POWER INTEGRATIONS INC - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - February 3, 2014

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Exhibit 99.1

Power Integrations Reports Fourth-Quarter and Full-Year 2013 Financial Results

Quarterly revenues increased 14 percent year-over-year to $90.4 million; non-GAAP earnings per diluted share grew 40% year-over-year to $0.66; GAAP earnings were $0.52 per diluted share

Full-year revenues grew 14 percent to $347.1 million; company generated $98.7 million in cash flow from operations during the year

SAN JOSE, Calif.--(BUSINESS WIRE)--February 3, 2014--Power Integrations (Nasdaq: POWI) today announced financial results for the quarter and year ended December 31, 2013. Net revenues for the quarter were $90.4 million, one percent lower than the prior quarter and up 14 percent from the fourth quarter of 2012. GAAP net income for the quarter was $16.0 million or $0.52 per diluted share, compared with $0.54 per diluted share in the prior quarter and $0.33 per diluted share in the fourth quarter of 2012. GAAP gross margin for the fourth quarter was 53.5 percent; operating margin was 16.7 percent.

In addition to its GAAP results, the company provided non-GAAP financial measures that exclude stock-based compensation expenses, gains and expenses related to acquisitions and strategic investments, non-cash interest income, the tax effects of these items, and a one-time tax-related charge incurred in 2012. Non-GAAP net income for the fourth quarter of 2013 was $20.4 million or $0.66 per diluted share, compared with $0.71 per diluted share in the prior quarter and $0.47 per diluted share in the fourth quarter of 2012. Non-GAAP gross margin for the fourth quarter was 54.5 percent; non-GAAP operating margin was 23.5 percent.

For the full year, the company reported record revenues of $347.1 million, an increase of 14 percent compared with 2012. Non-GAAP net income for the year was $2.46 per diluted share, compared with $1.80 per diluted share in the prior year. Full-year GAAP net income was $1.88 per diluted share, compared with a net loss of $1.20 per share in 2012.

Commented Balu Balakrishnan, president and CEO of Power Integrations: “2013 was a great year for Power Integrations, with double-digit sales growth, a 37-percent increase in non-GAAP EPS, and nearly $100 million in cash flow from operations. We ended the year with a strong quarter, and believe we’re well-positioned for 2014 and beyond. Energy efficiency continues to be a major factor in the electronics, appliance and industrial markets, and our addressable market is expanding thanks to strong growth in areas like LED lighting, renewable energy and rapid charging for mobile devices.”

Additional Highlights

  • Cash flow from operations in the fourth quarter and full year were $23.5 million and $98.7 million, respectively; cash and investments increased by $106.9 million during the year to a total of $202.1 million.
  • The company paid a dividend of $0.08 per share on December 31, 2013. A dividend of $0.10 per share is to be paid on March 31, 2014, to stockholders of record as of February 28.
  • Power Integrations received 23 U.S. patents and 18 non-U.S. patents during the quarter and had a total of 609 U.S. patents and 492 non-U.S. patents as of December 31, 2013.

Financial Outlook

The company issued the following forecast for the first quarter of 2014:

  • First-quarter revenues are expected to be between $86 million and $92 million.
  • Gross margins are expected to be similar to fourth-quarter levels.
  • Non-GAAP operating expenses are expected to be approximately $29 million. (Excludes from GAAP operating expenses approximately $4 million of stock-based compensation expenses and $1 million of amortization expense for acquisition-related intangible assets.) GAAP operating expenses are expected to be approximately $34 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 1-877-201-0168 from within the United States or 1-647-788-4901 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 drivers 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 IndexSM. 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 expenses, amortization of acquisition-related intangible assets and the fair-value write-up of acquired inventory, certain charges and gains associated with strategic investments, non-cash interest income, the tax effects of the above items, and a one-time tax-related charge incurred in the second quarter of 2012. 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 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 first-quarter 2014 financial performance and the statement that Power Integrations believes it is well-positioned for 2014 and beyond 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 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 Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission (SEC) on November 1, 2013. 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 Twelve Months Ended
December 31, 2013   September 30, 2013   December 31, 2012 December 31, 2013 December 31, 2012
NET REVENUES $ 90,412 $ 91,715 $ 79,170 $ 347,089 $ 305,370
 
