POWER INTEGRATIONS INC - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - August 2, 2011

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Exhibit 99.1

Power Integrations Reports Record Revenues

Quarterly sales topped $80 million for the first time

Company generated $35 million of cash flow from operations

SAN JOSE, Calif.--(BUSINESS WIRE)--August 2, 2011--Power Integrations (Nasdaq:POWI), the leader in high-voltage integrated circuits for energy-efficient power conversion, today announced financial results for the quarter ended June 30, 2011. Net revenues for the second quarter were $80.2 million, up four percent from the prior quarter and up slightly compared with the second quarter of 2010. Net income was $10.6 million or $0.35 per diluted share, compared with $0.33 per diluted share in the prior quarter and $0.53 per diluted share in the second quarter of 2010. Gross margin for the second quarter was 46.9 percent; operating margin was 16.4 percent.

In addition to its GAAP results, the company provided certain non-GAAP financial measures that exclude stock-based compensation expenses, amortization of the fair-value write-up of acquired inventory and acquisition-related intangible assets, and the tax effects of these items. Non-GAAP net income for the quarter was $13.1 million or $0.43 per diluted share, compared with $0.40 per diluted share in the prior quarter and $0.60 per diluted share in the second quarter of 2010. Non-GAAP gross margin for the second quarter was 47.5 percent; non-GAAP operating margin was 19.8 percent.

Commented Balu Balakrishnan, president and CEO of Power Integrations: “We surpassed $80 million in quarterly sales for the first time in our history, thanks in part to strong growth in LED lighting applications and the continued ramp of our new high-power products. We reduced inventories by nearly 15 percent during the quarter and generated $35 million of cash flow from operations.”

Balakrishnan continued: “We have also achieved significant cost reductions to help offset rising input costs — particularly higher wafer costs due to the decline of the dollar versus the Japanese yen, as well as higher commodity prices — which have impacted our profitability in recent quarters. We expect our gross margin to increase meaningfully in the fourth quarter as lower-cost inventory begins to flow through our results.”

Balakrishnan concluded: “While design activity remains healthy and our growth initiatives are on track, we have not yet seen evidence of a typical seasonal upturn in demand. Meanwhile, several of our largest end customers in the mobile-phone market have recently announced lower-than-expected sales. Based on these factors, we expect our third-quarter revenues to be between $74 million and $80 million. However, we are well positioned to respond to increased demand should it materialize.”

Additional Highlights

  • Inventories at quarter-end were $54.1 million, a decrease of $8.9 million during the quarter.
  • Power Integrations repurchased approximately 120,000 shares of its common stock during the second quarter for a total of $4.4 million. The company had $45.6 million remaining on its current repurchase authorization at quarter-end.
  • The company paid a quarterly dividend of $0.05 per share on June 30, 2011. The next dividend of $0.05 per share will be paid on September 30, 2011 to stockholders of record as of August 31.
  • Power Integrations received 14 U.S. patents and 42 foreign patents during the quarter, and had a total of 424 U.S. patents and 267 foreign patents as of June 30, 2011.

Financial Outlook for Third Quarter of 2011

The company issued the following forecast for the third quarter of 2011:

  • Revenues are expected to be between $74 million and $80 million;
  • Gross margins are expected to be flat to slightly lower compared with the second quarter;
  • Operating expenses:
    • GAAP: $25.2 million, plus or minus $0.5 million;
    • Non-GAAP: $22.5 million, plus or minus $0.5 million (excluding approximately $2.6 million of stock-based compensation expenses and less than $0.1 million of amortization expense related to acquisition-related intangible assets).

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 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 is the leading supplier of high-voltage integrated circuits used in energy-efficient power conversion. The company's innovative technology enables compact, energy-efficient power supplies in a wide range of electronic products, in AC-DC, DC-DC and LED lighting applications. Since its introduction in 1998, Power Integrations' EcoSmart™ energy-efficiency technology has saved an estimated $4.9 billion of standby energy waste and prevented millions of tons of CO2 emissions. The company's Green Room web site provides a wealth of information about "energy vampires" and the issue of standby energy waste, along with a comprehensive guide to energy-efficiency standards around the world. Reflecting the environmental benefits of EcoSmart technology, Power Integrations’ stock is included in The Cleantech Index® and the NASDAQ® Clean Edge® Green Energy Index. For more information, please visit 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 stock-based compensation expenses recorded under Accounting Standard Codification 718-10, certain acquisition-related expenses such as the amortization of acquisition-related intangible assets and the fair-value write-up of acquired inventory, 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 third-quarter 2011 financial performance and its expectation that its gross margin will improve substantially in the fourth quarter 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 these forward-looking statements. These risks and uncertainties include, but are not limited to: changes in global macroeconomic conditions that 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 company's ability to maintain and establish strategic relationships; the effects of competition; 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; 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 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 are more fully explained under the caption “Risk Factors” in the company's most recent Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission (SEC) on May 5, 2011. 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 Six Months Ended

