Power Integrations (POWI) 8-K Power Integrations Reports Second-Quarter Financial Results

Exhibit 99.1

Power Integrations Reports Second-Quarter Financial Results

Revenues were $109.5 million; GAAP earnings were $0.51 per diluted share; non-GAAP earnings were $0.74 per diluted share

SAN JOSE, Calif.--(BUSINESS WIRE)--July 26, 2018--Power Integrations (Nasdaq: POWI) today announced financial results for the quarter ended June 30, 2018. Net revenues for the second quarter were $109.5 million, an increase of six percent from the prior quarter and an increase of two percent from the second quarter of 2017. Net income for the quarter was $15.4 million or $0.51 per diluted share, compared to net income of $0.46 per diluted share in the prior quarter and $0.46 per diluted share in the second quarter of 2017. Cash flow from operations was $26.7 million for the quarter.

In addition to its GAAP results, the company provided certain non-GAAP financial measures that exclude stock-based compensation expenses, amortization of acquisition-related intangible assets and the tax effects of these items. Non-GAAP net income for the second quarter of 2018 was $22.2 million or $0.74 per diluted share, compared with $0.67 per diluted share in the prior quarter and $0.69 per diluted share in the second quarter of 2017.

Commented Balu Balakrishnan, president and CEO of Power Integrations: “Revenues and earnings increased significantly compared to the prior quarter, and we generated strong cash flow while returning nearly $35 million to stockholders. While some customers have begun to express caution in light of global trade issues, we expect third-quarter sequential revenue growth consistent with recent seasonality. Meanwhile, InnoSwitch™-3 products are winning designs across a broad range of applications, and the next phase of growth in rapid-charging applications is taking shape as USB PD technology approaches mass adoption.

“We also achieved an important operational milestone in the second quarter with the announcement of AEC-Q100 automotive certification for our SCALE-iDriver^® gate-driver products. Electric-vehicle makers want safe, reliable power-conversion products for drivetrain, charging and other high-voltage applications in the car, and we are encouraged by the response of automotive customers.”

Additional Highlights

• Power Integrations repurchased approximately 434,000 shares of its common stock during the second quarter, utilizing $30.1 million. The company had $11.0 million remaining on its repurchase authorization at quarter-end.
• The company paid a dividend of $0.16 per share on June 29, 2018. A dividend of $0.16 per share is scheduled to be paid on September 28, 2018, to stockholders of record as of August 31, 2018.
• Power Integrations was issued nine U.S. patents during the second quarter of 2018.

Financial Outlook

The company issued the following forecast for the third quarter of 2018:

• Revenues are expected to be $114 million plus or minus $3 million.
• Gross margins are expected to be similar to second-quarter levels.
• GAAP operating expenses are expected to be between $41.5 million and $42.5 million; non-GAAP operating expenses are expected to be between $35 million and $36 million. (Non-GAAP expenses are expected to exclude approximately $6 million of stock-based compensation and $0.5 million of amortization of 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 1-647-689-4187. 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 (including in-place lease intangible assets) 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. These 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 statements in this press release 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: 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’s revenues to decrease or 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; 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 14, 2018. 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 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, 2018			March 31, 2018			June 30, 2017			June 30, 2018			June 30, 2017
NET REVENUES	$	109,482		$	103,081		$	107,563		$	212,563		$	212,251
COST OF REVENUES		53,248			49,537			54,116			102,785			108,328
GROSS PROFIT		56,234			53,544			53,447			109,778			103,923
OPERATING EXPENSES:
Research and development		17,898			17,481			17,341			35,379			33,981
Sales and marketing		13,022			12,574			12,607			25,596			24,240
General and administrative		9,220			9,014			8,765			18,234			17,469
Amortization of acquisition-related intangible assets		475	��		514			537			989			1,120
Total operating expenses		40,615			39,583			39,250			80,198			76,810
INCOME FROM OPERATIONS		15,619			13,961			14,197			29,580			27,113
Other income, net		885			836			465			1,721			971
INCOME BEFORE INCOME TAXES		16,504			14,797			14,662			31,301			28,084
PROVISION FOR INCOME TAXES		1,123			597			760			1,720			83
NET INCOME	$	15,381		$	14,200		$	13,902		$	29,581		$	28,001
EARNINGS PER SHARE:
Basic	$	0.52		$	0.48		$	0.47		$	1.00		$	0.95
Diluted	$	0.51		$	0.46		$	0.46		$	0.97		$	0.92
SHARES USED IN PER-SHARE CALCULATION:
Basic		29,505			29,799			29,720			29,651			29,589
Diluted		30,183			30,552			30,454			30,387			30,370
SUPPLEMENTAL INFORMATION:
Stock-based compensation expenses included in:
Cost of revenues	$	292		$	249		$	351		$	541		$	494
Research and development		2,271			1,839			2,351			4,110			3,985
Sales and marketing		1,126			1,276			1,189			2,402			2,286
General and administrative		2,426			2,261			2,436			4,687			4,531
Total stock-based compensation expense	$	6,115		$	5,625		$	6,327		$	11,740		$	11,296
Cost of revenues includes:
Amortization of acquisition-related intangible assets	$	813		$	813		$	939		$	1,626		$	1,878
General & administrative expenses include:
Patent-litigation expenses	$	2,019		$	1,897		$	1,779		$	3,916		$	3,623
Other income, net includes:
Amortization of in-place lease intangible assets	$	-		$	-		$	90		$	-		$	180
REVENUE MIX BY END MARKET
Communications		20	%		19	%		22	%		20	%		25	%
Computer		5	%		5	%		4	%		5	%		4	%
Consumer		40	%		40	%		41	%		40	%		39	%
Industrial		35	%		36	%		33	%		35	%		32	%

