Power Integrations Reports First-Quarter Financial Results

Revenues increased eight percent sequentially to $71.8 million; cash flow from operations was $21.6 million -- Acquisition of CT-Concept completed on May 1

Power Integrations (Nasdaq:POWI), the leader in high-voltage integrated circuits for energy-efficient power conversion, today announced financial results for the quarter ended March 31, 2012. Net revenues for the first quarter were $71.8 million, up eight percent from the prior quarter and down six percent compared with the first quarter of 2011. Net income was $7.5 million or $0.25 per diluted share, compared with $0.22 per diluted share in the prior quarter and $0.33 per diluted share in the first quarter of 2011. Gross margin for the first quarter was 48.2 percent; operating margin was 12.2 percent.

In addition to its GAAP results, the company provided certain non-GAAP financial measures that exclude stock-based compensation expenses, certain acquisition-related costs and expenses, non-cash interest income, and the tax effects of these items. Non-GAAP net income for the quarter was $10.7 million or $0.36 per diluted share, compared with $0.29 per diluted share in the prior quarter and $0.40 per diluted share in the first quarter of 2011. Non-GAAP gross margin for the first quarter was 48.8 percent; non-GAAP operating margin was 17.3 percent.

Commented Balu Balakrishnan, president and CEO of Power Integrations: “Our first-quarter revenues came in ahead of our projections driven by strong sequential growth in industrial and consumer applications. The improvement in bookings that began in November continued through the first quarter and the month of April, and we expect revenues to grow sequentially again in the second quarter. We also expect further improvement in our non-GAAP gross margin, which expanded by a full percentage point in the first quarter.”

Mr. Balakrishnan continued: “Earlier this week we completed our acquisition of CT-Concept, extending our footprint in high-voltage power conversion to include high-power applications such as industrial motor drives, renewable energy systems, mass transit and automotive. With CT-Concept’s innovative IGBT drivers, we can now bring the same benefits of integration – reliability, efficiency and ease of design – to these high-power systems that we already bring to lower-power applications.”

Additional Highlights

Cash flow from operations was $21.6 million for the quarter.
The company paid a dividend of $0.05 per share on March 30, 2012. The next dividend of $0.05 per share will be paid on June 29, 2012 to stockholders of record as of May 31, 2012.
Power Integrations was issued 23 U.S. patents and 35 non-U.S. patents during the quarter and had a total of 474 U.S. patents and 347 non-U.S. patents as of March 31, 2012.

Financial Outlook

The company issued the following forecast for the second quarter of 2012. The forecast reflects a partial quarter of results from CT-Concept, which Power Integrations acquired on May 1, 2012.

Second-quarter revenues are expected to be between $78 million and $84 million.
Non-GAAP gross margin is expected to increase by approximately one percentage point compared with the first quarter (calculated by excluding from GAAP cost of revenues approximately $0.3 million of stock-based compensation, $0.5 million of amortization of acquisition-related intangible assets and $1.5 million of amortization of the write-up of acquired inventory). GAAP gross margin is expected to be approximately 47 percent.
Non-GAAP operating expenses are expected to be between $24 million and $25 million. (Excludes from GAAP operating expenses approximately $3.5 million of stock-based compensation expenses, $0.5 million of acquisition expenses, and $0.5 million of amortization expense for acquisition-related intangible assets). GAAP operating expenses are expected to be $29 million, plus or minus $0.5 million.

Conference Call Today at 1:45 p.m. Pacific Time

Power Integrations management will hold a conference call today at 1:45 p.m. Pacific time. Members of the investment community can join the call by dialing 1-877-303-9795 from within the United States or 1-631-291-4581 from outside the U.S. The call will 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 a Silicon Valley-based supplier of high-performance electronic components used in high-voltage power-conversion systems. The company’s integrated circuits and diodes enable compact, energy-efficient AC-DC power supplies for a vast range of electronic products including mobile devices, TVs, PCs, appliances, smart utility meters and LED lights. CONCEPT IGBT driver systems enhance the efficiency, reliability and cost of high-power applications such as industrial motor drives, solar and wind energy systems, electric vehicles and high-voltage DC transmission. Since its introduction in 1998, Power Integrations’ EcoSmart^® energy-efficiency technology has prevented billions of dollars’ worth of energy waste and millions of tons of carbon emissions. Reflecting the environmental benefits of the company’s products, Power Integrations’ stock is included in the NASDAQ^® Clean Edge^® Green Energy Index, The Cleantech Index^®, and the Ardour Global Index^SM. For more information, including design-support tools and resources, please visit www.powerint.com; visit Power Integrations’ Green Room for a comprehensive guide to energy-efficiency standards around the world.

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 Accounting Standard Codification 718-10, acquisition-related transaction expenses, amortization of acquisition-related intangible assets and the fair-value write-up of acquired inventory, non-cash interest income, and the tax effects of these items. 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 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 companies in Power Integrations’ industry, may calculate non-GAAP financial measures differently, limiting their usefulness as comparative measures.

