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Inphi Corporation Announces Second Quarter 2018 Results

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SANTA CLARA, Calif., July 24, 2018 (GLOBE NEWSWIRE) -- Inphi Corporation (NYSE:IPHI), a leader in high-speed data movement interconnects, today announced financial results for its second quarter ended June 30, 2018.

GAAP Results

Revenue in the second quarter of 2018 was $69.8 million on U.S. generally accepted accounting principles (GAAP) basis, down 17% year-over-year, compared with $84.4 million in the second quarter of 2017.  The year over year decrease was due to lower demand for long haul and metro as well as Cortina legacy products. However, the long haul and metro product revenue grew substantially from the levels in the first quarter of 2018, resulting in a 16% sequential corporate revenue growth.

Gross margin under GAAP in the second quarter of 2018 and 2017 was 56.7%.

GAAP loss from operations in the second quarter of 2018 was $21.9 million or (31.4%) of revenue from operations, compared to GAAP loss from operations in the second quarter of 2017 of $7.9 million or (9.4%) of revenue.

GAAP net loss for the second quarter of 2018 was $28.5 million, or ($0.65) per diluted common share, compared with GAAP net loss of $15.0 million, or ($0.36) per diluted common share in the second quarter of 2017.

Inphi reports revenue, gross margin, operating expenses, net income (loss), and earnings per share in accordance with GAAP and on a non-GAAP basis. A reconciliation of the GAAP to non-GAAP revenue, gross margin, operating expenses, net income, earnings per share, as well as a description of the items excluded from the non-GAAP calculations, is included in the financial statements portion of this press release.

Non-GAAP Results

Gross margin on a non-GAAP basis in the second quarter of 2018 was 68.4%, compared to 70.3% in the second quarter of 2017.  The decrease was largely due to change in product mix.

Non-GAAP income from operations in the second quarter of 2018 was $7.1 million, or 10.1% of revenue, compared with $17.6 million, or 20.8% of revenue in the second quarter of 2017. However, non-GAAP income from operations did see substantial growth from the first quarter of 2018 to the second quarter of 2018 from negative 3.5% to a positive 10.1%.

Non-GAAP net income in the second quarter of 2018 was $6.6 million, or $0.15 per diluted common share. This compares with non-GAAP net income of $15.6 million, or $0.35 per diluted common share in the second quarter of 2017.

"Our 16% sequential increase in revenue in Q2 demonstrates the recovery of our core long haul and metro business," said Ford Tamer, President and CEO of Inphi.  "In addition, going from a non-GAAP net operating loss in Q1, to over 10% operating profit in Q2 shows our success in managing operating expenses to be in line with revenue growth and the market environment.  We remain positive on our business outlook as we continue to introduce new products and grow our "inside data center" revenue as well as re-engaging with ZTE."   

First Half 2018 Results
Revenue in the six months ended June 30, 2018 was $129.9 million, compared with $178.0 million in the six months ended June 30, 2017. GAAP net loss in the six months ended June 30, 2018 was $51.5 million, or ($1.19) per diluted share, on approximately 43.3 million diluted weighted average common shares outstanding. This compares with GAAP net loss of $26.2 million, or ($0.63) per diluted share, on approximately 41.9 million diluted weighted average common shares outstanding in the six months ended June 30, 2017.

Non-GAAP net income in the six months ended June 30, 2018 was $4.6 million, or $0.10 per diluted weighted average common share outstanding, on approximately 44.6 million diluted weighted average common shares outstanding. This compares with non-GAAP net income of $35.2 million in the six months ended June 30, 2017, or $0.79 per diluted weighted average common share outstanding, on approximately 44.5 million diluted weighted average common shares outstanding.

Business Outlook
The following statements are based on the Company's current expectations for the third quarter of 2018. These statements are forward-looking and actual results may differ materially. A reconciliation between the GAAP and Non-GAAP outlook is included at the end of this press release.

