Inphi Corporation Delivers Record Revenue and Earnings in Q4 2019

Strong Year-Over-Year Growth Driven by Cloud

SANTA CLARA, Calif., Feb. 04, 2020 (GLOBE NEWSWIRE) -- Inphi Corporation (NYSE: IPHI), a leader in high-speed data movement interconnects, today announced financial results for its fourth quarter and fiscal year ended December 31, 2019.

GAAP Results

Revenue in the fourth quarter of 2019 was a record $102.9 million on a U.S. generally accepted accounting principles (GAAP) basis, up 18.9% year-over-year, compared with $86.5 million in the fourth quarter of 2018. The increase was due to higher demand for datacenter products.

Gross margin under GAAP in the fourth quarter of 2019 was 59.9%, compared with 57.2% in the fourth quarter of 2018. The increase was mainly due to product and revenue mix.

GAAP operating loss in the fourth quarter of 2019 was $8.8 million or (8.6%) of revenue, compared to GAAP operating loss in the fourth quarter of 2018 of $8.2 million or (9.5%) of revenue. The slight increase in operating loss was mainly due to higher operating expenses, partially offset by higher gross profit.

GAAP net loss for the fourth quarter of 2019 was $13.4 million or ($0.29) per diluted common share, compared with $21.6 million or ($0.49) per diluted common share in the fourth quarter of 2018.

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 fourth quarter of 2019 was 69.2%, compared with 69.3% in the fourth quarter of 2018. 

Non-GAAP operating income in the fourth quarter of 2019 was $23.4 million, compared with non-GAAP operating income of $20.5 million in the fourth quarter of 2018. The increase is primarily due to higher gross profit, partially offset by higher operating expenses.

Non-GAAP net income in the fourth quarter of 2019 was $23.1 million, or $0.47 per diluted common share. This compares with non-GAAP net income of $20.5 million, or $0.45 per diluted common share in the fourth quarter of 2018.

“We are very pleased to deliver record Q4 results driven by strength in our cloud market segment,” said Ford Tamer, President and CEO of Inphi Corporation. “On 24% year-on-year revenue growth for 2019 we generated 87% non-GAAP EPS growth, demonstrating continued leverage in our operating model. We enter 2020 with the close of the eSilicon acquisition and a strong product offering to serve our customers’ growth and support their success.  We expect our organic revenue momentum to continue in Q1 and through the balance of the year.”

Year Ended 2019 Results
Revenue in the year ended December 31, 2019 was $365.6 million, compared with $294.5 million in the year ended December 31, 2018. GAAP net loss in the year ended December 31, 2019 was $72.9 million, or ($1.61) per diluted common share, on approximately 45.2 million diluted weighted average common shares outstanding. This compares with GAAP net loss of $95.8 million, or ($2.19) per diluted common share, on approximately 43.7 million diluted weighted average common shares outstanding in the year ended December 31, 2018.

Non-GAAP net income in the year ended December 31, 2019 was $76.6 million, or $1.61 per diluted common share, on approximately 47.6 million non-GAAP diluted weighted average common shares outstanding. This compares with non-GAAP net income of $38.8 million in the year ended December 31, 2018, or $0.86 per diluted common share, on approximately 45.0 million diluted weighted average common shares outstanding.

Business Outlook
The following statements are based on the Company’s current expectations for the first quarter of 2020 and include the impact of eSilicon, which closed on January 10, 2020.  Due to strong product cycles, among other factors in both Telecom and Cloud, we anticipate sequential organic revenue growth in the first quarter of 2020 compared to the fourth quarter of 2019.  We continue to expect eSilicon will contribute between $80 to $120 million in revenue in 2020 and contribute to the mid-teens in percentage of revenue in the first 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 Q1 2020 is expected to be in the range of $130.4 million to $134.4 million.   
  • GAAP gross margin is expected to be approximately 50.9% to 52.3%.
  • Non-GAAP gross margin is expected to be approximately 64.2% to 65.2%.
  • Stock-based compensation expense is expected to be in the range of $19 million to $20 million.
  • GAAP net loss is expected to be in range between $21.4 million to $27.3 million, or ($0.46) to ($0.59) per basic share, based on 46.1 million estimated weighted average basic shares outstanding.
  • Non-GAAP net income, excluding stock-based compensation expense, acquisition expenses, 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 $21.5 million to $26.1 million, or $0.42 to $0.52 per weighted average diluted share, based on 50.6 million estimated non-GAAP weighted average 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 fourth quarter 2019 results. 

