GlobeNewswire Inc | Aug 4, 2020 07:02AM EDT

August 04, 2020

SANTA CLARA, Calif., Aug. 04, 2020 (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, 2020.

GAAP Results

Revenue in the second quarter of 2020 was a record $175.3 million on a U.S. generally accepted accounting principles (GAAP) basis, up 103.2% year-over-year, compared with $86.3 million in the second quarter of 2019. The increase was due to higher demand for Cloud and Telecommunications products as well as the inclusion of eSilicon revenues as a result of the acquisition that closed on January 10, 2020.

Gross margin under GAAP in the second quarter of 2020 was 53.0%, compared with 56.9% in the second quarter of 2019. The decrease was mainly due to amortization of intangibles, step up value of inventories related to the eSilicon acquisition and product and revenue mix.

GAAP operating loss in the second quarter of 2020 was $4.3 million or (2.4%) of revenue, compared to GAAP operating loss in the second quarter of 2019 of $14.2 million or (16.5%) of revenue. The decrease in operating loss was mainly due to higher gross profit, partially offset by higher operating expenses.

GAAP net loss includes a charge of $13.3 million associated with the extinguishment of approximately $403.5 million in face value of convertible notes of which $180.4 million were coming due in December 2020 and $223.1 million were coming due in September 2021. We paid the principal value in cash and settled the excess spread in shares of our common stock. In most cases a very small premium was paid in either cash or stock to induce early extinguishment and thereby capped any further dilution if the stock price were to continue to rise before maturity. Approximately, $4.0 million in cash inducements, advisory fees and other transaction costs were paid on the debt extinguishment. Approximately, 4.9 million shares of common stock were also issued at a weighted average price of $112 per share, of which approximately 3.3 million shares were already included in the first quarter non-GAAP weighted average shares calculation using an average stock price of approximately $78.

GAAP provision for income taxes for the second quarter of 2020 include a one-time benefit of approximately $5.6 million primarily from the reversal of a previously accrued reserve for transfer pricing as the result of the formal closure of an income tax audit. This benefit was offset by a corresponding change in income tax valuation allowance.

GAAP net loss for the second quarter of 2020 was $24.1 million or ($0.49) per diluted common share, compared with $20.6 million or ($0.46) per diluted common share in the second quarter of 2019.

Inphi reports gross profit, 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 gross profit, operating expenses, operating income, 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 2020 was 64.1%, compared with 70.1% in the second quarter of 2019. The decrease was due to product mix, mainly from the sale of eSilicon products that have a lower margin.

Non-GAAP operating income in the second quarter of 2020 was $50.3 million, compared with non-GAAP operating income of $16.5 million in the second quarter of 2019. The increase is primarily due to higher gross profit and higher operating leverage.

Non-GAAP benefit for income taxes for the second quarter of 2020 include a one-time benefit of approximately $5.6 million primarily from the reversal of a previously accrued reserve for transfer pricing as the result of the formal closure of an income tax audit.

Non-GAAP net income in the second quarter of 2020 was $50.9 million, or $0.95 per diluted common share. This includes the one-time tax benefit referred to above which represents approximately $0.10 per diluted share as part of the $0.95 per diluted common share for the second quarter of 2020. This compares with non-GAAP net income of $16.6 million, or $0.35 per diluted common share in the second quarter of 2019.

In Q2 our product offerings were firing on all cylinders. On a year-over-year basis, our Cloud revenue grew 92% driven by our PAM4 products inside data centers and our COLORZ solution between data centers. Our Telecom revenue grew 119% driven by both our new ASIC and PAM4 for 5G and our coherent solutions for long haul and metro, said Ford Tamer, President and CEO of Inphi Corporation. We continue to invest in resources both organically and through strategic acquisitions that can scale Inphi to larger opportunities ahead. Although we are cautious with regard to the macro uncertainties, we believe our continued success and breadth of product cycles will drive sequential growth in the third quarter.

First Half 2020 ResultsRevenue in the six months ended June 30, 2020 was $314.7 million, compared with $168.5 million in the six months ended June 30, 2019. GAAP net loss in the six months ended June 30, 2020 was $44.3 million, or ($0.93) per diluted share, on approximately 47.5 million diluted weighted average common shares outstanding. This compares with GAAP net loss of $43.3 million, or ($0.97) per diluted share, on approximately 44.8 million diluted weighted average common shares outstanding in the six months ended June 30, 2019.

Non-GAAP net income in the six months ended June 30, 2020 was $82.4 million, or $1.58 per diluted weighted average common share outstanding, on approximately 52.1 million diluted weighted average common shares outstanding. This compares with non-GAAP net income of $32.0 million in the six months ended June 30, 2019, or $0.69 per diluted weighted average common share outstanding, on approximately 46.5 million diluted weighted average common shares outstanding.

