Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
IPHI > SEC Filings for IPHI > Form 10-Q on 5-Aug-2014All Recent SEC Filings

Show all filings for INPHI CORP

Form 10-Q for INPHI CORP


5-Aug-2014

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and notes to those statements included elsewhere in this Report. This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this report, the terms "may," "might," "will," "objective," "intend," "should," "could," "can," "would," "expect," "believe," "estimate," "predict," "potential," "plan," or the negative of these terms, and similar expressions intended to identify forward-looking statements. These statements relate to future periods and include statements regarding our anticipated trends and challenges in our business and the markets in which we operate, including the market for 100G high-speed analog semiconductor solutions, our plans for future products, expansion of our product offerings and enhancements of existing products, our expectations regarding our expenses and revenue, our tax benefits, the benefits of our products and services, timing of the development of our products, our anticipated cash needs and our estimates regarding our capital requirements and our needs for additional financing, repatriation of cash, our anticipated growth and growth strategies, interest rate sensitivity, adequacy of our disclosure controls, customer concentration, foundry constraints, competition, protection of our intellectual property, our dividend policy and our legal proceedings. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these or any other forward-looking statements. These risks and uncertainties include, but are not limited to, those risks discussed below, as well as factors affecting our results of operations, our ability to manage our growth, our ability to sustain or increase profitability, demand for our solutions, the effect of declines in average selling prices for our products, our ability to compete, our ability to rapidly develop new technology and introduce new products, our ability to safeguard our intellectual property, trends in the semiconductor industry and fluctuations in general economic conditions, and the risks set forth throughout this Report, including the risks set forth under Part II, " Item 1A, Risk Factors". Readers are cautioned not to place undue reliance on these forward-looking statements, which are based on current expectations and reflect management's opinions only as of the date hereof. These forward-looking statements speak only as of the date of this Report. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based.

All references to "Inphi," "we," "us" or "our" mean Inphi Corporation.

Inphi®, iMB™, iKON™ and the Inphi logo are trademarks or service marks owned by Inphi. All other trademarks, service marks and trade names appearing in this report are the property of their respective owners.

Overview

Our Company

We are a fabless provider of high-speed analog and mixed signal semiconductor solutions for the communications, data center and computing markets. Our semiconductor solutions provide high signal integrity at leading-edge data speeds while reducing system power consumption. Our semiconductor solutions are designed to address bandwidth bottlenecks in networks, maximize throughput and minimize latency in computing environments and enable the rollout of next generation communications, data center and computing infrastructures. Our solutions provide a vital high-speed interface between analog signals and digital information in high-performance systems such as telecommunications transport systems, enterprise networking equipment, data centers and enterprise servers, storage platforms, test and measurement equipment and military systems. We provide 100G high-speed analog semiconductor solutions for the communications market and high-speed memory interface solutions for the computing market.

We have a product portfolio with many products sold in communication and data center markets as of June 30, 2014, including our 100 GbE CMOS SerDes architecture, or iPHY, which is designed to enable the development of next generation low power and high port density 100 Gigabit Ethernet, or 100 GbE, solutions to address bandwidth bottlenecks in next generation data center and communications infrastructures.

A detailed discussion of our business may be found in Part I, Item 1, "Business," of our 2013 Annual Report on Form 10-K.


Table of Contents

Quarterly Update

As discussed in more detail below, for the three and six months ended June 30, 2014 compared to the three and six months ended June 30, 2013, we delivered the following financial performance:

• Total revenues increased by $9.6 million, or 39%, to $33.9 million in the three months ended June 30, 2014. In the six months ended June 30, 2014, total revenues increased by $18.2 million, or 39%, to $65.1 million.

• Gross profit as a percentage of revenue slightly increased to 63.8% from 63.5% in the three months ended June 30, 2014. In the six months ended June 30, 2014, gross profit as a percentage of revenue increased to 64.1% from 63.4%.

• Total operating expenses increased by $4.0 million, or 21%, to $23.3 million in the three months ended June 30, 2014. In the six months ended June 30, 2014, total operating expenses increased by $6.0 million, or 16%, to $44.1 million.

• Loss from operations decreased by $2.2 million, or 56%, to a loss from operations of $1.7 million in the three months ended June 30, 2014. In the six months ended June 30, 2014, loss from operations decreased by $6.0 million, or 72%, to a loss from operations of $2.3 million.

• Diluted earnings per share increased by $0.13 to $0.08 in the three months ended June 30, 2014. In the six months ended June 30, 2014, diluted earnings per share increased by $0.36 to $0.05.

The increase in our revenue was a result of increased consumption of our isolation memory buffer or iMB, dual linear transimpedance amplifier or TIA, quad linear driver products and iPHY products.