The call can be accessed by dialing (765) 507-2591, participant passcode: 3853299. 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://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
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 2020, including with respect to the first quarter of 2020, revenue, gross margin, stock-based compensation expense, operating performance, net income or loss, and earnings per share; the Company’s expectations regarding growth opportunities, success of our growth strategy strength of the cloud market, increasing demand in Q1 2020, growth inside data centers, customer relationships, the Company’s expectations regarding the benefits of the eSilicon acquisition 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 target markets; market demand for the Company’s 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, 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, 2018, 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.

INPHI CORPORATION    
CONSOLIDATED STATEMENTS OF OPERATIONS    
(in thousands of dollars, except share and per share amounts)    
(Unaudited)    
                     
    Three Months Ended December 31,   Year Ended December 31,    
    2019     2018     2019     2018      
Revenue $ 102,896   $ 86,531   $ 365,635   $ 294,490      
Cost of revenue   41,297     37,005     152,814     129,345      
                     
Gross profit   61,599     49,526     212,821     165,145      
                     
Operating expenses:                    
  Research and development   49,876     40,624     183,875     167,924      
  Sales and marketing   12,378     10,608     47,722     43,080      
  General and administrative   8,194     6,535     30,672     28,302      
                     
Total operating expenses   70,448     57,767     262,269     239,306      
                     
Loss from operations   (8,849 )   (8,241 )   (49,448 )   (74,161 )    
                     
Interest expense, net of other income   (5,415 )   (13,195 )   (23,067 )   (29,801 )    
                     
Loss from operations before income taxes   (14,264 )   (21,436 )   (72,515 )   (103,962 )    
Provision (benefit) for income taxes   (856 )   195     396     (8,211 )    
                     
Net loss $ (13,408 ) $ (21,631 ) $ (72,911 ) $ (95,751 )    
                     
Earnings per share:                    
  Basic $ (0.29 ) $ (0.49 ) $ (1.61 ) $ (2.19 )    
  Diluted $ (0.29 ) $ (0.49 ) $ (1.61 ) $ (2.19 )    
                     
                     
Weighted-average shares used in computing                    
  earnings per share:                    
  Basic   45,728,736     44,152,932     45,226,717     43,690,581      
  Diluted   45,728,736     44,152,932     45,226,717     43,690,581      
                     
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 December 31,   Year Ended December 31,    
    2019     2018     2019     2018      
    (in thousands of dollars)   (in thousands of dollars)    
    (Unaudited)   (Unaudited)    
Cost of revenue $ 1,776   $ 717   $ 6,208   $ 2,527      
Research and development   11,311     9,544     42,265     37,397      
Sales and marketing   3,832     3,285     15,561     13,470      
General and administrative   3,339     2,829     12,821     10,490      
                     
  $ 20,258   $ 16,375   $ 76,855   $ 63,884      
                     
                     
             



INPHI CORPORATION  
CONSOLIDATED BALANCE SHEETS  
(in thousands of dollars)  
(Unaudited)  
    December 31, 2019   December 31, 2018  
Assets          
Current assets:          
  Cash and cash equivalents $ 282,723   $ 172,018    
  Investments in marketable securities   140,131     235,339    
  Accounts receivable, net   60,295     61,271    
  Inventories   55,013     33,052    
  Prepaid expenses and other current assets   17,463     9,600    
    Total current assets   555,625     511,280    
           
Property and equipment, net   79,563     70,740    
Goodwill   104,502     104,502    
Intangible assets, net   168,290     180,447    
Right of use assets, net   33,576     -    
Other assets, net   34,450     22,904    
Total assets $ 976,006   $ 889,873    
           
Liabilities and Stockholders’ Equity          
           
Current liabilities:          
  Accounts payable $ 18,771   $ 15,891    
  Accrued expenses and other current liabilities   51,820     43,120    
  Deferred revenue   3,719     5,432    
  Convertible debt   217,467     -    
           
    Total current liabilities   291,777     64,443    
           
Convertible debt   258,711     447,825    
Other liabilities   78,917     10,911    
  Total liabilities   629,405     523,179    
           
Stockholders’ equity:          
  Common stock   46     44    
  Additional paid-in capital   587,862     536,157    
  Accumulated deficit   (242,807 )   (169,896 )  
  Accumulated other comprehensive income   1,500     389    
Total stockholders’ equity   346,601     366,694    
           
