Power Integrations Reports Second-Quarter Financial Results

Revenues increased two percent year-over-year to $184 million; GAAP earnings were $0.96 per diluted share; non-GAAP earnings per diluted share grew 24 percent year-over-year to $1.03

SAN JOSE, Calif. — (BUSINESS WIRE) — August 4, 2022 — Power Integrations (NASDAQ: POWI) today announced financial results for the quarter ended June 30, 2022. Net revenues for the second quarter were $184.0 million, up one percent compared to the prior quarter and up two percent from the second quarter of 2021. Net income for the second quarter was $55.8 million or $0.96 per diluted share compared to $0.77 per diluted share in the prior quarter and $0.68 per diluted share in the second quarter of 2021. Cash flow from operations for the second quarter was $66.8 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 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 second quarter of 2022 was $59.9 million or $1.03 per diluted share compared with $0.93 per diluted share in the prior quarter and $0.83 per diluted share in the second 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: “Our second-quarter revenues and third-quarter outlook reflect softness at Chinese smartphone customers as well as broader macroeconomic headwinds. Nevertheless, we grew our non-GAAP earnings per share by 24 percent year-over-year in the second quarter, generated $67 million in cash from operations and returned more than $160 million to stockholders through buybacks and dividends. While the near-term demand outlook has weakened, we continue to make great progress on long-term growth initiatives like automotive, motor drive, and expanding our portfolio of products incorporating our energy-efficient, proprietary GaN technology.”

Additional Highlights

Power Integrations repurchased 1.9 million shares of its common stock during the second quarter for $157.7 million, exhausting the company’s repurchase authorization.
The company paid a dividend of $0.18 per share on June 30, 2022. A dividend of $0.18 per share is to be paid on September 30, 2022, to stockholders of record as of August 31, 2022.

Financial Outlook

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

Revenues are expected to be $165 million plus or minus five percent.
GAAP gross margin is expected to be approximately 57.5 percent. Non-GAAP gross margin is expected to be approximately 58 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 approximately $51 million; non-GAAP operating expenses are expected to be approximately $42.5 million. Non-GAAP expenses are expected to exclude approximately $8.5 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 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 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 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									Six Months Ended
		June 30, 2022			March 31, 2022			June 30, 2021			June 30, 2022			June 30, 2021
NET REVENUES		$	183,986		$	182,149		$	180,110		$	366,135		$	353,847

COST OF REVENUES			77,143			81,474			88,797			158,617			178,123

GROSS PROFIT			106,843			100,675			91,313			207,518			175,724

OPERATING EXPENSES:
Research and development			23,507			23,678			21,741			47,185			41,768
Sales and marketing			15,985			16,155			15,097			32,140			29,004
General and administrative			6,059			9,614			9,306			15,673			19,381
Amortization of acquisition-related intangible assets			60			181			193			241			409
Other operating expenses, net			1,130			-			-			1,130			-
	Total operating expenses		46,741			49,628			46,337			96,369			90,562

INCOME FROM OPERATIONS			60,102			51,047			44,976			111,149			85,162

OTHER INCOME			674			554			173			1,228			770

INCOME BEFORE INCOME TAXES			60,776			51,601			45,149			112,377			85,932

PROVISION FOR INCOME TAXES			4,952			5,353			3,268			10,305			4,253

NET INCOME		$	55,824		$	46,248		$	41,881		$	102,072		$	81,679

EARNINGS PER SHARE:
	Basic	$	0.97		$	0.78		$	0.69		$	1.75		$	1.35
	Diluted	$	0.96		$	0.77		$	0.68		$	1.72		$	1.33

SHARES USED IN PER-SHARE CALCULATION:
	Basic		57,731			59,238			60,544			58,480			60,366
	Diluted		58,305			60,107			61,466			59,192			61,481

SUPPLEMENTAL INFORMATION:		Three Months Ended									Six Months Ended
		June 30, 2022			March 31, 2022			June 30, 2021			June 30, 2022			June 30, 2021
Stock-based compensation expenses included in:
	Cost of revenues	$	235		$	320		$	640		$	555		$	1,271
	Research and development		2,323			3,055			3,159			5,378			5,550
	Sales and marketing		1,177			1,948			1,725			3,125			3,339
	General and administrative		(56	)		3,690			3,676			3,634			7,520
	Total stock-based compensation expense	$	3,679		$	9,013		$	9,200		$	12,692		$	17,680

Cost of revenues includes:
	Amortization of acquisition-related intangible assets	$	482		$	482		$	619		$	964		$	1,373