Business Outlook

The following statements are based on the Companys current expectations for the third quarter of 2020. 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 2020 is expected to be in the range of $179.0 million to $182.5 million. -- GAAP gross margin is expected to be approximately 55.1% to 56.2%. -- Non-GAAP gross margin is expected to be approximately 63.5% to 64.5%. -- Stock-based compensation expense is expected to be in the range of $29.0 million to $30.0 million. -- GAAP net loss is expected to be in range between $2.7 million to $6.3 million, or ($0.05) to ($0.12) per basic share, based on 52.1 million estimated weighted average basic shares outstanding. -- Non-GAAP net income, excluding stock-based compensation expense, acquisition expenses, amortization of intangibles and inventory fair value step up related to acquisitions and noncash interest on convertible debt, is expected to be in the range of $45.5 million to $47.9 million, or $0.83 to $0.87 per weighted average diluted share, based on 55.0 million estimated non-GAAP weighted average diluted shares outstanding.

Quarterly Conference Call TodayInphi plans to hold a conference call today at 8:30 a.m. Eastern Time / 5:30 a.m. Pacific Time with Ford Tamer, President and Chief Executive Officer, and John Edmunds, Chief Financial Officer, to discuss the second quarter 2020 results.

The call can be accessed by dialing 765-507-2591, participant passcode: 9798966. Please dial-in ten minutes prior to the scheduled conference call time. A live and archived webcast of the call will be available on Inphis website at https://inphi.com/investors/ for up to 30 days after the call.

About InphiInphi 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 StatementsThese 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 Companys business outlook and current expectations for 2020, including with respect to the third quarter of 2020, revenue, gross margin, stock-based compensation expense, operating performance, net income or loss, and earnings per share; the Companys expectations regarding growth opportunities, success of our growth strategy, strength of the cloud market, increasing demand in Q3 2020, growth inside data centers, customer relationships, the Companys expectations with respect to the investment in resources, ability to grow and the 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 Companys 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 target markets; market demand for the Companys products; reliance on third parties to manufacture, assemble and test products; ability to compete; the ability to effectively integrate eSilicon 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 demand, including as a result of the impact of the COVID-19 pandemic, 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 Corporations recent SEC filings, including its Annual Report on Form 10-K for the year ended December 31, 2019, which are available on the SECs 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.

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, 2020 2019 2020 2019 Revenue $ 175,292 $ 86,285 $ 314,722 $ 168,508 Cost of revenue 82,360 37,176 148,093 71,768 Gross margin 92,932 49,109 166,629 96,740 Operating expenses:Research and 69,176 44,705 131,869 89,104 developmentSales and 15,024 11,154 29,933 23,033 marketingGeneral and 12,991 7,480 25,383 14,313 administrative Total operating 97,191 63,339 187,185 126,450 expenses Loss from (4,259 ) (14,230 ) (20,556 ) (29,710 ) operations Loss on earlyextinguishment (13,297 ) - (13,297 ) - of convertibledebtInterestexpense, net of (6,246 ) (6,935 ) (10,190 ) (12,980 ) other income Loss fromoperations (23,802 ) (21,165 ) (44,043 ) (42,690 ) before incometaxesProvision(benefit) for 249 (587 ) 294 633 income taxes Net loss $ (24,051 ) $ (20,578 ) $ (44,337 ) $ (43,323 ) Earnings per share:Basic $ (0.49 ) $ (0.46 ) $ (0.93 ) $ (0.97 ) Diluted $ (0.49 ) $ (0.46 ) $ (0.93 ) $ (0.97 ) Weighted-averageshares used incomputing earnings pershare:Basic 48,928,224 45,191,674 47,477,159 44,823,562 Diluted 48,928,224 45,191,674 47,477,159 44,823,562 The following table presents details of stock-based compensation expenseincluded in each functional line item in the consolidated statements of operations above: Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 (in thousands of dollars) (in thousands of dollars) (Unaudited) (Unaudited) Cost of revenue $ 1,986 $ 1,674 $ 3,897 $ 2,479 Research and 16,432 9,925 29,511 20,657 developmentSales and 5,261 3,269 10,462 7,417 marketingGeneral and 4,547 3,093 8,385 6,166 administrative $ 28,226 $ 17,961 $ 52,255 $ 36,719

