Inphi Corporation Announces Third Quarter 2018 Results

Reports 12% quarter over quarter revenue growth

SANTA CLARA, Calif., Nov. 1, 2018 – Inphi Corporation (NYSE: IPHI), a leader in high-speed data movement interconnects, today announced financial results for its third quarter ended September 30, 2018.

GAAP Results

Revenue in the third quarter of 2018 was $78.0 million on a U.S. generally accepted accounting principles (GAAP) basis, down 8% year-over-year, compared with $84.5 million in the third quarter of 2017. The year over year decrease was due to lower demand for long haul and metro, ColorZ as well as Cortina legacy products. However, Data Center, including PAM and ColorZ product revenue grew substantially from the levels in the second quarter of 2018, resulting in a 12% sequential quarterly revenue growth.

Gross margin under GAAP in the third quarter of 2018 was 55.7%, compared with 49.8% in the third quarter of 2017.

GAAP loss from operations in the third quarter of 2018 was $16.0 million, or 20.6% of revenue, compared to GAAP loss from operations in the third quarter of 2017 of $52.5 million or 62.1% of revenue.

GAAP net loss for the third quarter of 2018 was $22.7 million, or ($0.52) per diluted common share, compared with GAAP net loss of $48.8 million, or ($1.15) per diluted common share in the third quarter of 2017. GAAP net loss for the second quarter of 2018 was $28.5 million, or ($0.65) per diluted common share.

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 third quarter of 2018 was 69.4%, compared with 71.4% in the third quarter of 2017. The slight decrease was largely due to change in product mix.

Non-GAAP income from operations in the third quarter of 2018 was $13.5 million, or 17.4% of revenue, compared with $17.3 million, or 20.5% of revenue in the third quarter of 2017.

Non-GAAP net income in the third quarter of 2018 was $13.7 million, or $0.30 per diluted common share. This compares with non-GAAP net income of $15.8 million, or $0.36 per diluted common share in the third quarter of 2017. Non-GAAP net income in the second quarter of 2018 was $6.6 million, or $0.15 per diluted common share.
“We are pleased to report another strong quarter of 12% sequential growth in revenue and 100% sequential growth in non-GAAP earnings per share in Q3,” said Dr. Ford Tamer, President and CEO of Inphi Corporation. “We continue to gain share in our 64Gbaud TIAs, drivers, coherent DSPs, next-generation data center interconnects, and DSP-based PAM platforms for connections inside the data center. Additionally, our business is growing with cloud customers – in fact the majority of our revenue in Q3 is now coming from the data center market which is currently driven by North American customers. We expect our recent product introductions, strong customer relationships and design win pipeline will continue to drive revenue growth for the company in Q4, and in the years ahead.”

Nine Months 2018 Results
Revenue in the nine months ended September 30, 2018 was $208.0 million, compared with $262.5 million in the nine months ended September 30, 2017. GAAP net loss in the nine months ended September 30, 2018 was $74.1 million, or ($1.70) per diluted share, on approximately 43.5 million diluted weighted average common shares outstanding. This compares with GAAP net loss of $75.0 million, or ($1.78) per diluted share, on approximately 42.0 million diluted weighted average common shares outstanding in the nine months ended September 30, 2017.

Non-GAAP net income in the nine months ended September 30, 2018 was $18.3 million, or $0.41 per diluted weighted average common share outstanding, on approximately 44.8 million diluted weighted average common shares outstanding. This compares with non-GAAP net income of $50.9 million in the nine months ended September 30, 2017, or $1.15 per diluted weighted average common share outstanding, on approximately 44.3 million diluted weighted average common shares outstanding.

Business Outlook
The following statements are based on the Company’s current expectations for the fourth 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 Q4 2018 is expected to be in a range of $84.3 million to $88.3 million. The midpoint being $86.3 million.
• GAAP gross margin is expected to be approximately 57.2% to 58.8%.
• Non-GAAP gross margin is expected to be approximately 69.5% to 70.5%.
• Stock-based compensation expense is expected to be in the range of $16.65 million to $16.85 million.
• GAAP results are expected to be a net loss in a range between a net loss of $15.7 million to $16.4 million, or a loss of $0.36 – $0.37 per basic share, based on 44.25 million estimated weighted average basic shares outstanding.
• Non-GAAP net income, excluding stock-based compensation expense, amortization of intangibles related to acquisitions and noncash interest on convertible debt, is expected to be in the range of $18.6 million to $19.5 million, or $0.41-$0.43 per diluted share, based on 45.7 million estimated diluted shares outstanding.

Quarterly Conference Call Today
Inphi plans to hold a conference call today at 4:30 p.m. Eastern Time / 1:30 p.m. Pacific Time with Ford Tamer, president and chief executive officer, and John Edmunds, chief financial officer, to discuss the third quarter 2018 results.

The call can be accessed by dialing 765-507-2591, participant passcode: 4362537. 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.

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Cautionary Note Concerning Forward-Looking Statements
Statements in the press release and certain matters to be discussed on the third 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 fourth 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 and increase in market share, increasing demand in Q4, growth inside data centers, success of new product introductions, customer relationships and design wins, and 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

The following table presents details of stock-based compensation expense included in each functional line item in the consolidated statements of operations above:

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, restructuring expenses, 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.

(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 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.
(c) 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.
(d) 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.
(e) 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.
(f) Reflects the impairment of in-process research and development and developed technology 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.
(g) 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.
(h) 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.
(i) 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.
(j) 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.
(k) 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.
(l) 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.