		Three Months Ended									Six Months Ended
REVENUE MIX BY END MARKET		June 30, 2022			March 31, 2022			June 30, 2021			June 30, 2022			June 30, 2021
	Communications		18	%		26	%		35	%		22	%		37	%
	Computer		9	%		10	%		8	%		10	%		8	%
	Consumer		38	%		35	%		31	%		36	%		30	%
	Industrial		35	%		29	%		26	%		32	%		25	%

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, 2022			March 31, 2022			June 30, 2021			June 30, 2022			June 30, 2021
RECONCILIATION OF GROSS PROFIT
GAAP gross profit			$	106,843		$	100,675		$	91,313		$	207,518		$	175,724
	GAAP gross margin			58.1	%		55.3	%		50.7	%		56.7	%		49.7	%

Stock-based compensation included in cost of revenues				235			320			640			555			1,271
Amortization of acquisition-related intangible assets				482			482			619			964			1,373

Non-GAAP gross profit			$	107,560		$	101,477		$	92,572		$	209,037		$	178,368
	Non-GAAP gross margin			58.5	%		55.7	%		51.4	%		57.1	%		50.4	%


			Three Months Ended									Six Months Ended
RECONCILIATION OF OPERATING EXPENSES			June 30, 2022			March 31, 2022			June 30, 2021			June 30, 2022			June 30, 2021
GAAP operating expenses			$	46,741		$	49,628		$	46,337		$	96,369		$	90,562

Less:	Stock-based compensation expense included in operating expenses
		Research and development		2,323			3,055			3,159			5,378			5,550
		Sales and marketing		1,177			1,948			1,725			3,125			3,339
		General and administrative		(56	)		3,690			3,676			3,634			7,520
		Total		3,444			8,693			8,560			12,137			16,409

	Amortization of acquisition-related intangible assets			60			181			193			241			409
	Other operating expenses, net			1,130			-			-			1,130			-

Non-GAAP operating expenses			$	42,107		$	40,754		$	37,584		$	82,861		$	73,744


			Three Months Ended									Six Months Ended
RECONCILIATION OF INCOME FROM OPERATIONS			June 30, 2022			March 31, 2022			June 30, 2021			June 30, 2022			June 30, 2021
GAAP income from operations			$	60,102		$	51,047		$	44,976		$	111,149		$	85,162
	GAAP operating margin			32.7	%		28.0	%		25.0	%		30.4	%		24.1	%

Add:	Total stock-based compensation			3,679			9,013			9,200			12,692			17,680
	Amortization of acquisition-related intangible assets			542			663			812			1,205			1,782
	Other operating expenses, net			1,130			-			-			1,130			-

Non-GAAP income from operations			$	65,453		$	60,723		$	54,988		$	126,176		$	104,624
	Non-GAAP operating margin			35.6	%		33.3	%		30.5	%		34.5	%		29.6	%


			Three Months Ended
RECONCILIATION OF PROVISION FOR INCOME TAXES			June 30, 2022			March 31, 2022			June 30, 2021			June 30, 2022			June 30, 2021
GAAP provision for income taxes			$	4,952		$	5,353		$	3,268		$	10,305		$	4,253
	GAAP effective tax rate			8.1	%		10.4	%		7.2	%		9.2	%		4.9	%

Tax effect of adjustments to GAAP results				(1,259	)		(122	)		(1,101	)		(1,381	)		(3,679	)

Non-GAAP provision for income taxes			$	6,211		$	5,475		$	4,369		$	11,686		$	7,932
	Non-GAAP effective tax rate			9.4	%		8.9	%		7.9	%		9.2	%		7.5	%


			Three Months Ended									Six Months Ended
RECONCILIATION OF NET INCOME PER SHARE (DILUTED)			June 30, 2022			March 31, 2022			June 30, 2021			June 30, 2022			June 30, 2021
GAAP net income			$	55,824		$	46,248		$	41,881		$	102,072		$	81,679

Adjustments to GAAP net income
	Stock-based compensation			3,679			9,013			9,200			12,692			17,680
	Amortization of acquisition-related intangible assets			542			663			812			1,205			1,782
	Other operating expenses, net			1,130			-			-			1,130			-
	Tax effect of items excluded from non-GAAP results			(1,259	)		(122	)		(1,101	)		(1,381	)		(3,679	)

Non-GAAP net income			$	59,916		$	55,802		$	50,792		$	115,718		$	97,462

Average shares outstanding for calculation
	of non-GAAP net income per share (diluted)			58,305			60,107			61,466			59,192			61,481