  • Revenue in Q3 2018 is expected to be in a range of $75.5 million to $79.5 million.  The midpoint being $77.5 million including approximately $0.5M forecasted for ZTE.   
  • GAAP gross margin is expected to be approximately 60.1% to 61.3%.
  • Non-GAAP gross margin is expected to be approximately 70.2% to 71.0%.
  • Stock-based compensation expense is expected to be in the range of $17.2 million to $17.4 million.
  • GAAP results are expected to be a net loss in a range between a net loss of $19.5 million to $20.3 million, or ($0.44) – ($0.46) per basic share, based on 43.95 million estimated weighted average basic shares outstanding.
  • Non-GAAP net income, excluding stock-based compensation expense, amortization of intangibles and inventory step up fair value related to acquisitions and noncash interest on convertible debt, is expected to be in the range of $12.83 million to $13.83 million, or $0.28-$0.30 per diluted share, based on 45.35 million estimated diluted shares outstanding. 

Quarterly Conference Call Today
Inphi plans to hold a conference call today at 5:30 p.m. Eastern Time / 2:30 p.m. Pacific Time with Ford Tamer, president and chief executive officer, and John Edmunds, chief financial officer, to discuss the second quarter 2018 results. 

The call can be accessed by dialing 765-507-2591, participant passcode: 7182027. Please dial-in ten minutes prior to the scheduled conference call time. A live and archived webcast of the call will be available on Inphi's website at https://www.inphi.com/investors/ for up to 30 days after the call.

About Inphi
Inphi Corporation is a leader in high-speed data movement.  We move big data - fast, throughout the globe, between data centers, and inside data centers.  Inphi's expertise in signal integrity results in reliable data delivery, at high speeds, over a variety of distances.  As data volumes ramp exponentially due to video streaming, social media, cloud-based services, and wireless infrastructure, the need for speed has never been greater.  That's where we come in. Customers rely on Inphi's solutions to develop and build out the Service Provider and Cloud infrastructures, and data centers of tomorrow.  To learn more about Inphi, visit www.inphi.com.

Cautionary Note Concerning Forward-Looking Statements
Statements in the press release and certain matters to be discussed on the second quarter of 2018 conference call regarding Inphi Corporation, which are not historical facts, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by terms such as outlook, believe, expect, may, will, provide, continue, could, and should, and the negative of these terms or other similar expressions. These statements include statements relating to: the Company's business outlook and current expectations for 2018, including with respect to the third quarter of 2018, revenue, gross margin, stock-based compensation expense, operating performance, net income or loss, and earnings per share; the Company's expectations regarding growth opportunities, increasing demand in Q3, growth inside data centers, slow demand in the metro and long haul markets and benefits of using non-GAAP financial measures.  These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially from those anticipated as a result of various factors, including: the Company's ability to sustain profitable operations due to its history of losses and accumulated deficit; dependence on a limited number of customers for a substantial portion of revenue and lack of long-term purchase commitments from our customers; product defects; risk related to intellectual property matters, lengthy sales cycle and competitive selection process; lengthy and expensive qualification processes; ability to develop new or enhanced products in a timely manner; development of the markets that the Company targets; market demand for the Company's products; reliance on third parties to manufacture, assemble and test products; ability to compete; and other risks inherent in fabless semiconductor businesses. In addition, actual results could differ materially due to changes in tax rates or tax benefits available, changes in government regulation, changes in claims that may or may not be asserted, as well as changes in pending litigation. For a discussion of these and other related risks, please refer to Inphi Corporation's recent SEC filings, including its Annual Report on Form 10-K for the year ended December 31, 2017, which are available on the SEC's website at www.sec.gov. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date thereof. Inphi Corporation undertakes no obligation to update forward-looking statements for any reason, except as required by law, even as new information becomes available or other events occur in the future.

Inphi, the Inphi logo and Think fast are registered trademarks of Inphi Corporation. All other trademarks used herein are the property of their respective owners.