COST OF REVENUES   42,021     42,941     39,767     163,853     154,868  
 
GROSS PROFIT   48,391     48,774     39,403     183,236     150,502  
 
OPERATING EXPENSES:
Research and development 12,909 12,984 11,575 51,654 45,709
Sales and marketing 10,951 10,091 9,232 40,943 34,968
General and administrative 8,266 7,984 8,109 32,050 29,312
Amortization of acquisition-related intangible assets 1,158 1,121 1,122 4,523 3,030
Charge (gain) related to SemiSouth - - (100 ) - 25,200
Acquisition expenses   -     -     -     -     931  
Total operating expenses   33,284     32,180     29,938     129,170     139,150  
 
INCOME FROM OPERATIONS 15,107 16,594 9,465 54,066 11,352
 
Non-cash interest income - - - - 1,445
Cost of acquisition-related currency option - - - - (635 )
Gain (charge) related to SemiSouth - - 192 497 (33,745 )
Other income (expense), net   497     82     (36 )   864     801  
 
INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME TAXES 15,604 16,676 9,621 55,427 (20,782 )
 
PROVISION (BENEFIT) FOR INCOME TAXES   (433 )   22     (96 )   (1,839 )   13,622  
 
NET INCOME (LOSS) $ 16,037   $ 16,654   $ 9,717   $ 57,266   $ (34,404 )
 
EARNINGS (LOSS) PER SHARE:
Basic $ 0.54   $ 0.56   $ 0.34   $ 1.95   $ (1.20 )
Diluted $ 0.52   $ 0.54   $ 0.33   $ 1.88   $ (1.20 )
 
SHARES USED IN PER-SHARE CALCULATION:
Basic 29,974 29,762 28,785 29,421 28,636
Diluted 30,924 30,652 29,436 30,420 28,636
 
 
SUPPLEMENTAL INFORMATION:
 
Stock-based compensation expenses included in:
Cost of revenues $ 250 $ 296 $ 286 $ 1,074 $ 1,058
Research and development 1,515 1,485 1,349 5,746 5,503
Sales and marketing 1,054 964 884 3,642 3,317
General and administrative   1,511     1,446     1,185     6,023     4,346  
Total stock-based compensation expense $ 4,330   $ 4,191   $ 3,704   $ 16,485   $ 14,224  
 
Cost of revenues includes:
Amortization of write-up of acquired inventory $ -   $ -   $ 1,459   $ -   $ 4,272  
Amortization of acquisition-related intangible assets $ 645   $ 645   $ 645   $ 2,580   $ 1,834  
 
Operating expenses include:
Patent-litigation expenses $ 1,772   $ 1,667   $ 2,099   $ 5,645   $ 6,689  
 
 
REVENUE MIX BY END MARKET
Communications 21 % 21 % 24 % 21 % 24 %
Computer 11 % 10 % 12 % 10 % 12 %
Consumer 34 % 34 % 33 % 35 % 36 %
Industrial 34 % 35 % 31 % 34 % 28 %
 
 
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, 2013   September 30, 2013 December 31, 2012 December 31, 2013 December 31, 2012
RECONCILIATION OF GROSS PROFIT
GAAP gross profit $ 48,391 $ 48,774 $ 39,403 $ 183,236 $ 150,502
GAAP gross profit margin 53.5 % 53.2 % 49.8 % 52.8 % 49.3 %
 
Stock-based compensation included in cost of revenues 250 296 286 1,074 1,058
Amortization of write-up of acquired inventory - - 1,459 - 4,272
Amortization of acquisition-related intangible assets   645     645     645     2,580     1,834  
 
Non-GAAP gross profit $ 49,286   $ 49,715   $ 41,793   $ 186,890   $ 157,666  
Non-GAAP gross profit margin 54.5 % 54.2 % 52.8 % 53.8 % 51.6 %
 
 
RECONCILIATION OF OPERATING EXPENSES
GAAP operating expenses $ 33,284 $ 32,180 $ 29,938 $ 129,170 $ 139,150
 
Less: Stock-based compensation expense included in operating expenses
Research and development 1,515 1,485 1,349 5,746 5,503
Sales and marketing 1,054 964 884 3,642 3,317
General and administrative   1,511     1,446     1,185     6,023     4,346  
Total   4,080     3,895     3,418     15,411     13,166  
 