INPHI CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands of dollars) (Unaudited) June 30, December 31, 2020 2019Assets Current assets: Cash and cash equivalents $ 133,885 $ 282,723 Restricted cash 100 - Investments in marketable securities 88,040 140,131 Accounts receivable, net 85,413 60,295 Inventories 90,419 55,013 Prepaid expenses and other current assets 18,175 17,463 Total current assets 416,032 555,625 Property and equipment, net 109,334 79,563 Goodwill 181,689 104,502 Intangible assets, net 277,649 168,290 Right of use asset, net 33,974 33,576 Other assets, net 32,221 34,450 Total assets $ 1,050,899 $ 976,006 Liabilities and Stockholders? Equity Current liabilities: Accounts payable $ 45,159 $ 18,771 Accrued expenses and other current 78,634 51,820 liabilitiesDeferred revenue 5,271 3,719 Convertible debt 48,277 217,467 Total current liabilities 177,341 291,777 Convertible debt 455,246 258,711 Other liabilities 68,901 78,917 Total liabilities 701,488 629,405 Stockholders? equity: Common stock 52 46 Additional paid-in capital 634,729 587,862 Accumulated deficit (287,144 ) (242,807 ) Accumulated other comprehensive income 1,774 1,500 Total stockholders? equity 349,411 346,601 Total liabilities and stockholders? equity $ 1,050,899 $ 976,006

INPHI CORPORATIONRECONCILIATION 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, non-cash interest expense and loss on extinguishment related to convertible debt, unrealized gain or loss on equity investments, lease expense on building not occupied 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 Companys 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 Companys 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 Companys financial results calculated in accordance with GAAP, provide investors with additional perspective and a more meaningful understanding of the Companys ongoing operating performance. In addition, the Companys 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 Companys 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 Six Months Ended June 30, June 30, 2020 2019 2020 2019 GAAP grossmargin to Non-GAAP grossmarginGAAP gross $ 92,932 $ 49,109 $ 166,629 $ 96,740 marginAdjustments toGAAP gross margin:Stock-based 1,986 (a) 1,674 (a) 3,897 (a) 2,479 (a) compensationAmortization ofinventory 2,063 (b) - 4,339 (b) - step-upAmortization of 15,081 (c) 9,724 (c) 26,464 (c) 19,448 (c) intangiblesDepreciation onstep-up values 214 (d) (12 ) (d) 430 (d) (24 ) (d) of fixed assetsNon-GAAP gross $ 112,276 $ 60,495 $ 201,759 $ 118,643 margin GAAP operatingexpenses toNon-GAAP operatingexpensesGAAP research $ 69,176 $ 44,705 $ 131,869 $ 89,104 and developmentAdjustments toGAAP research anddevelopment:Stock-based (16,432 ) (a) (9,925 ) (a) (29,511 ) (a) (20,657 ) (a) compensationDepreciation onstep-up values (102 ) (d) (110 ) (d) (124 ) (d) (197 ) (d) of fixed assetsAcquisitionrelated (3,011 ) (e) - (9,403 ) (e) - expensesNon-GAAPresearch and $ 49,631 $ 34,670 $ 92,831 $ 68,250 development GAAP sales and $ 15,024 $ 11,154 $ 29,933 $ 23,033 marketingAdjustments toGAAP sales and marketing:Stock-based (5,261 ) (a) (3,269 ) (a) (10,462 ) (a) (7,417 ) (a) compensationAmortization of (2,431 ) (c) (2,431 ) (c) (4,863 ) (c) (4,862 ) (c) intangiblesDepreciation onstep-up values (20 ) (d) (2 ) (d) (21 ) (d) (5 ) (d) of fixed assetsAcquisitionrelated (16 ) (e) - (677 ) (e) - expensesNon-GAAP sales $ 7,296 $ 5,452 $ 13,910 $ 10,749 and marketing GAAP generaland $ 12,991 $ 7,480 $ 25,383 $ 14,313 administrativeAdjustments toGAAP general andadministrative:Stock-based (4,547 ) (a) (3,093 ) (a) (8,385 ) (a) (6,166 ) (a) compensationAmortization of (70 ) (c) (116 ) (c) (140 ) (c) (232 ) (c) intangiblesDepreciation onstep-up values 2 (d) (4 ) (d) (128 ) (d) (9 ) (d) of fixed assetsAcquisitionrelated (2,674 ) (e) - (4,991 ) (e) - expensesExpense onlease that was (692 ) (f) - (1,247 ) (f) - not yetoccupiedLoss on claimsettlement from - (400 ) (g) - (400 ) (g) ClariPhyacquisitionNon-GAAPgeneral and $ 5,010 $ 3,867 $ 10,492 $ 7,506 administrative Non-GAAP totaloperating $ 61,937 $ 43,989 $ 117,233 $ 86,505 expensesNon-GAAP income $ 50,339 $ 16,506 $ 84,526 $ 32,138 from operations GAAP net lossto Non-GAAP net incomeGAAP net loss $ (24,051 ) $ (20,578 ) $ (44,337 ) $ (43,323 ) Adjusting itemsto GAAP net loss:Operatingexpensesrelated to 28,226 (a) 17,961 (a) 52,255 (a) 36,719 (a) stock-basedcompensationexpenseAmortization ofinventory 2,063 (b) - 4,339 (b) - step-upAmortization ofintangibles 17,582 (c) 12,271 (c) 31,467 (c) 24,542 (c) related topurchase priceDepreciation onstep-up values 334 (d) 104 (d) 703 (d) 187 (d) of fixed assetsAcquisitionrelated 5,701 (e) - 15,071 (e) - expensesExpense onlease that was 692 (f) - 1,247 (f) not yetoccupiedLoss on claimsettlement from - 400 (g) - 400 (g) ClariPhyacquisitionAccretion andamortizationexpense on 8,540 (h) 7,006 (h) 15,931 (h) 13,805 (h) convertibledebtLoss on earlyextinguishment 13,297 (i) - 13,297 (i) - of convertibledebtNet realizedand unrealizedloss (gain) on (2,676 ) (j) 347 (j) (6,743 ) (j) 75 (j) equityinvestmentLoss onretirement ofcertainproperty and - - 40 (k) - equipment fromClariPhyacquisitionLoss on claimsettlement from - 296 (l) - 296 (l) ExactikdispositionValuationallowance andtax effect of 1,241 (m) (1,216 ) (m) (837 ) (m) (700 ) (m) the adjustmentsabove from GAAPto non-GAAPNon-GAAP net $ 50,949 $ 16,591 $ 82,433 $ 32,001 income Shares used incomputingnon-GAAP basic 48,928,224 45,191,674 47,477,159 44,823,562 earnings pershare Shares used incomputingnon-GAAPdilutedearnings per 55,067,012 47,700,457 53,800,332 46,920,852 share beforeoffsettingshares fromcall optionOffsettingshares from 1,456,642 787,128 1,714,647 393,564 call optionShares used incomputingnon-GAAP 53,610,370 46,913,329 52,085,685 46,527,288 dilutedearnings pershare Non-GAAPearnings per share:Basic $ 1.04 $ 0.37 $ 1.74 $ 0.71 Diluted $ 0.95 $ 0.35 $ 1.58 $ 0.69 GAAP grossmargin as a % 53.0 % 56.9 % 52.9 % 57.4 % of revenueStock-based 1.1 % 1.9 % 1.2 % 1.5 % compensationAmortization ofinventory fair 10.0 % 11.3 % 10.0 % 11.5 % value step-upand intangiblesNon-GAAP grossmargin as a % 64.1 % 70.1 % 64.1 % 70.4 % of revenue