Corporate Contact:
Kim Markle                                                                
Inphi                                                                           
408-217-7329                                                             
kmarkle@inphi.com 

Investor Contact:
Deborah Stapleton
650-815-1239
deb@stapleton.com 

 
INPHI CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands of dollars, except share and per share amounts)
(Unaudited)
                 
    Three Months Ended
June 30,
  Six Months Ended
June 30,
    2018   2017   2018   2017
Revenue $   69,814   $   84,423   $   129,950   $   178,007  
Cost of revenue     30,203       36,588       57,793       76,659  
                 
Gross margin     39,611       47,835       72,157       101,348  
                 
Operating expenses:                
Research and development     42,804       39,437       85,742       79,725  
Sales and marketing     10,311       10,539       21,653       21,480  
General and administrative     8,415       5,798       14,633       12,593  
                 
Total operating expenses     61,530       55,774       122,028       113,798  
                 
Loss from operations     (21,919 )     (7,939 )     (49,871 )     (12,450 )
                 
Interest expense, net of other income     (6,487 )     (6,657 )     (9,787 )     (12,967 )
                 
Loss from operations before income taxes     (28,406 )     (14,596 )     (59,658 )     (25,417 )
Provision (benefit) for income taxes     58       371       (8,203 )     823  
                 
Net loss $   (28,464 ) $   (14,967 ) $   (51,455 ) $   (26,240 )
                 
Earnings per share:                
Basic $   (0.65 ) $   (0.36 ) $   (1.19 ) $   (0.63 )
Diluted $   (0.65 ) $   (0.36 ) $   (1.19 ) $   (0.63 )
                 
                 
Weighted-average shares used in computing earnings per share:                
Basic     43,661,325       42,137,084       43,331,906       41,855,510  
Diluted     43,661,325       42,137,084       43,331,906       41,855,510  
                 
                 
The following table presents details of stock-based compensation expense included in each functional line item in the consolidated statements of operations above:
                 
                 
    Three Months Ended
June 30,
  Six Months Ended
June 30,
    2018   2017   2018   2017
                         
    (in thousands of dollars)   (in thousands of dollars)
    (Unaudited)   (Unaudited)
Cost of revenue $   605    $    537   $   1,174    $    1,098  
Research and development     9,741       7,274       18,239       13,189  
Sales and marketing     3,241       2,119       6,483       3,801  
General and administrative     2,629       1,315       4,873       2,387  
                 
  $   16,216   $   11,245   $   30,769   $   20,475  
                 

 

   
INPHI CORPORATION  
CONSOLIDATED BALANCE SHEETS  
(in thousands of dollars)  
(Unaudited)  
    June 30,
2018
  December 31,
2017
 
Assets          
Current assets:          
Cash and cash equivalents $   155,142   $   163,450    
Short-term investments in marketable securities     228,639       241,737    
Accounts receivable, net     54,087       67,993    
Inventories     33,849       31,721    
Prepaid expenses and other current assets     13,946       12,208    
Total current assets      485,663       517,109    
           
Property and equipment, net     68,978       60,344    
Goodwill      104,502       104,502    
Identifiable intangible assets     213,754       222,933    
Other noncurrent assets     30,961       12,618    
Total assets $   903,858   $   917,506    
           
Liabilities and Stockholders' Equity           
           
Current liabilities:          
Accounts payable $   16,219   $   14,721    
Accrued expenses and other current liabilities     49,250       45,326    
           
Total current liabilities     65,469       60,047    
           
Convertible debt     434,284       421,431    
Other liabilities     21,653       24,627    
Total liabilities     521,406       506,105    
           
Stockholders' equity:          
Common stock     44       43    
Additional paid-in capital     507,575       484,934    
Accumulated deficit     (125,600 )     (74,145 )  
Accumulated other comprehensive income     433       569    
Total stockholders' equity     382,452       411,401    
           
Total liabilities and stockholders' equity $   903,858   $   917,506    
           

INPHI CORPORATION
RECONCILATION OF GAAP TO NON-GAAP MEASURES
(in thousands of dollars, except share and per share amounts)