Our loss from operations decreased due to higher revenue, offset by increased operating expenses. Total operating expenses increased due primarily to an increase in headcount and stock-based compensation expense. Our expenses primarily consist of personnel costs, which include compensation, benefits, payroll related taxes and stock-based compensation. From July 2013 to June 2014, we hired 86 new employees, primarily in the engineering department. We expect expenses to continue to increase in absolute dollars as we continue to invest in resources to develop more products and to support the growth of our business. Our diluted earnings per share increased primarily due to decrease in loss from operations and benefit for income taxes recorded for three and six months ended June 30, 2014.

Our cash and cash equivalents were $33.3 million at June 30, 2014, compared with $31.7 million at December 31, 2013. We generated cash flow from operations of $8.3 million during the six months ended June 30, 2014 compared to $7.2 million during the six months ended June 30, 2013. Cash used in investing activities during the six months ended June 30, 2014 was $6.9 million primarily due to purchases of marketable securities and property and equipment offset by sales and maturities of marketable securities. We generated cash flow from financing activities of $0.3 million primarily due to proceeds from exercise of stock options and employee stock purchase plan of $4.1 million offset by minimum tax withholding paid on behalf of employees of $3.8 million.

On July 30, 2014, we signed a definitive agreement to acquire Cortina Systems, Inc.'s high-speed interconnect and optical transport product lines for approximately $52.5 million in cash and approximately 5.3 million shares of our common stock, subject to certain closing and post-closing adjustments. The completion of the transaction is subject to customary closing conditions, including, but not limited to, expiration or termination of the applicable waiting period under Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and other regulatory approvals.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with U.S. generally accepted accounting principles, or GAAP, requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net revenue and expenses in the reporting period. We regularly evaluate our estimates and assumptions related to allowances for doubtful accounts, warranty reserves, inventory reserves, stock-based compensation expense, goodwill valuation, deferred income tax asset valuation allowances, uncertain tax positions, litigation and other loss contingencies. We base our estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenue, costs and expenses that are not readily apparent from other sources. The actual results experienced by us may differ materially and adversely from our estimates. To the extent there are material differences between our estimates and the actual results, our future results of operations will be affected. For a description of our critical accounting policies and estimates, please refer to the "Critical Accounting Policies and Estimates" section of our Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2013. There have been no material changes in any of our critical accounting policies during the six months ended June 30, 2014.


Table of Contents

Results of Operations

The following table sets forth a summary of our statement of operations as a
percentage of each line item to the revenue:



                                              Three Months               Six Months
                                             Ended June 30,            Ended June 30,
                                            2014         2013         2014         2013
    Total revenue                              100 %       100 %         100 %       100 %
    Cost of revenue                             36          36            36          37

    Gross profit                                64          64            64          63

    Operating expenses:
    Research and development                    46          53            45          52
    Sales and marketing                         13          15            13          16
    General and administrative                  10          12            10          13

    Total operating expenses                    69          80            68          81

    Income (loss) from operations               (5 )       (16 )          (4 )       (18 )
    Other income                                 1           1             1           1

    Income (loss) before income taxes           (4 )       (15 )          (3 )       (17 )
    Provision (benefit) for income taxes       (12 )        (9 )          (6 )         3

    Net income (loss)                            8 %        (6 )%          3 %       (20 )%

Comparison of Three and Six Months Ended June 30, 2014 and 2013

Revenue

Three Months Ended June 30, Change
2014 2013 Amount %
(dollars in thousands)

Total revenue $ 33,922 $ 24,339 $ 9,583 39 %

Six Months Ended June 30, Change 2014 2013 Amount %

(dollars in thousands)

Total revenue $ 65,111 $ 46,923 $ 18,188 39 %

Total revenue for the three and six months ended June 30, 2014 increased compared to corresponding 2013 periods due to changes in average selling price and number of units sold. For the three months ended June 30, 2014, the average selling price increased by 37% due to product mix, mainly from sales of our higher priced products which includes dual linear TIA and quad linear driver products. The number of units sold increased by 2% mainly from sale of our dual linear TIA, quad linear driver products, iPHY products and iMB, partially offset by lower consumption of our other high speed memory interface products. For the six months ended June 30, 2014, the average selling price increased by 43% due to product mix that resulted in an increase in sales of our higher priced products as discussed above. The number of units sold decreased by 3% due to lower consumption of our high speed memory interface products. We believe the reduction in the unit consumption of high speed memory is the natural result of migration to higher capacity DiMM cards at economic prices made possible in part by the availability of higher capacity DRAM at economic prices. In effect, a requirement for the same or more memory capacity can now be placed on a single card, thereby naturally absorbing the same or more aggregate memory requirement into a smaller number of cards.