Acquisition expenses   -     -     -     -     931  
 
Amortization of acquisition-related intangible assets   1,158     1,121     1,122     4,523     3,030  
 
Charge (gain) related to SemiSouth   -     -     (100 )   -     25,200  
 
Non-GAAP operating expenses $ 28,046   $ 27,164   $ 25,498   $ 109,236   $ 96,823  
 
 
RECONCILIATION OF INCOME FROM OPERATIONS
$ 15,107 $ 16,594 $ 9,465 $ 54,066 $ 11,352
GAAP operating margin 16.7 % 18.1 % 12.0 % 15.6 % 3.7 %
 
Add: Total stock-based compensation 4,330 4,191 3,704 16,485 14,224
Amortization of write-up of acquired inventory - - 1,459 - 4,272
Amortization of acquisition-related intangible assets 1,803 1,766 1,767 7,103 4,864
Charge (gain) related to SemiSouth - - (100 ) - 25,200
Acquisition expenses   -     -     -     -     931  
 
Non-GAAP income from operations $ 21,240   $ 22,551   $ 16,295   $ 77,654   $ 60,843  
Non-GAAP operating margin 23.5 % 24.6 % 20.6 % 22.4 % 19.9 %
 
 
RECONCILIATION OF PROVISION FOR INCOME TAXES
GAAP provision (benefit) for income taxes $ (433 ) $ 22 $ (96 ) $ (1,839 ) $ 13,622
GAAP effective tax rate -2.8 % 0.1 % -1.0 % -3.3 % -65.5 %
 
One-time charge associated with tax settlement - - - - 15,749
Tax effect of other adjustments to GAAP results   (1,751 )   (776 )   (2,634 )   (5,624 )   (10,216 )
 
Non-GAAP provision for income taxes $ 1,318   $ 798   $ 2,538   $ 3,785   $ 8,089  
Non-GAAP effective tax rate 6.1 % 3.5 % 15.6 % 4.8 % 13.1 %
 
 
RECONCILIATION OF NET INCOME (LOSS) PER SHARE (DILUTED)
GAAP net income (loss) $ 16,037 $ 16,654 $ 9,717 $ 57,266 $ (34,404 )
 
Adjustments to GAAP net income (loss)
Stock-based compensation 4,330 4,191 3,704 16,485 14,224
Amortization of write-up of acquired inventory - - 1,459 - 4,272
Amortization of acquisition-related intangible assets 1,803 1,766 1,767 7,103 4,864
Acquisition expenses - - - - 931
Non-cash interest income - - - - (1,445 )
Cost of acquisition-related currency option - - - - 635
One-time charge associated with tax settlement - - - - 15,749
Charge (gain) related to SemiSouth - - (292 ) (497 ) 58,945
Tax effect of items excluded from non-GAAP results   (1,751 )   (776 )   (2,634 )   (5,624 )   (10,216 )
 
Non-GAAP net income $ 20,419   $ 21,835   $ 13,721   $ 74,733   $ 53,555  
 
Average shares outstanding for calculation
of non-GAAP income per share (diluted)   30,924     30,652     29,436     30,420     29,676  
 
Non-GAAP net income per share (diluted) $ 0.66   $ 0.71   $ 0.47   $ 2.46   $ 1.80  
 
GAAP income (loss) per share $ 0.52   $ 0.54   $ 0.33   $ 1.88   $ (1.20 )
 
 
POWER INTEGRATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
           
 
December 31, 2013   September 30, 2013   December 31, 2012
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 92,928 $ 78,118 $ 63,394
Short-term marketable securities 109,179 102,051 31,766
Accounts receivable 12,389 15,101 7,326
Inventories 42,235 40,212 44,625
Deferred tax assets 2,059 344 352
Prepaid expenses and other current assets   18,632     15,557     17,401  
Total current assets   277,422     251,383     164,864  
 
PROPERTY AND EQUIPMENT, net 90,141 90,217 89,724
INTANGIBLE ASSETS, net 40,334 42,212 47,738
GOODWILL 80,599 80,599 80,599
DEFERRED TAX ASSETS 9,449 15,263 11,532
OTHER ASSETS   3,476     3,965     4,673  
Total assets $ 501,421   $ 483,639   $ 399,130  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 20,772 $ 20,267 $ 16,452
Accrued payroll and related expenses 8,900 8,157 6,720
Taxes payable 2,266 2,128 1,213
Deferred taxes 943 885 1,193
Deferred income on sales to distributors 15,727 16,861 11,550
Other accrued liabilities   1,810     2,661     3,439  
Total current liabilities   50,418     50,959     40,567  
 