Non-GAAP net income per share (diluted)			$	1.03		$	0.93		$	0.83		$	1.95		$	1.59

GAAP net income per share (diluted)			$	0.96		$	0.77		$	0.68		$	1.72		$	1.33

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


		June 30, 2022			March 31, 2022			December 31, 2021
ASSETS
	CURRENT ASSETS:
	Cash and cash equivalents	$	67,383		$	170,624		$	158,117
	Short-term marketable securities		260,209			273,419			372,235
	Accounts receivable, net		27,980			30,658			41,393
	Inventories		111,258			103,115			99,266
	Prepaid expenses and other current assets		14,219			14,685			15,804
	Total current assets		481,049			592,501			686,815

	PROPERTY AND EQUIPMENT, net		184,245			180,073			179,824
	INTANGIBLE ASSETS, net		7,684			8,288			9,012
	GOODWILL		91,849			91,849			91,849
	DEFERRED TAX ASSETS		19,830			17,371			16,433
	OTHER ASSETS		24,347			29,113			30,554
	Total assets	$	809,004		$	919,195		$	1,014,487

LIABILITIES AND STOCKHOLDERS’ EQUITY
	CURRENT LIABILITIES:
	Accounts payable	$	41,402		$	36,175		$	43,721
	Accrued payroll and related expenses		14,569			13,459			15,492
	Taxes payable		561			5,601			1,210
	Other accrued liabilities		13,597			13,999			11,898
	Total current liabilities		70,129			69,234			72,321

	LONG-TERM LIABILITIES:
	Income taxes payable		15,739			15,384			15,280
	Other liabilities		12,891			14,004			14,854
	Total liabilities		98,759			98,622			102,455

STOCKHOLDERS' EQUITY:
	Common stock		24			26			28
	Additional paid-in capital		-			39,684			162,301
	Accumulated other comprehensive loss		(10,060	)		(8,169	)		(3,737	)
	Retained earnings		720,281			789,032			753,440
	Total stockholders' equity		710,245			820,573			912,032
	Total liabilities and stockholders' equity	$	809,004		$	919,195		$	1,014,487

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

		Three Months Ended									Six Months Ended
		June 30, 2022			March 31, 2022			June 30, 2021			June 30, 2022			June 30, 2021
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net income	$	55,824		$	46,248		$	41,881		$	102,072		$	81,679
	Adjustments to reconcile net income to cash provided by operating activities
	Depreciation		8,766			8,408			7,821			17,174			15,274
	Amortization of intangible assets		604			724			873			1,328			1,905
	Loss on disposal of property and equipment		959			75			21			1,034			38
	Stock-based compensation expense		3,679			9,013			9,200			12,692			17,680
	Amortization of premium on marketable securities		930			937			124			1,867			300
	Deferred income taxes		(2,346	)		(936	)		(263	)		(3,282	)		1,182
	Increase in accounts receivable allowance for credit losses		184			75			93			259			91
	Change in operating assets and liabilities:
	Accounts receivable		2,494			10,660			812			13,154			(5,533	)
	Inventories		(8,143	)		(3,849	)		866			(11,992	)		13,235
	Prepaid expenses and other assets		2,523			1,552			(1,248	)		4,075			(4,501	)
	Accounts payable		7,286			(1,709	)		4,772			5,577			8,053
	Taxes payable and other accrued liabilities		(5,938	)		3,399			1,896			(2,539	)		(4,433	)
	Net cash provided by operating activities		66,822			74,597			66,848			141,419			124,970

CASH FLOWS FROM INVESTING ACTIVITIES:
	Purchases of property and equipment		(13,244	)		(14,700	)		(8,243	)		(27,944	)		(19,294	)
	Proceeds from sale of property and equipment		-			1,202			10			1,202			35
	Purchases of marketable securities		(5,589	)		(15,121	)		(166,782	)		(20,710	)		(188,753	)
	Proceeds from sales and maturities of marketable securities		16,710			108,817			96,617			125,527			160,083
	Net cash provided by (used in) investing activities		(2,123	)		80,198			(78,398	)		78,075			(47,929	)

CASH FLOWS FROM FINANCING ACTIVITIES:
	Net proceeds from issuance of common stock		-			3,057			-			3,057			3,652
	Repurchase of common stock		(157,660	)		(134,689	)		(26,374	)		(292,349	)		(26,374	)
	Payments of dividends to stockholders		(10,280	)		(10,656	)		(7,867	)		(20,936	)		(15,712	)
	Net cash used in financing activities		(167,940	)		(142,288	)		(34,241	)		(310,228	)		(38,434	)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			(103,241	)		12,507			(45,791	)		(90,734	)		38,607

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			170,624			158,117			343,272			158,117			258,874

CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	67,383		$	170,624		$	297,481		$	67,383		$	297,481

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