雅虎香港財經 Power Integrations, Inc. (NASDAQ:POWI) Q4 2023 Earnings Call Transcript
Power Integrations, Inc. (NASDAQ:POWI) Q4 2023 Earnings Call Transcript February 8, 2024
Power Integrations, Inc. beats earnings expectations. Reported EPS is $0.22, expectations were $0.15. Power Integrations, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Thank you for standing by. Welcome to the Power Integrations Q4 Earnings Conference Call. I would now like to welcome Joe Shiffler, Director of Investor Relations, to begin the call.
Joe Shiffler: Thank you. Good afternoon, everyone. Thanks for joining us. With me on the call today are Balu Balakrishnan, Chairman and CEO of Power Integrations, and Sandeep Nayyar, our Chief Financial Officer. During the call, we will refer to financial measures not calculated according to GAAP. Non-GAAP measures for the fourth quarter exclude stock-based compensation expenses, amortization of acquisition-related intangible assets and the tax effects of these items. The reconciliation of non-GAAP measures to our GAAP results is included in today's press release. Our discussion today, including the Q&A session, will include forward-looking statements denoted by words like will, would, believe, should, expect, outlook, vision, view, forecast, anticipate and similar expressions that look toward future events or performance.
Such statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected or implied. Such risks are discussed in today's press release and in our most recent Form 10-K filed with the SEC on February 7, 2023. Finally, this call is the property of Power Integrations. Any recording or rebroadcast is expressly prohibited without the written consent of Power Integrations. Now I'll turn it over to Balu.
Balu Balakrishnan: Thanks, Joe. And good afternoon. As expected, fourth quarter revenues were lower as a result of soft demand and elevated supply chain inventories, and we expect first quarter revenues to be about flat sequentially reflecting these continued headwinds. However, while channel inventory is still above normal, it fell by more than a week during the quarter as sell-through exceeded sell-in by a considerable margin. In dollar terms, we are at our lowest level of channel inventory in two years, and we expect further decline in Q1. We are especially encouraged by lower inventories related to the appliance market, which accounts for the bulk of the consumer category. Distribution sell-through for consumer was up sequentially in Q4 and far exceeded sell-in, bringing the channel inventory back to normal in terms of weeks and to the lowest level in eight quarters based on dollars.
End customer inventories have also improved considerably over the past several quarters and we are seeing an uptick in bookings from customers that were largely dormant throughout the last year. While appliance demand is clearly being hampered by the downturn in housing, our consumer revenues in 2023 were below even the pre-COVID levels of 2019, suggesting that we are shipping well below end demand and could be poised for recovery in 2024. In fact, we expect consumer to lead the way as we begin to see overall sequential revenue growth beginning in the June quarter, with a more meaningful improvement in the second half of the year. While 2023 was a difficult year, with revenue down more than 30%, there were pockets of growth in several areas that are key to our long term growth strategy.
Our Hiper driver business had a second consecutive year of growth, even as the broader industrial category was down almost 40%. We had an outstanding year in terms of design wins in high power, with a projected annual revenue value of the design winds up more than 70% from the prior year. Renewable energy was a major driver of that growth, with significant wins not only in the utility scale solar and wind markets, but also in the adjacent high voltage DC transmission market. On our July call, we announced a major multi-year award for an undersea link connecting North sea wind farm to the mainland. In Q4, we received an initial multimillion dollar purchase order for that design as project prepares to ramp up later this year. Another bright spot in 2023 was India, where revenues increased year-over-year and are approaching 10% of total sales.
This is not just a result of manufacturing moving out of China, but also a rising level of in-country design as production for the domestic market, including a rapidly expanding middle class and modernizing infrastructure. We are participating in a number of ways with significant design mints in 5G fixed wireless, smart utility meters, and appliances, including ceiling fans, which are converting to brushless DC motors, utilizing our BridgeSwitch motor drive ICs. We also have a strong pipeline of design opportunities in electric transportation in everything from two wheelers to buses and locomotives. Picking up which, we made tremendous progress in our automotive business in 2023, racking up wins and expanding our design pipeline in high voltage EV applications, such as drive train emergency power, 12 volt battery replacement, and micro DC-DC converters.
Our automotive qualified products are extremely well suited for these applications, which not only require high efficiency, but also benefit from the reliability and the space savings off of a low component count designs. Eight car brands are now shipping vehicles using InnoSwitch or SCALE-iDriver in traction inverter applications. Meanwhile, our pipeline of EV design opportunities grew by more than 80% in 2023, with sample stage designs at various levels of progress across all regions and most major tier 1s and OEMs. We expect several such designs to start production later this year. Another 2023 success story was GaN, not only in terms of revenue growth, but also key technology breakthroughs, including the introduction of 900 volt and 1,250 volt GaN switches.
While other suppliers are limited by capabilities of foundry-based GaN technology, we designed our proprietary GaN to support higher voltages, and we expect to announce the next step on the roadmap in the near future. GaN has significant cost advantages over silicon carbide in the voltage and power ranges that it can address. And we expect the overlap between two technologies to increase over time as we further advance our technology and bring out more system level GaN products. As indicated by recent M&A activity, market participants are recognizing the potential of GaN to be a transformational technology in power electronics, with huge opportunities in markets such as automotive, data center, appliances, and mobile devices. Proprietary technology and know-how in high voltage GaN are scarce assets and Power Integrations has more than anyone else in the market.
