Power Integrations Quantifies Impact of SemiSouth Closing on Q3 Financials

October 25, 2012 by Jeff Shepard

Power Integrations announced financial results for the quarter ended September 30, 2012. Net revenues for the quarter were $78.0 million, up two percent from the prior quarter and up four percent compared with the third quarter of 2011. GAAP gross margin for the quarter was 49.7 percent. As announced earlier this week, the company's third-quarter results include a pre-tax charge of $59.2 million stemming from the likely closure of SemiSouth Laboratories. The expected cash outflow included in the charge is $15.3 million.

Including the charge related to SemiSouth, the company reported a GAAP net loss for the quarter of $44.4 million or $1.54 per share. This compares to a net loss of $0.25 per share in the prior quarter and net income of $0.25 per diluted share in the year-ago quarter. The loss in the prior quarter was driven by the settlement of the company's tax audit for years 2003-2006, which resulted in a one-time net charge of $15.7 million in the second quarter.

In addition to its GAAP results, the company provided certain non-GAAP financial measures that, for the third quarter, exclude stock-based compensation expenses, certain acquisition-related costs and expenses, the charge related to SemiSouth, non-cash interest income, and the tax effects of these items. Non-GAAP gross margin for the third quarter was 52.9 percent. Non-GAAP net income for the quarter was $14.5 million or $0.49 per diluted share, compared with $0.49 per diluted share in the prior quarter and $0.32 per diluted share in the third quarter of 2011.

Commented Balu Balakrishnan, president and CEO of Power Integrations: "While third-quarter revenues were in line with our forecast, we expect lower revenues in the fourth quarter as global economic conditions continue to weigh on end demand across the industry. However, our gross margin expanded again in the third quarter and has improved significantly over the past year thanks to the substantial cost reductions we have achieved, plus the benefit of a more favorable end-market mix. While the impact of mix will fluctuate over time, we expect our gross margin to remain at a similar level in the fourth quarter."

Mr. Balakrishnan continued: "While the SemiSouth outcome is disappointing, our strategic direction remains unchanged, and we continue to invest in high-power driver and switch technologies to expand our addressable market within the realm of high-voltage power conversion. For example, our acquisition of CT-Concept earlier this year added nearly half a billion dollars to our addressable market and gives us a presence in high-power markets such as industrial motors, renewable energy and electric transportation. With our first full quarter as a combined company now behind us, we believe we are on track to realizing the strategic and financial benefits we expected from the acquisition."

Additional Highlights

Earlier this month Power Integrations' board of directors authorized the use of up to $50 million for the repurchase of the company's common stock.

The company paid a dividend of $0.05 per share on September 28, 2012. The next dividend of $0.05 per share will be paid on December 31, 2012, to stockholders of record as of November 30.

Power Integrations received 15 U.S. patents and 28 non-U.S. patents during the quarter and had a total of 511 U.S. patents and 388 non-U.S. patents as of September 30, 2012.

Financial Outlook

The company issued the following forecast for the fourth quarter of 2012

* Fourth-quarter revenues are expected to be between $71 million and $77 million.

* Gross margins are expected to be similar to third-quarter levels.

* Non-GAAP operating expenses are expected to be between $24.5 million and $25 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 between $29.5 million and $30 million.

* The non-GAAP and GAAP effective tax rates are expected to be approximately 13 percent and 18 percent, respectively.