Note Regarding Forward-Looking Statements

The statements in this press release relating to the company’s projected second-quarter 2012 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 changes. Due to risks and uncertainties associated with the company's business, actual results could differ materially from those projected or implied by these forward-looking 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; unfavorable fluctuations in component costs resulting from changes in commodity prices and/or the exchange rate between the U.S. dollar and the Japanese yen; and the challenges inherent in integrating and forecasting the performance of acquired businesses. 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 29, 2012. 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, EcoSmart and the Power Integrations logo are trademarks or registered trademarks of Power Integrations, Inc. All other trademarks are property of their respective owners.

POWER INTEGRATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per-share amounts)


		Three Months Ended
		March 31, 2012			December 31, 2011			March 31, 2011
NET REVENUES		$	71,773		$	66,730		$	76,762

COST OF REVENUES			37,181			35,176			40,339

GROSS PROFIT			34,592			31,554			36,423

OPERATING EXPENSES:
Research and development			10,640			9,732			10,023
Sales and marketing			8,111			8,254			8,220
General and administrative			6,603			5,747			6,475
Amortization of acquisition-related intangible assets			28			28			28
Acquisition expenses			489			-			-
	Total operating expenses		25,871			23,761			24,746

INCOME FROM OPERATIONS			8,721			7,793			11,677

Non-cash interest income			157			-			-
Other income, net			458			421			442

INCOME BEFORE PROVISION FOR INCOME TAXES			9,336			8,214			12,119

PROVISION FOR INCOME TAXES			1,875			1,888			2,265

NET INCOME		$	7,461		$	6,326		$	9,854

EARNINGS PER SHARE:
	Basic	$	0.26		$	0.23		$	0.34
	Diluted	$	0.25		$	0.22		$	0.33

SHARES USED IN PER-SHARE CALCULATION:
	Basic		28,227			28,077			28,628
	Diluted		29,435			29,171			30,187


SUPPLEMENTAL INFORMATION:

Stock-based compensation expenses included in:
	Cost of revenues	$	245		$	81		$	239
	Research and development		1,120			920			811
	Sales and marketing		747			655			667
	General and administrative		919			696			787
	Total stock-based compensation expense	$	3,031		$	2,352		$	2,504

Cost of revenues includes:
	Amortization of write-up of acquired inventory	$	80		$	152		$	62
	Amortization of acquisition-related intangible assets	$	85		$	85		$	85

Operating expenses include:
	Patent-litigation expenses	$	1,296		$	1,446		$	1,257


REVENUE MIX BY END MARKET
	Communications		27	%		28	%		32	%
	Computer		12	%		13	%		11	%
	Consumer		40	%		39	%		37	%
	Industrial		21	%		20	%		20	%

REVENUE MIX BY PRODUCT FAMILY
	TOPSwitch		23	%		21	%		23	%
	TinySwitch		33	%		34	%		35	%
	LinkSwitch		41	%		42	%		40	%
	Other		3	%		3	%		2	%

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

			Three Months Ended
			March 31, 2012			Dec. 31, 2011			March 31, 2011
RECONCILIATION OF GROSS PROFIT
GAAP gross profit			$	34,592		$	31,554		$	36,423
	GAAP gross profit margin			48.2	%		47.3	%		47.4	%

Stock-based compensation included in cost of revenues				245			81			239
Amortization of write-up of acquired inventory				80			152			62
Amortization of acquisition-related intangible assets				85			85			85

Non-GAAP gross profit			$	35,002		$	31,872		$	36,809
	Non-GAAP gross profit margin			48.8	%		47.8	%		48.0	%


RECONCILIATION OF OPERATING EXPENSES
GAAP operating expenses			$	25,871		$	23,761		$	24,746

Less:	Stock-based compensation expense included in operating expenses
		Research and development		1,120			920			811
		Sales and marketing		747			655			667
		General and administrative		919			696			787
		Total		2,786			2,271			2,265

	Acquisition expenses			489			-			-

	Amortization of acquisition-related intangible assets			28			28			28

Non-GAAP operating expenses			$	22,568		$	21,462		$	22,453


RECONCILIATION OF INCOME FROM OPERATIONS
GAAP income from operations			$	8,721		$	7,793		$	11,677
	GAAP operating margin			12.2	%		11.7	%		15.2	%

Add:	Total stock-based compensation			3,031			2,352			2,504
	Amortization of write-up of acquired inventory			80			152			62
	Amortization of acquisition-related intangible assets			113			113			113
	Acquisition expenses			489			-			-

Non-GAAP income from operations			$	12,434		$	10,410		$	14,356
	Non-GAAP operating margin			17.3	%		15.6	%		18.7	%


RECONCILIATION OF PROVISION FOR INCOME TAXES
GAAP provision for income taxes			$	1,875		$	1,888		$	2,265
	GAAP effective tax rate			20.1	%		23.0	%		18.7	%

Tax effect of adjustments to GAAP results				(304	)		(478	)		(404	)

Non-GAAP provision for income taxes			$	2,179		$	2,366		$	2,669
	Non-GAAP effective tax rate			16.9	%		21.8	%		18.0	%


