Power Integrations, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual report, not a standalone fourth-quarter filing. The company designs and markets integrated circuits and related components for high-voltage power conversion, serving communications, computer, consumer and industrial applications.
Financial performance and position
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Revenue | $651.1 million | $703.3 million | Down 7.4% |
| Gross profit / margin | $366.9 million / 56.3% | $360.6 million / 51.3% | Profit up 1.7%; margin up 5.0 percentage points |
| Operating income / margin | $180.4 million / 27.7% | $175.1 million / 24.9% | Up 3.1% |
| Net income / diluted EPS | $170.9 million / $2.93 | $164.4 million / $2.67 | Income up 3.9%; EPS up 9.7% |
| Operating cash flow | $215.3 million | $230.9 million | Down 6.7% |
- Revenue fell mainly because communications revenue declined 36%, reflecting weaker smartphone demand. End-market mix shifted: communications was 21% of revenue (30% in 2021), while industrial rose to 36% (28%).
- Gross margin improved with a more favorable end-market mix and manufacturing efficiencies. Operating expenses were $186.5 million, broadly flat year over year; lower G&A and stock-based compensation offset higher R&D and sales and marketing costs.
- Cash, cash equivalents and short-term marketable securities totaled $353.8 million at year-end, down from $530.4 million. Working capital was $466.7 million, versus $614.5 million. Current assets were $525.1 million and current liabilities $58.4 million.
- No borrowings were outstanding on the $75 million revolving credit facility, which expires June 7, 2026. Total liabilities were $84.9 million; the filing reports no funded debt outstanding.
- Investing activities provided $78.3 million, including net proceeds from marketable securities, while capital expenditures were $39.2 million. Financing activities used $346.4 million, including $311.1 million for share repurchases and $41.5 million for dividends.
Material changes, outlook and risks
- Demand weakened during 2022 amid post-pandemic normalization, inflation, China’s COVID-related restrictions, macroeconomic softness and excess inventory across the supply chain. Inventory on the company’s balance sheet increased to $135.4 million from $99.3 million.
- Management said existing liquidity and expected operating cash flows should meet working-capital and other cash needs for at least the next 12 months. No specific revenue or earnings guidance was provided. FY2023 capital expenditures are expected to focus mainly on manufacturing machinery and equipment.
- The board declared quarterly dividends of $0.19 per share for 2023, up from $0.18 in 2022. Future dividends and repurchases remain subject to board discretion and business conditions.
- Key exposures include short-term, cancellable customer orders; distributor and customer concentration (Avnet represented 31% of 2022 revenue); reliance on three wafer foundries and outsourced assembly; intense pricing competition; and substantial international sales (96% of revenue).
- Patent litigation remains unsettled, including claims involving CogniPower and Waverly Licensing. The company said it cannot estimate a loss range for these matters. It paid $2.9 million to settle litigation with Opticurrent in 2022; other operating expenses also included a $1.7 million distribution from the liquidation of SemiSouth.
- The company reported effective disclosure controls and internal control over financial reporting. The auditor issued unqualified opinions and reported no critical audit matters.
Important facts for investors to verify
- Whether demand and distributor-channel inventories stabilized after the 2022 slowdown, and how the $135.4 million inventory balance develops.
- Revenue trends by end market and customer, especially communications, industrial and Avnet concentration.
- Whether the 56.3% gross margin is sustainable as volumes, product mix, pricing and yen-dollar exchange rates change.
- Cash generation and liquidity after significant repurchases and dividends, including any changes to the unused credit facility.
- Developments and potential financial exposure in the CogniPower and Waverly matters, and the status of the California tax audit and unrecognized tax benefits.