Cost of Revenue and Gross Profit



                                                 Three Months Ended June 30,                Change
                                                 2014                  2013            Amount        %
                                                               (dollars in thousands)
Cost of revenue                              $      12,296         $       8,893       $ 3,403        38 %
Gross profit                                 $      21,626         $      15,446       $ 6,180        40 %
Gross profit as a percentage of revenue                 64 %                  64 %          -         -


Table of Contents
                                                Six Months Ended June 30,                 Change
                                                 2014                2013            Amount        %
                                                              (dollars in thousands)
Cost of revenue                              $     23,359        $     17,185       $  6,174        36 %
Gross profit                                 $     41,752        $     29,738       $ 12,014        40 %
Gross profit as a percentage of revenue                64 %                63 %           -          1 %

Gross profit for the three and six months ended June 30, 2014 increased primarily due to increases in revenue as described above. Gross profit as a percentage of revenue was relatively unchanged for both periods as compared to the prior year.

Research and Development

Three Months Ended June 30, Change
2014 2013 Amount %
(dollars in thousands)

Research and development $ 15,729 $ 12,796 $ 2,933 23 %

Six Months Ended June 30, Change 2014 2013 Amount %

(dollars in thousands)

Research and development $ 29,468 $ 24,394 $ 5,074 21 %

Research and development expenses for the three and six months ended June 30, 2014 increased due to the increase in research and development headcount and equity awards, which resulted in a $2.5 million and $4.6 million increase in personnel costs and stock-based compensation expense, respectively. CAD software tool license expense increased by $0.3 million and $0.4 million for the three and six months ended June 30, 2014, respectively, due mainly to increased headcount in engineering. In addition, depreciation and allocated expenses increased by $1.1 million and $1.7 million for the three and six months ended June 30, 2014, respectively, due to increase in equipment and research and development activities. The increases were partially offset by reimbursement from customers related to research and development contract of $1.3 million and $1.8 million for the three and six months ended June 30, 2014, respectively. The increase in research and development expense was primarily driven by our strategy to expand our product offerings and enhance our existing product offerings.

Sales and Marketing

Three Months Ended June 30, Change
2014 2013 Amount %
(dollars in thousands)

Sales and marketing $ 4,362 $ 3,706 $ 656 18 %

Six Months Ended June 30, Change 2014 2013 Amount %

(dollars in thousands)

Sales and marketing $ 8,312 $ 7,653 $ 659 9 %

Sales and marketing expenses for the three and six months ended June 30, 2014 increased primarily due to an increase in personnel costs, including stock-based compensation expense of $0.5 million and $0.6 million, respectively to support increasing sales activities.


Table of Contents

General and Administrative

Three Months Ended June 30, Change
2014 2013 Amount %
(dollars in thousands)

General and administrative $ 3,234 $ 2,842 $ 392 14 %

Six Months Ended June 30, Change 2014 2013 Amount %

(dollars in thousands)

General and administrative $ 6,299 $ 5,997 $ 302 5 %

General and administrative expenses for the three and six months ended June 30, 2014 increased due to increase in personnel and equity grants of $0.2 million and $0.3 million, respectively.

Provision (benefit) for Income Taxes

Three Months Ended June 30, Change
2014 2013 Amount %
(dollars in thousands)

Provision (benefit) for income taxes ($ 4,161 ) ($ 2,211 ) ($ 1,950 ) (88 )%

Six Months Ended June 30, Change 2014 2013 Amount %

(dollars in thousands)

Provision (benefit) for income taxes ($ 3,634 ) $ 1,265 ($ 4,899 ) (387 )%

We normally determine our interim provision using an estimated single annual effective tax rate for all tax jurisdictions. ASC 740 provides that when an entity operates in a jurisdiction that has generated ordinary losses on a year-to-date basis or on the basis of the results anticipated for the full fiscal year and no benefit can be recognized on those losses, a separate effective tax rate should be computed and applied to ordinary income (or loss) in that jurisdiction. We incurred pretax loss during the three and six months ended June 30, 2014 for the Singapore operations and will not recognize tax benefit of the losses due to full valuation allowance established against deferred tax assets. Thus, separate effective tax rate was applied to losses from each loss jurisdiction to compute the interim tax expense.

The income tax expense (benefit) for the three and six months ended June 30, 2014 reflects an effective tax rate of 272% and 182%, respectively. The effective tax rates for the three and six months ended June 30, 2014 differs from the statutory rate of 34% primarily due to the change in valuation allowance, foreign income taxes provided at lower rates, geographic mix in operating results, unrecognized tax benefits and recognition of state research and development credits.

The income tax expense (benefit) for the three and six months ended June 30, 2013 reflects an effective tax rate of 60% and (16%), respectively. The effective tax rates for the three and six months ended June 30, 2013 differs from the statutory rate of 35% primarily due to the change in valuation allowance (originally established in the fourth quarter of 2012), foreign income taxes provided at lower rates, geographic mix in profitability, unrecognized tax benefits and stock-based compensation adjustments.

