390	)		(12	)
	Increase in accounts receivable allowance for credit losses		431			184			(74	)		690			17
	Change in operating assets and liabilities:
	Accounts receivable		11,474			2,494			2,554			24,628			(2,979	)
	Inventories		(8,834	)		(8,143	)		(2,171	)		(20,826	)		11,064
	Prepaid expenses and other assets		4,353			2,523			(472	)		8,428			(4,973	)
	Accounts payable		(11,451	)		7,286			(1,420	)		(5,874	)		6,633
	Taxes payable and other accrued liabilities		(1,344	)		(5,938	)		(1,724	)		(3,883	)		(6,157	)
	Net cash provided by operating activities		49,826			66,822			58,735			191,245			183,705

CASH FLOWS FROM INVESTING ACTIVITIES:
	Purchases of property and equipment		(5,500	)		(13,244	)		(11,011	)		(33,444	)		(30,305	)
	Proceeds from sale of property and equipment		–			–			–			1,202			35
	Purchases of marketable securities		(6,534	)		(5,589	)		(193,150	)		(27,244	)		(381,903	)
	Proceeds from sales and maturities of marketable securities		35,487			16,710			123,953			161,014			284,036
	Net cash provided by (used in) investing activities		23,453			(2,123	)		(80,208	)		101,528			(128,137	)

CASH FLOWS FROM FINANCING ACTIVITIES:
	Net proceeds from issuance of common stock		3,105			–			4,058			6,162			7,710
	Repurchase of common stock		–			(157,660	)		(9,791	)		(292,349	)		(36,165	)
	Payments of dividends to stockholders		(10,293	)		(10,280	)		(7,840	)		(31,229	)		(23,552	)
	Net cash used in financing activities		(7,188	)		(167,940	)		(13,573	)		(317,416	)		(52,007	)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			66,091			(103,241	)		(35,046	)		(24,643	)		3,561

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			67,383			170,624			297,481			158,117			258,874

CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	133,474		$	67,383		$	262,435		$	133,474		$	262,435

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