Power Integrations, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter ended September 30, 2022; comparisons are with the corresponding 2021 periods. Unaudited U.S. GAAP results. The company designs and markets integrated circuits and components for high-voltage power conversion.
Key financial results
| Metric | Q3 2022 | Q3 2021 | First 9 months 2022 | First 9 months 2021 |
|---|---|---|---|---|
| Revenue | $160.2 million | $176.8 million | $526.4 million | $530.6 million |
| Gross profit / margin | $92.0 million / 57.4% | $91.7 million / 51.9% | $299.6 million / 56.9% | $267.5 million / 50.4% |
| Operating income | $48.4 million | $45.6 million | $159.5 million | $130.8 million |
| Net income | $46.0 million | $42.0 million | $148.0 million | $123.7 million |
| Diluted EPS | $0.80 | $0.69 | $2.52 | $2.01 |
- Q3 revenue declined 9.4% year over year, while net income rose about 9.3%. For the first nine months, revenue declined about 0.8% and net income increased about 19.7%.
- Gross margin improved in both comparisons. Management attributed the improvement mainly to favorable end-market mix and manufacturing efficiencies.
- Operating cash flow was $191.2 million for the first nine months, versus $183.7 million a year earlier. Capital expenditures were $33.4 million; operating cash flow less capital expenditures was approximately $157.8 million.
- At September 30, cash and cash equivalents were $133.5 million and short-term marketable securities were $229.8 million, totaling $363.2 million. Working capital was $453.2 million, down from $614.5 million at year-end 2021. Inventories were $120.1 million, up from $99.3 million.
- No borrowings were outstanding under the $75 million revolving credit facility, which expires June 7, 2026. Total liabilities were $87.7 million; the filing reports no outstanding advances under the facility.
Business changes and capital allocation
- Revenue weakness reflected softer cellphone, computer and appliance demand, inflation-related consumer spending pressure, China restrictions and other macroeconomic and geopolitical factors. Industrial sales grew and partly offset declines, particularly in communications, consumer and computer markets.
- Industrial products represented 41% of Q3 revenue, versus 30% a year earlier; communications declined to 16% from 25%. Hong Kong/China revenue was $80.5 million versus $103.9 million.
- Operating expenses were $43.7 million in Q3, down from $46.1 million, primarily due to lower stock-based compensation. Nine-month expenses increased to $140.0 million from $136.7 million, including the Opticurrent settlement and higher personnel and product-development costs.
- The company repurchased 3.5 million shares for $292.3 million during the first nine months and paid $31.2 million in dividends. These capital returns contributed to a $24.6 million reduction in cash and cash equivalents during the period. The board authorized a further $100 million buyback in October 2022.
Outlook, risks and unusual items
- The filing provides no specific revenue or earnings guidance. Management said it expects cash from operations and existing liquidity to cover working-capital and other cash requirements for at least the next 12 months. It plans continued investment in R&D and other growth-supporting functions; dividends and repurchases remain subject to board discretion and business conditions.
- Management cited uncertain demand and forecasting, inflation, higher interest rates, potential recession, China-related disruption, supply-chain interruptions, customer order cancellations or rescheduling, distributor dependence, competition and pricing pressure. Wafer supply relies on third parties; currency movements, including the yen-dollar rate, can affect margins.
- Top ten customers accounted for 72% of Q3 revenue and 75% for the first nine months. Avnet represented 28% of Q3 revenue. International sales were 95% of Q3 revenue.
- Available-for-sale securities had $7.2 million of unrealized losses at quarter-end, which the company attributed largely to interest-rate changes. It stated it did not intend, and was unlikely to be required, to sell before anticipated recovery.
- The company paid $2.9 million to settle all disputes with Opticurrent; the settlement was recorded among nine-month operating expenses, partly offset by a $1.7 million SemiSouth bankruptcy-liquidation distribution. CogniPower litigation remained stayed, and Waverly Licensing filed a patent complaint on October 31, 2022. The company could not estimate a loss or range for the ongoing cases.
- Management reported disclosure controls were effective at quarter-end and no material change in internal control over financial reporting occurred during the quarter.
Important facts for investors to verify
- Whether weakening communications, consumer and computer demand continues, and whether industrial growth offsets it.
- Inventory levels, distributor sell-through, customer concentration and the risk of excess or obsolete inventory.
- The sustainability of improved gross margins amid pricing, supply, product-mix and yen-dollar risks.
- The impact of the substantial share repurchases and dividends on liquidity, and the status of the October 2022 buyback authorization.
- Developments in the CogniPower and Waverly cases, including any change in the currently unestimable potential losses.
- Changes in marketable-security values and the company’s stated expectation of holding affected securities through recovery or maturity.