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, 2018			March 31, 2018			June 30, 2017			June 30, 2018			June 30, 2017
RECONCILIATION OF GROSS PROFIT
GAAP gross profit	$	56,234		$	53,544		$	53,447		$	109,778		$	103,923
GAAP gross margin		51.4	%		51.9	%		49.7	%		51.6	%		49.0	%
Stock-based compensation included in cost of revenues		292			249			351			541			494
Amortization of acquisition-related intangible assets		813			813			939			1,626			1,878
Non-GAAP gross profit	$	57,339		$	54,606		$	54,737		$	111,945		$	106,295
Non-GAAP gross margin		52.4	%		53.0	%		50.9	%		52.7	%		50.1	%
RECONCILIATION OF OPERATING EXPENSES
GAAP operating expenses	$	40,615		$	39,583		$	39,250		$	80,198		$	76,810
Less:Stock-based compensation expense included in operating expenses
Research and development		2,271			1,839			2,351			4,110			3,985
Sales and marketing		1,126			1,276			1,189			2,402			2,286
General and administrative		2,426			2,261			2,436			4,687			4,531
Total		5,823			5,376			5,976			11,199			10,802
Amortization of acquisition-related intangible assets		475			514			537			989			1,120
Non-GAAP operating expenses	$	34,317		$	33,693		$	32,737		$	68,010		$	64,888
RECONCILIATION OF INCOME FROM OPERATIONS
GAAP income from operations	$	15,619		$	13,961		$	14,197		$	29,580		$	27,113
GAAP operating margin		14.3	%		13.5	%		13.2	%		13.9	%		12.8	%
Add: Total stock-based compensation		6,115			5,625			6,327			11,740			11,296
Amortization of acquisition-related intangible assets		1,288			1,327			1,476			2,615			2,998
Non-GAAP income from operations	$	23,022		$	20,913		$	22,000		$	43,935		$	41,407
Non-GAAP operating margin		21.0	%		20.3	%		20.5	%		20.7	%		19.5	%
RECONCILIATION OF PROVISION (BENEFIT) FOR INCOME TAXES
GAAP provision for income taxes	$	1,123		$	597		$	760		$	1,720		$	83
GAAP effective tax rate		6.8	%		4.0	%		5.2	%		5.5	%		0.3	%
Tax effect of adjustments to GAAP results		(559	)		(789	)		(736	)		(1,348	)		(2,269	)
Non-GAAP provision for income taxes	$	1,682		$	1,386		$	1,496		$	3,068		$	2,352
Non-GAAP effective tax rate		7.0	%		6.4	%		6.6	%		6.7	%		5.5	%
RECONCILIATION OF NET INCOME (LOSS) PER SHARE (DILUTED)
GAAP net income	$	15,381		$	14,200		$	13,902		$	29,581		$	28,001
Adjustments to GAAP net income
Stock-based compensation		6,115			5,625			6,327			11,740			11,296
Amortization of acquisition-related intangible assets		1,288			1,327			1,476			2,615			2,998
Amortization of in-place lease intangible assets		-			-			90			-			180
Tax effect of items excluded from non-GAAP results		(559	)		(789	)		(736	)		(1,348	)		(2,269	)
Non-GAAP net income	$	22,225		$	20,363		$	21,059		$	42,588		$	40,206
Average shares outstanding for calculation of non-GAAP income per share (diluted)		30,183			30,552			30,454			30,387			30,370
Non-GAAP net income per share (diluted)	$	0.74		$	0.67		$	0.69		$	1.40		$	1.32
GAAP income per share	$	0.51		$	0.46		$	0.46		$	0.97		$	0.92