LONG-TERM LIABILITIES
Income taxes payable 6,885 8,916 7,937
Deferred taxes 5,273 7,404 8,179
Other liabilities   2,159     1,456     1,398  
Total liabilities   64,735     68,735     58,081  
 
STOCKHOLDERS' EQUITY:
Common stock 30 30 28
Additional paid-in capital 223,660 215,404 175,668
Accumulated other comprehensive loss (470 ) (358 ) (293 )
Retained earnings   213,466     199,828     165,646  
Total stockholders' equity   436,686     414,904     341,049  
Total liabilities and stockholders' equity $ 501,421   $ 483,639   $ 399,130  
 
 

POWER INTEGRATIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
                             
Three Months Ended Twelve Months Ended
Dec. 31, 2013 Sept. 30, 2013 Dec. 31, 2012 Dec. 31, 2013 Dec. 31, 2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 16,037 $ 16,654 $ 9,717 $ 57,266 $ (34,404 )
Adjustments to reconcile net income (loss) to cash provided by operating activities
Depreciation 4,026 4,094 3,830 16,088 15,256
Amortization of intangible assets 1,878 1,842 1,842 7,404 5,164
Gain on disposal of property and equipment (148 ) - - (131 ) (1 )
Charge (gain) related to SemiSouth - - (292 ) (497 ) 58,945
Stock-based compensation expense 4,330 4,191 3,704 16,485 14,224
Amortization of premium on marketable securities 317 221 112 789 850
Non-cash interest income - - - (1,445 )
Deferred income taxes 2,025 (2,418 ) (2,072 ) (2,781 ) 2,017
Increase (decrease) in accounts receivable allowances - 26 (45 ) (127 ) (24 )
Excess tax benefit from stock options exercised (734 ) - (144 ) (734 ) (704 )
Tax benefit associated with employee stock plans 1,284 - (110 ) 1,284 1,303
Change in operating assets and liabilities:
Accounts receivable 2,712 646 3,824 (4,936 ) 5,313
Inventories (1,984 ) 2,938 2,281 2,375 18,026
Prepaid expenses and other assets (3,118 ) (3,603 ) 327 (1,523 ) (11,008 )
Accounts payable (485 ) (505 ) (2,771 ) 2,467 2,071
Taxes payable and other accrued liabilities (1,543 ) 3,088 2,226 1,065 (26,029 )
Deferred income on sales to distributors   (1,134 )   1,827     (278 )   4,177     2,276  
Net cash provided by operating activities   23,463     29,001     22,151     98,671     51,830  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (2,710 ) (4,358 ) (4,177 ) (13,960 ) (16,358 )
Proceeds from sale of property and equipment - - - 36 2
Proceeds from sale of SemiSouth related assets - - - 959 -
Acquisition - - - - (115,720 )
Increase in financing lease receivables - - - - (420 )
Collections of financing lease and other receivables 433 - - 433 527
Loan to SemiSouth - - - - (18,000 )
Payment of guarantee of SemiSouth debt - - (15,200 ) - (15,200 )
Purchases of marketable securities (13,211 ) (51,048 ) - (109,482 ) -
Proceeds from maturities of marketable securities   5,900     8,600     3,675     31,350     40,463  
Net cash used in investing activities   (9,588 )   (46,806 )   (15,702 )   (90,664 )   (124,706 )
 
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common stock 2,601 12,889 3,975 30,239 21,952
Repurchase of common stock - - (20,467 ) - (20,467 )
Payments of dividends to stockholders (2,400 ) (2,392 ) (1,454 ) (9,446 ) (5,755 )
Excess tax benefit from stock options exercised   734     -     144     734     704  
Net cash provided by (used in) financing activities   935     10,497     (17,802 )   21,527     (3,566 )
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 14,810 (7,308 ) (11,353 ) 29,534 (76,442 )
 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD   78,118     85,426     74,747     63,394     139,836  
 
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 92,928   $ 78,118   $ 63,394   $ 92,928   $ 63,394  
 

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

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