RECONCILIATION OF NET INCOME PER SHARE (DILUTED)
GAAP net income			$	7,461		$	6,326		$	9,854

Adjustments to GAAP net income
	Stock-based compensation			3,031			2,352			2,504
	Amortization of write-up of acquired inventory			80			152			62
	Amortization of acquisition-related intangible assets			113			113			113
	Acquisition expenses			489			-			-
	Non-cash interest income			(157	)		-			-
	Tax effect of items excluded from non-GAAP results			(304	)		(478	)		(404	)

Non-GAAP net income			$	10,713		$	8,465		$	12,129

Average shares outstanding for calculation of adjusted income per share (diluted)				29,435			29,171			30,187

Non-GAAP net income per share (diluted)			$	0.36		$	0.29		$	0.40

GAAP income per share (diluted)			$	0.25		$	0.22		$	0.33

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


		March 31, 2012		December 31, 2011
ASSETS
	CURRENT ASSETS:
	Cash and cash equivalents	$	147,155	$	139,836
	Short-term marketable securities		66,855		40,899
	Accounts receivable		16,696		9,396
	Inventories		42,851		52,010
	Deferred tax assets		890		892
	Prepaid expenses and other current assets		6,222		7,068
	Total current assets		280,669		250,101

	MARKETABLE SECURITIES		-		32,041
	PROPERTY AND EQUIPMENT, net		89,695		88,241
	INTANGIBLE ASSETS, net		8,663		8,852
	GOODWILL		14,786		14,786
	DEFERRED TAX ASSETS		12,716		12,387
	OTHER ASSETS		43,724		26,511
	Total assets	$	450,253	$	432,919

LIABILITIES AND STOCKHOLDERS’ EQUITY
	CURRENT LIABILITIES:
	Accounts payable	$	15,165	$	16,532
	Accrued payroll and related expenses		5,279		5,911
	Deferred income on sales to distributors		9,373		7,883
	Other accrued liabilities		2,661		2,305
	Total current liabilities		32,478		32,631

	LONG-TERM LIABILITIES
	Income taxes payable		35,190		34,368

	Total liabilities		67,668		66,999

STOCKHOLDERS' EQUITY:
	Common stock		28		28
	Additional paid-in capital		168,918		158,646
	Accumulated other comprehensive income		398		50
	Retained earnings		213,241		207,196
	Total stockholders' equity		382,585		365,920
	Total liabilities and stockholders' equity	$	450,253	$	432,919

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

		Three Months Ended
		March 31, 2012			Dec. 31, 2011			March 31, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net income	$	7,461		$	6,326		$	9,854
	Adjustments to reconcile net income to cash provided by operating activities
	Depreciation		3,732			4,035			3,682
	Amortization of intangible assets		189			214			243
	Gain on sale of property and equipment		(1	)		-			-
	Stock-based compensation expense		3,031			2,352			2,504
	Amortization of premium on marketable securities		309			372			439
	Non-cash interest income from SemiSouth note		(157	)		-			-
	Deferred income taxes		(327	)		798			399
	Increase (decrease) in accounts receivable allowances		-			13			22
	Excess tax benefit from stock options exercised		(198	)		(67	)		(398	)
	Tax benefit associated with employee stock plans		782			375			783
	Change in operating assets and liabilities:
	Accounts receivable		(7,300	)		921			(7,622	)
	Inventories		9,161			(147	)		(964	)
	Prepaid expenses and other assets		1,306			(1,204	)		1,435
	Accounts payable		1,485			(474	)		(2,908	)
	Taxes payable and other accrued liabilities		604			(1,914	)		(525	)
	Deferred income on sales to distributors		1,490			(2,434	)		(1,269	)
	Net cash provided by operating activities		21,567			9,166			5,675

CASH FLOWS FROM INVESTING ACTIVITIES:
	Purchases of property and equipment		(7,471	)		(6,994	)		(7,248	)
	Proceeds from sale of property and equipment		2			-			-
	Other assets		-			(6	)		-
	Acquisition		-			-			(6,901	)
	Increase in financing lease receivables		(383	)		(138	)		(5,642	)
	Collections of financing lease receivables		299			111			102
	Note from SemiSouth		(18,000	)		-			-
	Purchases of marketable securities		-			(10,907	)		(11,508	)
	Proceeds from maturities of marketable securities		6,065			11,550			1,300
	Net cash used in investing activities		(19,488	)		(6,384	)		(29,897	)

CASH FLOWS FROM FINANCING ACTIVITIES
	Net proceeds from issuance of common stock		6,457			3,992			7,288
	Repurchase of common stock		-			(14,181	)		-
	Payments of dividends to stockholders		(1,415	)		(1,402	)		(1,437	)
	Excess tax benefit from stock options exercised		198			67			398
	Net cash provided by (used in) financing activities		5,240			(11,524	)		6,249

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			7,319			(8,742	)		(17,973	)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			139,836			148,578			155,667

CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	147,155		$	139,836		$	137,694

Contact:

Power Integrations, Inc.
Joe Shiffler, 408-414-8528
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Power Integrations ( POWI )

Power Integrations Reports First-Quarter Financial Results