(a) 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. (b)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. (c)Reflects the fair value amortization of intangibles related to 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. (d)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. (e)Reflects the legal, transition costs and other expenses related to acquisitions. The transition costs also include short-term cash retention bonus payments to eSilicon employees. 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. (f)Reflects the expense on building lease not yet occupied. 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.(g)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.(h)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.(i)Reflects the loss on early extinguishment of 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.(j)Reflects the unrealized and realized 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.(k)Reflects the loss on disposal of certain property and equipment from the 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.(l)Reflects the loss on settlement of claim from the Exactik business disposal. 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.(m)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 2020 GUIDANCE (in thousands of dollars, except share and per share amounts) (Unaudited) Three Months Ending September 30, 2020 High Low Estimated GAAP net loss $ (2,700 ) $ (6,300 ) Adjusting items to estimated GAAP net loss:Operating expenses related to stock-based 30,000 29,000 compensation expenseAmortization of intangibles 14,900 14,900 Amortization of step up values of acquired 350 350 inventoriesAmortization of step up values of acquired 340 340 property and equipmentAcquisition related expenses 700 700 Amortization of convertible debt interest 6,650 6,650 costNoncash expense on lease not yet occupied 340 340 Tax effect of GAAP to non-GAAP adjustments (2,700 ) (480 ) Estimated non-GAAP net income $ 47,880 $ 45,500 Shares used in computing estimated 55,000,000 55,000,000 non-GAAP diluted earnings per share Estimated non-GAAP diluted earnings per $ 0.87 $ 0.83 share Revenue $ 182,500 $ 179,000 GAAP gross margin $ 102,520 $ 98,600 as a % of revenue 56.2 % 55.1 % Adjusting items to estimated GAAP gross margin:Stock-based compensation 2,150 2,050 Amortization of step up values of acquired 350 350 inventoriesFixed assets depreciation step up 220 220 Amortization of intangibles 12,400 12,400 Estimated non-GAAP gross margin $ 117,640 $ 113,620 as a % of revenue 64.5 % 63.5 %



Corporate Contact:Kim Markle408-217-7329kmarkle@inphi.com

Investor Contact:Vernon P. Essi, Jr.408-606-6524vessi@inphi.com