To supplement the financial data presented on a GAAP basis, the Company discloses certain non-GAAP financial measures, which exclude stock-based compensation, legal, transition costs and other expenses, purchase price fair value adjustments related to acquisitions, impairment of certain intangibles, non-cash interest expense related to convertible debt, unrealized gain or loss on equity investments, loss on claim settlement and deferred tax asset valuation allowance.  These non-GAAP financial measures are not in accordance with GAAP. These results should only be used to evaluate the Company's results of operations in conjunction with the corresponding GAAP measures. The Company believes that its non-GAAP financial information provides useful information to management and investors regarding financial and business trends relating to its financial condition and results of operations because it excludes charges or benefits that management considers to be outside of the Company's core operating results.  The Company believes that the non-GAAP measures of gross margin, income from operations, net income and earnings per share, in combination with the Company's financial results calculated in accordance with GAAP, provide investors with additional perspective and a more meaningful understanding of the Company's ongoing operating performance. In addition, the Company's management uses these non-GAAP measures to review and assess the financial performance of the Company, to determine executive officer incentive compensation and to plan and forecast performance in future periods.  The Company's non-GAAP measurements are not prepared in accordance with GAAP, and are not an alternative to GAAP financial information, and may be calculated differently than non-GAAP financial information disclosed by other companies.

             
RECONCILIATION OF GAAP  NET INCOME TO NON-GAAP NET INCOME    
(in thousands of dollars, except share and per share amounts)    
(Unaudited)    
    Three Months Ended
June 30,
  Six Months Ended
June 30,
   
    2018   2017   2018   2017    
GAAP gross margin to Non-GAAP gross margin                    
GAAP gross margin $   39,611   $   47,835   $   72,157   $   101,348      
Adjustments to GAAP gross margin:                    
Stock-based compensation     605   (a)   537   (a)   1,174   (a)   1,098   (a)  
Acquisition related expenses     (7 ) (b)   44   (b)   3   (b)   103   (b)  
Amortization of inventory step-up     864   (c)   3,693   (c)   864   (c)   9,010   (c)  
Amortization of intangibles     6,699   (d)   7,250   (d)   13,398   (d)   14,500   (d)  
Depreciation on step-up values of fixed assets     (12 ) (e)   15   (e)   (26 ) (e)   31   (e)  
Restructuring expenses     -        -        106   (f)   -       
Non-GAAP gross margin $   47,760   $   59,374   $   87,676   $   126,090      
                     
GAAP operating expenses to Non-GAAP operating expenses                    
GAAP research and development  $   42,804   $   39,437   $   85,742   $   79,725      
Adjustments to GAAP research and development:                    
Stock-based compensation     (9,741 ) (a)   (7,274 ) (a)   (18,239 ) (a)   (13,189 ) (a)  
Acquisition related expenses     (302 ) (b)   (418 ) (b)   (607 ) (b)   (1,088 ) (b)  
Depreciation on step-up values of fixed assets     (40 ) (e)   (150 ) (e)   (173 ) (e)   (304 ) (e)  
Restructuring expenses     -        -        (885 ) (f)   -       
Non-GAAP research and development $   32,721   $   31,595   $   65,838   $   65,144      
                     
GAAP sales and marketing $   10,311   $   10,539   $   21,653   $   21,480      
Adjustments to GAAP sales and marketing:                    
Stock-based compensation     (3,241 ) (a)   (2,119 ) (a)   (6,483 ) (a)   (3,801 ) (a)  
Acquisition related expenses     (117 ) (b)   (179 ) (b)   (259 ) (b)   (414 ) (b)  
Amortization of intangibles     (2,432 ) (d)   (2,431 ) (d)   (4,863 ) (d)   (4,862 ) (d)  
Depreciation on step-up values of fixed assets     (18 ) (e)   (27 ) (e)   (41 ) (e)   (56 ) (e)  
Restructuring expenses     (8 ) (f)   -        (367 ) (f)   -       
Non-GAAP sales and marketing $   4,495   $   5,783   $   9,640   $   12,347      
                     