Total liabilities and stockholders’ equity $ 976,006   $ 889,873    
           

INPHI CORPORATION
RECONCILIATION 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, loss on claim settlements, non-cash interest expense 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 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 December 31,   Year Ended December 31,    
    2019     2018     2019     2018      
GAAP gross profit to Non-GAAP gross profit                    
GAAP gross profit $ 61,599   $ 49,526   $ 212,821   $ 165,145      
Adjustments to GAAP gross profit:                    
  Stock-based compensation   1,776   (a) 717   (a) 6,208   (a) 2,527   (a)  
  Acquisition related expenses   -     -     -     3   (b)  
  Amortization of inventory step-up   -     -     -     1,166   (c)  
  Amortization of intangibles   7,815   (d) 9,724   (d) 36,987   (d) 32,846   (d)  
  Depreciation on step-up values of fixed assets   2   (e) (12 ) (e) (25 ) (e) (48 ) (e)  
  Restructuring expenses   -     -     -     106   (f)  
Non-GAAP gross profit $ 71,192   $ 59,955   $ 255,991   $ 201,745      
                     
GAAP operating expenses to non-GAAP operating expenses                    
GAAP research and development $ 49,876   $ 40,624   $ 183,875   $ 167,924      
Adjustments to GAAP research and development:                    
  Stock-based compensation   (11,311 ) (a) (9,544 ) (a) (42,265 ) (a) (37,397 ) (a)  
  Acquisition related expenses   -     -     -     (607 ) (b)  
  Depreciation on step-up values of fixed assets   (164 ) (e) (109 ) (e) (518 ) (e) (402 ) (e)  
  Restructuring expenses   -     -     -     (885 ) (f)  
Non-GAAP research and development $ 38,401   $ 30,971   $ 141,092   $ 128,633      
                     
GAAP sales and marketing $ 12,378   $ 10,608   $ 47,722   $ 43,080      
Adjustments to GAAP sales and marketing:                    
  Stock-based compensation   (3,832 ) (a) (3,285 ) (a) (15,561 ) (a) (13,470 ) (a)  
  Acquisition related expenses   -     -     -     (259 ) (b)  
  Amortization of intangibles   (2,432 ) (d) (2,431 ) (d) (9,725 ) (d) (9,726 ) (d)  
  Depreciation on step-up values of fixed assets   (3 ) (e) (4 ) (e) (10 ) (e) (64 ) (e)  
  Restructuring expenses   -     -     -     (367 ) (f)  
Non-GAAP sales and marketing $ 6,111   $ 4,888   $ 22,426   $ 19,194      
                     
GAAP general and administrative $ 8,194   $ 6,535   $ 30,672   $ 28,302      
Adjustments to GAAP general and administrative:                    
  Stock-based compensation   (3,339 ) (a) (2,829 ) (a) (12,821 ) (a) (10,490 ) (a)  
  Acquisition related expenses   (1,015 ) (b) -     (1,015 ) (b) (6 ) (b)  
  Amortization of intangibles   (69 ) (d) (116 ) (d) (417 ) (d) (464 ) (d)  
  Depreciation on step-up values of fixed assets   (6 ) (e) (6 ) (e) (20 ) (e) (56 ) (e)  
  Restructuring expenses   -     -     -     (133 ) (f)  
  Expense on lease that was not yet occupied   (462 ) (g) -     (462 ) (g) -      
  Loss on claim settlement from ClariPhy acquisition   -     -     (400 ) (h) (2,250 ) (h)  
Non-GAAP general and administrative $ 3,303   $ 3,584   $ 15,537   $ 14,903      
                     
Non-GAAP total operating expenses $ 47,815   $ 39,443   $ 179,055   $ 162,730      
Non-GAAP income from operations $ 23,377   $ 20,512   $ 76,936   $ 39,015      
                     