June 30, 2011

March 31, 2011

June 30, 2010

June 30, 2011

June 30, 2010

NET REVENUES $ 80,184 $ 76,762 $ 79,858 $ 156,946 $ 151,365
 
COST OF REVENUES   42,558     40,339     38,369     82,897     73,954  
 
GROSS PROFIT   37,626     36,423     41,489     74,049     77,411  
 
OPERATING EXPENSES:
Research and development 10,195 10,023 8,674 20,218 16,785
Sales and marketing 8,104 8,248 7,527 16,352 14,447
General and administrative   6,141     6,475     6,465     12,616     12,478  
Total operating expenses   24,440     24,746     22,666     49,186     43,710  
 
INCOME FROM OPERATIONS 13,186 11,677 18,823 24,863 33,701
 
OTHER INCOME, net   461     442     471     903     965  
 
INCOME BEFORE PROVISION FOR INCOME TAXES 13,647 12,119 19,294 25,766 34,666
 
PROVISION FOR INCOME TAXES   3,048     2,265     3,707     5,313     6,765  
 
NET INCOME $ 10,599   $ 9,854   $ 15,587   $ 20,453   $ 27,901  
 
EARNINGS PER SHARE:
Basic $ 0.37   $ 0.34   $ 0.56   $ 0.71   $ 1.01  
Diluted $ 0.35   $ 0.33   $ 0.53   $ 0.68   $ 0.95  
 
SHARES USED IN PER-SHARE CALCULATION:
Basic 28,938 28,628 27,844 28,784 27,658
Diluted 30,346 30,187 29,535 30,271 29,460
 
 
SUPPLEMENTAL INFORMATION:
 
Stock-based compensation expenses included in:
Cost of revenues $ 216 $ 239 $ 173 $ 455 $ 330
Research and development 980 811 929 1,791 1,656
Sales and marketing 543 667 639 1,210 1,049
General and administrative   705     787     775     1,492     1,508  
Total stock-based compensation expense $ 2,444   $ 2,504   $ 2,516   $ 4,948   $ 4,543  
 
Cost of revenues includes:
Amortization of write-up of acquired inventory $ 148   $ 62   $ -   $ 210   $ -  
Amortization of acquisition-related intangible assets $ 85   $ 85   $ 41   $ 170   $ 82  
 
Operating expenses include:
Amortization of acquisition-related intangible assets $ 28   $ 28   $ -   $ 56   $ -  
Patent-litigation expenses $ 1,210   $ 1,257   $ 1,516   $ 2,467   $ 2,603  
 
REVENUE MIX BY PRODUCT FAMILY
TOPSwitch 24 % 23 % 25 % 24 % 25 %
TinySwitch 31 % 35 % 39 % 33 % 39 %
LinkSwitch 43 % 40 % 35 % 41 % 35 %
Other 2 % 2 % 1 % 2 % 1 %
 
REVENUE MIX BY END MARKET
Communications 28 % 32 % 28 % 30 % 30 %
Computer 13 % 11 % 12 % 12 % 12 %
Consumer 36 % 37 % 40 % 36 % 38 %
Industrial 23 % 20 % 20 % 22 % 20 %
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, 2011

March 31, 2011

June 30, 2010

June 30, 2011

June 30, 2010

RECONCILIATION OF GROSS PROFIT
GAAP gross profit $ 37,626 $ 36,423 $ 41,489 $ 74,049 $ 77,411
GAAP gross profit margin 46.9 % 47.4 % 52.0 % 47.2 % 51.1 %
 