GAAP general and administrative $   8,415   $   5,798   $   14,633   $   12,593      
Adjustments to GAAP general and administrative:                    
Stock-based compensation     (2,629 ) (a)   (1,315 ) (a)   (4,873 ) (a)   (2,387 ) (a)  
Acquisition related expenses     (3 ) (b)   (29 ) (b)   (6 ) (b)   (750 ) (b)  
Amortization of intangibles     (116 ) (d)   (116 ) (d)   (232 ) (d)   (232 ) (d)  
Depreciation on step-up values of fixed assets     (75 ) (e)   62   (e)   (34 ) (e)   131   (e)  
Restructuring expenses     -        -        (133 ) (f)   -       
Loss on claim settlement from ClariPhy acquisition     (2,125 ) (h)   -        (2,125 ) (h)   -       
Non-GAAP general and administrative $   3,467   $   4,400   $   7,230   $   9,355      
                     
Non-GAAP total operating expenses $   40,683   $   41,778   $   82,708   $   86,846      
Non-GAAP income from operations $   7,077   $   17,596   $   4,968   $   39,244      
                     
GAAP net loss to Non-GAAP net income                    
GAAP net loss $   (28,464 ) $   (14,967 ) $   (51,455 ) $   (26,240 )    
Adjusting items to GAAP net loss:                    
Operating expenses related to stock-based                    
compensation expense     16,216   (a)   11,245   (a)   30,769   (a)   20,475   (a)  
Acquisition related expenses     415   (b)   670   (b)   875   (b)   2,355   (b)  
Amortization of inventory fair value step-up     864   (c)   3,693   (c)   864   (c)   9,010   (c)  
Amortization of intangibles related to purchase price     9,247   (d)   9,797   (d)   18,493   (d)   19,594   (d)  
Depreciation on step-up values of fixed assets     121   (e)   130   (e)   222   (e)   260   (e)  
Restructuring expenses     8   (f)   -        1,491   (f)   -       
Loss on retirement of certain property and equipment from ClariPhy acquisition     -        33   (g)   -        77   (g)  
Loss on claim settlement from ClariPhy acquisition     2,125   (h)   -        2,125   (h)   -       
Unrealized loss (gain) on equity investment     166   (i)   -        (2,856 ) (i)   -       
Accretion and amortization expense on convertible debt     6,523   (j)   6,073   (j)   12,853   (j)   11,968   (j)  
Valuation allowance and tax effect of the adjustments above from                    
GAAP to non-GAAP     (657 ) (k)   (1,043 ) (k)   (8,787 ) (k)   (2,320 ) (k)  
Non-GAAP net income $   6,564   $   15,631   $   4,594   $   35,179      
                     
Shares used in computing non-GAAP  basic earnings per share     43,661,325       42,137,084       43,331,906       41,855,510      
                     
Shares used in computing non-GAAP diluted earnings per share before offsetting shares from call option     44,884,548       44,051,591       44,604,497       44,870,267      
Offsetting shares from call option     -        3,145       -        402,583      
Shares used in computing non-GAAP diluted earnings per share     44,884,548       44,048,446       44,604,497       44,467,684      
                     
Non-GAAP earnings per share:                    
Basic $   0.15   $   0.37   $   0.11   $   0.84      
Diluted $   0.15    $    0.35   $   0.10   $   0.79      
                     
GAAP gross margin as a % of revenue   56.7 %   56.7 %   55.5 %   56.9 %    
Stock-based compensation   0.9 %   0.6 %   0.9 %   0.6 %    
Amortization of inventory fair value step-up and intangibles   10.8 %   13.0 %   11.1 %   13.3 %    
Non-GAAP gross margin as a % of revenue   68.4 %   70.3 %   67.5 %   70.8 %    
                     