Liquidity and Capital Resources

As of June 30, 2014, we had cash, cash equivalents and investments in marketable securities of $122.3 million. Our primary uses of cash are to fund operating expenses, purchase inventory and acquire property and equipment. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the changes in our outstanding accounts payable and accrued expenses. Our primary sources of cash are cash receipts on accounts receivable from our revenue. Aside from the growth in amounts billed to our customers, net cash collections of accounts receivable are impacted by the efficiency of our cash collections process, which can vary from period to period, depending on the payment cycles of our major customers.


Table of Contents

The following table summarizes our cash flows for the periods indicated:

                                                                 Six Months
                                                               Ended June 30,
                                                             2014          2013
                                                               (in thousands)
    Net cash provided by operating activities              $  8,263      $  7,210
    Net cash used in investing activities                    (6,878 )      (8,956 )
    Net cash provided by financing activities                   273           762

    Net increase (decrease) in cash and cash equivalents   $  1,658      $   (984 )

Net Cash Provided by Operating Activities

Net cash provided by operating activities during the six months ended June 30, 2014 primarily reflected a net income of $1.6 million, depreciation and amortization of $4.9 million and stock-based compensation of $9.9 million, offset by an increases in accounts receivable of $1.3 million and prepaid expenses and other assets of $2.4 million, deferred income taxes and deferred tax charge of $0.9 million, a change in income tax payable/receivable of $2.7 million and decrease in other liabilities of $1 million. Our receivables increased due to a higher relative weighting of shipments made in the last month of the quarter in 2014 compared to 2013. Our prepaid expenses and other assets increased due to new subscriptions for software, maintenance and insurance prepayments. Other liabilities decreased due to reduction in cash advance made by a customer upon achievement of a milestone.

Net cash provided by operating activities during the six months ended June 30, 2013 primarily reflected a decrease in accounts receivable of $2.4 million, a change in income tax payable/receivable of $2.8 million, depreciation and amortization of $3.6 million and stock-based compensation of $8.3 million, offset by net loss of $9.1 million, and an increase in inventories of $0.7 million. Our receivables decreased due to collections. Our inventories increased as a result of growing production for expected delivery to customers in the third quarter of 2013.

Net Cash Used in Investing Activities

Net cash used in investing activities during the six months ended June 30, 2014, consisted of cash used to purchase property and equipment of $8.4 million and purchases of marketable securities of $26.3 million, offset by sales and maturities of marketable securities of $27.8 million.

Net cash used in investing activities during the six months ended June 30, 2013, consisted of cash used to purchase property and equipment of $9.7 million and purchases of marketable securities of $21.8 million, offset by sales and maturities of marketable securities of $22.5 million.

Net Cash Provided by Financing Activities

Net cash provided by financing activities during the six months ended June 30, 2014 consisted of proceeds from exercises of stock options and employee stock purchase plan of $4.1 million, offset by minimum tax withholding paid on behalf of employees for restricted stock units of $3.8 million.

Net cash provided by financing activities during the six months ended June 30, 2013 consisted of proceeds from exercises of stock options and employee stock purchase plan of $1.7 million and excess tax benefit related to stock-based compensation of $0.5 million, offset by minimum tax withholding paid on behalf of employees for restricted stock units of $1.4 million.

Operating and Capital Expenditure Requirements

Our principal source of liquidity as of June 30, 2014 consisted of $122.3 million of cash, cash equivalents and investments in marketable securities, of which $8.2 million is held by our foreign subsidiaries. Based on our current operating plan, we believe that our existing cash and cash equivalents from operations will be sufficient to finance our operational cash needs through at least the next 12 to 18 months. In the future, we expect our operating and capital expenditures to increase as we increase headcount, expand our business activities and grow our end customer base which will result in higher needs for working capital. Our ability to generate cash from operations is also subject to substantial risks described in Part II, Item 1A, Risk Factors. If any of these risks occur, we may be unable to generate or sustain positive cash flow from operating activities. We would then be required to use existing cash and cash equivalents to support our working capital and other cash requirements. If additional funds are required to support our working capital requirements, acquisitions or other purposes, we may seek to raise funds through debt financing or from other sources. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders could be significantly diluted, and these newly-issued securities may have rights, preferences or privileges senior to those of existing stockholders. If we raise additional funds by obtaining loans from third parties, the terms of those financing arrangements may include negative covenants or other restrictions on our business that could impair our operating flexibility, and would also require us to incur interest expense. We can provide no assurance that additional financing will be available at all or, if available, that we would be able to obtain additional financing on terms favorable to us.


. . .
  Add IPHI to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for IPHI - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.