Power Integrations Reports Fourth-Quarter Financial Results

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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

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