GAAP net loss to non-GAAP net income                    
GAAP net loss $ (13,408 ) $ (21,631 ) $ (72,911 ) $ (95,751 )    
Adjusting items to GAAP net loss:                    
  Operating expenses related to stock-based                    
  compensation expense   20,258   (a) 16,375   (a) 76,855   (a) 63,884   (a)  
  Acquisition related expenses   1,015   (b) -     1,015   (b) 875   (b)  
  Amortization of inventory fair value step-up   -     -     -     1,166   (c)  
  Amortization of intangibles related to purchase price   10,316   (d) 12,271   (d) 47,129   (d) 43,036   (d)  
  Depreciation on step-up values of fixed assets   175   (e) 107   (e) 523   (e) 474   (e)  
  Restructuring expenses   -     -     -     1,491   (f)  
  Expense on lease that was not yet occupied   462   (g) -     462   (g) -      
  Loss on claim settlement from ClariPhy acquisition   -     -     400   (h) 2,250   (h)  
  Loss on claim settlement from Exactik disposition   -     -     296   (i) -      
  Loss on retirement of certain property and equipment from acquisitions   -     -     7   (j) 66   (j)  
  Impairment of investment   -     7,000   (k) -     7,000   (k)  
  Net unrealized and realized gain on equity investment   (1,049 ) (l) (66 ) (l) (3,126 ) (l) (2,440 ) (l)  
  Accretion and amortization expense on convertible debt   7,338   (m) 6,828   (m) 28,353   (m) 26,394   (m)  
  Valuation allowance and tax effect of the                    
  adjustments above from GAAP to non-GAAP   (2,029 ) (n) (354 ) (n) (2,432 ) (n) (9,635 ) (n)  
Non-GAAP net income $ 23,078   $ 20,530   $ 76,571   $ 38,810      
                     
Shares used in computing non-GAAP basic earnings per share   45,728,736     44,152,932     45,226,717     43,690,581      
                     
Shares used in computing non-GAAP diluted earnings per share before offsetting shares from call option   51,298,035     45,516,402     48,766,301     44,986,718      
Offsetting shares from call option   2,225,969     -     1,176,787     -      
Shares used in computing non-GAAP diluted earnings per share   49,072,066     45,516,402     47,589,514     44,986,718      
                     
Non-GAAP earnings per share:                    
  Basic $ 0.50   $ 0.46   $ 1.69   $ 0.89      
  Diluted $ 0.47   $ 0.45   $ 1.61   $ 0.86      
                     
GAAP gross profit as a % of revenue   59.9 %   57.2 %   58.2 %   56.1 %    
Stock-based compensation   1.7 %   0.8 %   1.7 %   0.9 %    
Amortization of inventory fair value step-up and intangibles   7.6 %   11.3 %   10.1 %   11.5 %    
Non-GAAP gross profit as a % of revenue   69.2 %   69.3 %   70.0 %   68.5 %    
                     
  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 acquisitions.  The transition costs also include short-term cash retention bonus payments to ClariPhy employees that were part of the merger 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 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.
  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 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.
  10. 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.
  11. Reflects the impairment of non-marketable equity investment.  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.
  12. 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.
  13. 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.
  14. 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 -FIRST QUARTER 2020 GUIDANCE  
(in thousands of dollars, except share and per share amounts)  
(Unaudited)  
           
    Three Months Ending March 31, 2020  
    High   Low  
Estimated GAAP net loss $ (21,400 ) $ (27,300 )  
Adjusting items to estimated GAAP net loss:          
  Operating expenses related to stock-based          
  compensation expense   19,000     20,000    
  Amortization of intangibles   17,800     17,800    
  Amortization of step up values of acquired inventories   1,500     1,500    
  Amortization of step up values of acquired property and equipment 200     200    
  Acquisition related expenses   2,500     2,500    
  Amortization of convertible debt interest cost   7,200     7,200    
  Noncash expense on lease not yet occupied   775     775    
  Others   125     125    
  Tax effect of GAAP to non-GAAP adjustments   (1,600 )   (1,300 )  
Estimated non-GAAP net income $ 26,100   $ 21,500    
           
Shares used in computing estimated non-GAAP diluted earnings per share   50,600,000     50,600,000    
           
Estimated non-GAAP diluted earnings per share $ 0.52   $ 0.42    
           
           
Revenue $ 134,400   $ 130,400    
           
GAAP gross profit $ 70,300   $ 66,400    
  as a % of revenue   52.3 %   50.9 %  
Adjusting items to estimated GAAP gross profit:          
  Stock-based compensation   2,000     2,000    
  Fixed assets depreciation step up   10     10    
  Amortization of intangibles   15,300     15,300    
Estimated non-GAAP gross profit $ 87,610   $ 83,710    
  as a % of revenue   65.2 %   64.2 %  
           


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

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

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Source: Inphi Corporation