  1. Reflects the stock-based compensation expense recorded relating to stock based awards. The Company excludes this item when it evaluates the continuing operational performance of the Company as management believes this GAAP measure is not indicative of its core operating performance.
  2. Reflects the legal, transition costs and other expenses related to acquisition.  The transition costs also include short-term cash retention bonus payments to ClariPhy employees that were part of the purchase agreement when the Company acquired ClariPhy.  The Company excludes this item when it evaluates the continuing operational performance of the Company as management believes this GAAP measure is not indicative of its core operating performance.
  3. Reflects the cost of goods sold fair value amortization of inventory step-up related to acquisitions.  The Company excludes these items when it evaluates the continuing operational performance of the Company as management believes this GAAP measure is not indicative of its core operating performance.
  4. Reflects the fair value amortization of intangibles related to acquisitions.  The Company excludes these items when it evaluates the continuing operational performance of the Company as management believes this GAAP measure is not indicative of its core operating performance.
  5. Reflects the fair value depreciation of fixed assets related to acquisitions.  The Company excludes these items when it evaluates the continuing operational performance of the Company as management believes this GAAP measure is not indicative of its core operating performance.
  6. Reflects restructuring expenses incurred.  The Company excludes this item when it evaluates the continuing operational performance of the Company as management believes this GAAP measure is not indicative of its core operating performance.
  7. Reflects the loss on disposal of certain property and equipment from the ClariPhy acquisition.  The Company excludes these items when it evaluates the continuing operational performance of the Company as management believes this GAAP measure is not indicative of its core operating performance.
  8. Reflects the loss on settlement of certain customer claims from the ClariPhy acquisition.  The Company excludes these items when it evaluates the continuing operational performance of the Company as management believes this GAAP measure is not indicative of its core operating performance.
  9. Reflects the unrealized gain or loss on equity investments.  The Company excludes these items when it evaluates the continuing operational performance of the Company as management believes this GAAP measure is not indicative of its core operating performance.
  10. Reflects the accretion and amortization expense on convertible debt.  The Company excludes these items when it evaluates the continuing operational performance of the Company as management believes this GAAP measure is not indicative of its core operating performance.
  11. Reflects the change in valuation allowance and delta in interim period tax allocation from GAAP to non-GAAP related to non-GAAP adjustments. The Company excludes this item when it evaluates the continuing operational performance of the Company as management believes this GAAP measure is not indicative of its core operating performance.
   
INPHI CORPORATION  
RECONCILIATION OF GAAP  TO NON-GAAP MEASURES -THIRD QUARTER 2018 GUIDANCE  
(in thousands of dollars, except share and per share amounts)  
(Unaudited)  
           
    Three Months Ending
September 30, 2018
 
    High   Low  
Estimated GAAP net loss  $   (19,500 ) $   (20,300 )  
Adjusting items to estimated GAAP net loss:          
Operating expenses related to stock-based compensation expense     17,400       17,200    
Amortization of intangibles and fair value step up on acquired inventories   9,685       9,685    
Other acquisition and transition related expenses     400       400    
Amortization of convertible debt interest cost     6,525       6,525    
Tax effect of GAAP to non-GAAP adjustments     (680 )     (680 )  
Estimated non-GAAP net income  $   13,830   $   12,830    
           
Shares used in computing estimated non-GAAP diluted earnings per share     45,350,000       45,350,000    
           
Estimated non-GAAP diluted earnings per share $   0.30    $   0.28    
           
           
Revenue $   79,500    $   75,500    
           
GAAP gross margin  $   48,750    $   45,400    
as a % of revenue   61.3 %   60.1 %  
Adjusting items to estimated GAAP gross margin:          
Stock-based compensation     700       600    
Inventory step up, fixed assets depreciation step up and acquisition related expenses     300       300    
Amortization of intangibles     6,700       6,700    
Estimated non-GAAP gross margin $   56,450    $   53,000    
as a % of revenue   71.0 %   70.2 %  
           

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