POWER INTEGRATIONS, INC. CONSOLIDATED BALANCE SHEETS (in thousands)
	June 30, 2018			March 31, 2018			December 31, 2017
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	148,187		$	121,327		$	93,655
Short-term marketable securities		98,494			136,370			189,236
Accounts receivable, net		6,843			17,727			16,798
Inventories		68,824			63,208			57,087
Prepaid expenses and other current assets		10,619			11,003			7,758
Total current assets		332,967			349,635			364,534
PROPERTY AND EQUIPMENT, net		111,063			109,871			111,705
INTANGIBLE ASSETS, net		23,751			25,071			25,419
GOODWILL		91,849			91,849			91,849
DEFERRED TAX ASSETS		3,181			2,506			2,364
OTHER ASSETS		25,216			25,502			25,203
Total assets	$	588,027		$	604,434		$	621,074
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	26,518		$	30,991		$	33,211
Accrued payroll and related expenses		12,053			10,564			12,064
Taxes payable		1,254			2,183			1,767
Other accrued liabilities		4,588			4,427			4,009
Total current liabilities		44,413			48,165			51,051
LONG-TERM LIABILITIES:
Income taxes payable		17,635			18,138			18,259
Deferred tax liabilities		55			140			138
Other liabilities		4,095			4,159			3,944
Total liabilities		66,198			70,602			73,392
STOCKHOLDERS' EQUITY:
Common stock		28			29			29
Additional paid-in capital		152,380			175,352			198,384
Accumulated other comprehensive loss		(2,088	)		(2,382	)		(2,139	)
Retained earnings		371,509			360,833			351,408
Total stockholders' equity		521,829			533,832			547,682
Total liabilities and stockholders' equity	$	588,027		$	604,434		$	621,074

POWER INTEGRATIONS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
	Three Months Ended									Six Months Ended
	June 30, 2018			March 31, 2018			June 30, 2017			June 30, 2018			June 30, 2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	15,381		$	14,200		$	13,902		$	29,581		$	28,001
Adjustments to reconcile net income to cash provided by operating activities
Depreciation		4,760			4,931			4,357			9,691			8,469
Amortization of intangible assets		1,320			1,348			1,566			2,668			3,178
Loss on disposal of property and equipment		22			38			-			60			38
Stock-based compensation expense		6,115			5,625			6,327			11,740			11,296
Amortization of premium on marketable securities		114			262			257			376			508
Deferred income taxes		(760	)		(140	)		457			(900	)		(648	)
Increase in accounts receivable allowances		12			5			80			17			80
Change in operating assets and liabilities:
Accounts receivable		10,872			(934	)		(3,731	)		9,938			(12,249	)
Inventories		(5,616	)		(6,121	)		(1,283	)		(11,737	)		132
Prepaid expenses and other assets		1,753			(3,141	)		(115	)		(1,388	)		(8,349	)
Accounts payable		(7,509	)		233			(1,252	)		(7,276	)		(3,629	)
Taxes payable and other accrued liabilities		233			(577	)		3,523			(344	)		3,208
Net cash provided by operating activities		26,697			15,729			24,088			42,426			30,035
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(4,022	)		(6,491	)		(16,473	)		(10,513	)		(22,876	)
Acquisition of technology licenses		-			(500	)		-			(500	)		-
Purchases of marketable securities		-			-			(49,636	)		-			(111,574	)
Proceeds from sales and maturities of marketable securities		37,987			52,366			31,800			90,353			78,140
Net cash provided by (used in) investing activities		33,965			45,375			(34,309	)		79,340			(56,310	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common stock		978			4,657			697			5,635			5,089
Repurchase of common stock		(30,075	)		(33,314	)		-			(63,389	)		-
Payments of dividends to stockholders		(4,705	)		(4,775	)		(4,162	)		(9,480	)		(8,299	)
Proceeds from draw on line of credit		-			8,000			-			8,000			-
Payments on line of credit		-			(8,000	)		-			(8,000	)		-
Net cash used in financing activities		(33,802	)		(33,432	)		(3,465	)		(67,234	)		(3,210	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		26,860			27,672			(13,686	)		54,532			(29,485	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		121,327			93,655			46,335			93,655			62,134
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	148,187		$	121,327		$	32,649		$	148,187		$	32,649

CONTACT:
Power Integrations, Inc.
Joe Shiffler, 408-414-8528
joe@power.com