Our latest GaN product introduction came last week with InnoSwitch 5-Pro, which will sit with the choice of 750 or 900 volt GaN switch. InnoSwitch 5 is a shining example of our system level approach to power conversion technology, marrying the efficiency of GaN with a novel control scheme that implements high efficiency, zero voltage switching, or ZVS, with only a single GaN switch versus two switches required in typical ZVS resides. The combination of GaN and ZVS delivers efficiency of better than 95%, with very low component count, enabling exceptional power density for high power charges up to 220 watts. We demonstrated this capability with a new reference design showing 140 watt USB PD charger with a volume of just 4.2 cubic inches, less than half the size of standard 90 watt notebook adapter with over 50% more power.
To conclude, while 2023 was a challenging year and the current down cycle has been severe, we have weathered it by sticking to our playbook that has served us well in past downturns. That includes building wafer inventory to protect our dedicated foundry capacity and to be ready for a strong upturn. It includes buying back stock at opportune moments as we did in Q4 and it includes prudent expense control along with continued investment in GaN, EVs, motor drive, renewable energy and the India market. And while the slope of recovery is uncertain, we see good indications that sequential growth will start in the second quarter, with a better second half to follow. With that, I'll turn it over to Sandeep for a review of the financials.
Sandeep Nayyar : Thanks, Balu. And good afternoon. Fourth quarter revenues were just under $90 million, in the middle of our guidance range. While non-GAAP earnings were $0.22 per diluted share, above the level implied in our guidance, thanks to lower operating expenses and a $0.04 tax benefit. For the year, revenues were down 32% to $45 million, while non-GAAP earnings were $1.29 compared to $3.29 a year ago. While this was a challenging year from a financial perspective, we believe we managed the business prudently while staying focused on the long term, as always. We held non-GAAP expenses grow to less than 2% in spite of high inflation, without reduction in employee compensation or benefits. In fact, we gave normal raises last year and continued our practice of paying an above average portion of the cost of benefits, despite extreme price pressures in the insurance market.
As Balu noted, we maintained this expense discipline while making necessary investments for long term growth, including our automotive efforts, our expanding presence in India, continued development on our GaN technology and the products that will double our SAM by 2027. I will quickly recap the Q4 results and the outlook and then we will open it up for questions. Revenues for the quarter were just under $90 million, down 29% from the prior quarter, with all four end market categories sequentially low. As expected, communications was down the most with a decline of about 40%. As we noted on last quarters call, we had significant restocking in the previous quarter by distributors serving the Chinese handset supply chain. We also saw a steep decline in Q4 related to an inventory correction at a non-Chinese handset customer.
The correction also affected tablets, which drove a decrease of about 35% in the computer category. Industrial and consumer revenues were each down about 20% from the prior quarter, again driven by elevated supply chain inventories and soft demand. Revenue mix for the quarter was 35% industrial, 29% consumer, 27% communication and 9% computer. Distribution inventory ended the quarter at 10.5 weeks, down more than a week from the prior quarter as well as sell-through exceeded sell-in by about $12 million. Non-GAAP gross margin for the fourth quarter was 52.7%, down 60 basis points from the prior quarter, driven mainly by lower manufacturing volumes, partially offset by a more favorable end market mix. Non-GAAP operating expenses for the quarter were $40.3 million, down $1.5 million sequentially and below our forecast as we continue to manage spending carefully, while prioritizing investments in our long term growth.
As noted earlier, we recognize the tax benefit in the fourth quarter from the reversal of FIN 48 reserves, which contributed about $0.04 cents to the non-GAAP earnings per share of $0.22. The FIN 48 reversal had a larger effect on GAAP results resulting in a negative GAAP tax rate for the quarter and GAAP earnings of $0.25 per diluted share. Weighted average share count fell by about 0.5 million shares to 57.3 million, driven by repurchases. Cash flow from operations for the quarter was $16.3 million. Inventory days were at 344 at quarter end. up 114 days from the prior quarter, driven largely by the lower revenue number. As a reminder, the bulk of inventory is held in wafers, which combined with the fungibility of our products across customers and applications, results in minimal risk of obsolescence.
We expect inventory days to trend down as revenue starts to recover in the June quarter. Our largest use of cash in the fourth quarter was share buybacks. We repurchased 680,000 shares during the quarter, well above 1% of our shares outstanding for $47.4 million. The average price per share was just under $70. Other uses of cash during the quarter included $6 million for CapEx and $11 million for dividends. For the year, cash flow from operations was $66 million, while CapEx was $21 million, just below our model of 5% to 7% of sales. We returned $99 million to stockholders in the form of buybacks and dividends during the year, more than twice our free cash flow. Turning to the outlook, we expect revenues for the first quarter to be $90 million, plus or minus $5 million.
We expect sell-through to again exceed sell-in, resulting in another decrease in channel inventory and clearing the way for sequential growth in the June quarter. Non-GAAP gross margin for Q1 should be approximately 52.5%. I expect a rebound in gross margin in the June quarter, driven by the favorable yen exchange rate and higher manufacturing utilization as we begin to convert more wafers to finished goods. I also expect a better mix as the industrial and consumer markets begin to recover. Non-GAAP operating expenses should be around $42.5 million in the first quarter. The increase from the fourth quarter reflects headcount increases, resumption of FICA taxes, and higher premiums for employee benefits. For the full year, I expect non-GAAP OpEx growth to be in the high single-digits.
Finally, I expect the non-GAAP effective tax rate for the first quarter and the year to be around 7%. Now, Alfredo, let's begin the Q&A.
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