Stock-based compensation included in cost of revenues 216 239 173 455 330
Amortization of write-up of acquired inventory 148 62 - 210 -
Amortization of acquisition-related intangible assets   85     85     41     170     82  
 
Non-GAAP gross profit $ 38,075   $ 36,809   $ 41,703   $ 74,884   $ 77,823  
Non-GAAP gross profit margin 47.5 % 48.0 % 52.2 % 47.7 % 51.4 %
 
 
RECONCILIATION OF OPERATING EXPENSES
GAAP operating expenses $ 24,440 $ 24,746 $ 22,666 $ 49,186 $ 43,710
 
Less:Stock-based compensation expense included in operating expenses
Research and development 980 811 929 1,791 1,656
Sales and marketing 543 667 639 1,210 1,049
General and administrative   705     787     775     1,492     1,508  
Total   2,228     2,265     2,343     4,493     4,213  
 
Amortization of acquisition-related intangible assets   28     28     -     56     -  
 
Non-GAAP operating expenses $ 22,184   $ 22,453   $ 20,323   $ 44,637   $ 39,497  
 
 
RECONCILIATION OF INCOME FROM OPERATIONS
GAAP income from operations $ 13,186 $ 11,677 $ 18,823 $ 24,863 $ 33,701
GAAP operating margin 16.4 % 15.2 % 23.6 % 15.8 % 22.3 %
 
Less:Total stock-based compensation 2,444 2,504 2,516 4,948 4,543
Amortization of write-up of acquired inventory 148 62 - 210 -
Amortization of acquisition-related intangible assets   113     113     41     226     82  
 
Non-GAAP income from operations $ 15,891   $ 14,356   $ 21,380   $ 30,247   $ 38,326  
Non-GAAP operating margin 19.8 % 18.7 % 26.8 % 19.3 % 25.3 %
 
 
RECONCILIATION OF PROVISION FOR INCOME TAXES
GAAP provision for income taxes $ 3,048   $ 2,265   $ 3,707   $ 5,313   $ 6,765  
GAAP effective tax rate 22.3 % 18.7 % 19.2 % 20.6 % 19.5 %
 
Tax effect of items excluded from non-GAAP results (225 ) (404 ) (356 ) (629 ) (362 )
 
Non-GAAP provision for income taxes $ 3,273   $ 2,669   $ 4,063   $ 5,942   $ 7,127  
Non-GAAP effective tax rate 20.0 % 18.0 % 18.6 % 19.1 % 18.1 %
 
 
RECONCILIATION OF NET INCOME PER SHARE (DILUTED)
GAAP net income $ 10,599 $ 9,854 $ 15,587 $ 20,453 $ 27,901
 
Adjustments to GAAP net income
Stock-based compensation 2,444 2,504 2,516 4,948 4,543
Amortization of write-up of acquired inventory 148 62 - 210 -
Amortization of acquisition-related intangible assets 113 113 41 226 82
Tax effect of items excluded from non-GAAP results   (225 )   (404 )   (356 )   (629 )   (362 )
 
Non-GAAP net income $ 13,079   $ 12,129   $ 17,788   $ 25,208   $ 32,164  
 

Average shares outstanding for calculation of non-GAAP income per share (diluted)

  30,346     30,187     29,535     30,271     29,460  
 
Non-GAAP income per share (diluted) $ 0.43   $ 0.40   $ 0.60   $ 0.83   $ 1.09  
 
GAAP income per share (diluted) $ 0.35   $ 0.33   $ 0.53   $ 0.68   $ 0.95  
POWER INTEGRATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
     
 

June 30, 2011

March 31, 2011

December 31, 2010

ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 170,494 $ 137,694 $ 155,667
Short-term investments 33,091 32,070 27,355
Accounts receivable 8,070 13,314 5,713
Inventories 54,069 63,004 62,077
Deferred tax assets 1,437 1,434 1,435
Prepaid expenses and other current assets   9,572   8,217   9,263
Total current assets   276,733   255,733   261,510
 
INVESTMENTS 30,043 36,815 31,760
PROPERTY AND EQUIPMENT, net 85,449 84,586 84,470
INTANGIBLE ASSETS, net 9,309 9,552 9,795
GOODWILL 14,826 14,826 14,826
DEFERRED TAX ASSETS 12,593 13,022 13,421
OTHER ASSETS   25,355   22,439   17,288
Total assets $ 454,308 $ 436,973 $ 433,070
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 14,173 $ 13,932 $ 20,291
Accrued payroll and related expenses 6,246 5,455 7,395
Income taxes payable 354 - -
Deferred income on sales to distributors 11,199 10,951 12,221
Other accrued liabilities   2,367   2,918   9,548
Total current liabilities   34,339   33,256   49,455
 
LONG-TERM LIABILITIES
Income taxes payable   32,040   30,676   29,580
 
Total liabilities   66,379   63,932   79,035
 
STOCKHOLDERS' EQUITY:
Common stock 29 29 28
Additional paid-in capital 191,549 185,834 175,295
Accumulated translation adjustment 158 135 85
Retained earnings   196,193   187,043   178,627
Total stockholders' equity   387,929   373,041   354,035
Total liabilities stockholders' equity $ 454,308 $ 436,973 $ 433,070
POWER INTEGRATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
         
Three Months Ended Six Months Ended

June 30, 2011

March 31, 2011

June 30, 2010

June 30, 2011

June 30, 2010

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 10,599 $ 9,854 $ 15,587 20,453 27,901
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation 3,790 3,682 3,029 7,472 5,800
Amortization of intangible assets 243 243 172 486 334
Gain on sale of property and equipment (41 ) - (362 ) (41 ) (349 )
Stock-based compensation expense 2,444 2,504 2,516 4,948 4,543
Amortization of premium on held-to-maturity investments 420 439 508 859 858
Deferred income taxes 427 399 (788 ) 826 710
Increase (decrease) in accounts receivable and other allowances 15 22 (18 ) 37 (18 )
Excess tax benefit from stock options exercised (299 ) (398 ) 285 (697 ) (891 )
Tax benefit associated with employee stock plans 755 783 115 1,538 2,040
Change in operating assets and liabilities:
Accounts receivable 5,230 (7,622 ) 9,322 (2,392 ) 3,492
Inventories 8,879 (964 ) (4,275 ) 7,915 (9,460 )
Prepaid expenses and other assets 1,613 1,435 4,234 3,048 3,562
Accounts payable (1,352 ) (2,908 ) (1,842 ) (4,260 ) 4,453
Taxes payable and other accrued liabilities 1,993 (525 ) 3,596 1,468 3,006
Deferred income on sales to distributors   248     (1,269 )   3,008     (1,021 )   5,885  
Net cash provided by operating activities   34,964     5,675     35,087     40,639     51,866  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (5,271 ) (7,248 ) (10,153 ) (12,519 ) (13,513 )
Proceeds from sale of property and equipment 2,249 - 1,415 2,249 1,415
Other assets (808 ) - - (808 ) -
Acquisition (13 ) (6,901 ) - (6,914 ) -
Increase in financing lease receivables (2,179 ) (5,642 ) - (7,821 ) -
Collections of financing lease receivables 103 102 - 205 -
Notes to third parties (3,000 ) - (3,000 ) (3,000 ) (4,750 )
Purchases of held-to-maturity investments - (11,508 ) - (11,508 ) (27,224 )
Proceeds from held-to-maturity investments   5,330     1,300     15,300     6,630     18,150  
Net cash provided by (used in) investing activities   (3,589 )   (29,897 )   3,562     (33,486 )   (25,922 )
 
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common stock 6,958 7,288 5,428 14,246 15,463
Repurchase of common stock (4,384 ) - (7,922 ) (4,384 ) (13,960 )
Retirement of performance shares for income tax withholding - - - - (769 )
Payments of dividends to stockholders (1,448 ) (1,437 ) (1,390 ) (2,885 ) (2,768 )
Excess tax benefit from stock options exercised   299     398     (285 )   697     891  
Net cash provided by (used in) financing activities   1,425     6,249     (4,169 )   7,674     (1,143 )
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 32,800 (17,973 ) 34,480 14,827 24,801
 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD   137,694     155,667     125,295     155,667     134,974  
 
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 170,494   $ 137,694   $ 159,775   $ 170,494   $ 159,775  
 
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Unpaid property and equipment, net $ 3,510   $ 1,917   $ (1,207 ) $ 3,510   $ 1,711  

CONTACT:
Power Integrations, Inc.
Joe Shiffler, 408-414-8528
jshiffler@powerint.com

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