(in thousands of dollars, except share and per share amounts)
To supplement the financial data presented on a GAAP basis, Inphi Corporation (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 and investments, 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.
| 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, | ||||||||||||
| 2018 | 2017 | 2018 | 2017 | ||||||||||
| GAAP gross margin to Non-GAAP gross margin | |||||||||||||
| GAAP gross margin | $ | 49,526 | $ | 53,084 | $ | 165,145 | $ | 196,503 | |||||
| Adjustments to GAAP gross margin: | |||||||||||||
| Stock-based compensation | 717 | (a) | 391 | (a) | 2,527 | (a) | 2,045 | (a) | |||||
| Acquisition related expenses | - | 20 | (b) | 3 | (b) | 143 | (b) | ||||||
| Amortization of inventory step-up | - | (c) | - | (c) | 1,166 | (c) | 9,304 | (c) | |||||
| Amortization of intangibles | 9,724 | (d) | 6,752 | (d) | 32,846 | (d) | 28,502 | (d) | |||||
| Depreciation on step-up values of fixed assets | (12 | ) | (e) | (17 | ) | (e) | (48 | ) | (e) | (5 | ) | (e) | |
| Impairment of certain developed technology | - | - | - | 10,174 | (f) | ||||||||
| Restructuring expenses | - | - | 106 | (g) | - | ||||||||
| Non-GAAP gross margin | $ | 59,955 | $ | 60,230 | $ | 201,745 | $ | 246,666 | |||||
| GAAP operating expenses to Non-GAAP operating expenses | |||||||||||||
| GAAP research and development | $ | 40,624 | $ | 41,965 | $ | 167,924 | $ | 200,539 | |||||
| Adjustments to GAAP research and development: | |||||||||||||
| Stock-based compensation | (9,544 | ) | (a) | (7,887 | ) | (a) | (37,397 | ) | (a) | (28,846 | ) | (a) | |
| Acquisition related expenses | - | (367 | ) | (b) | (607 | ) | (b) | (1,839 | ) | (b) | |||
| Depreciation on step-up values of fixed assets | (109 | ) | (e) | (216 | ) | (e) | (402 | ) | (e) | (767 | ) | (e) | |
| Impairment of in-process research and development | - | - | - | (36,840 | ) | (f) | |||||||
| Restructuring expenses | - | - | (885 | ) | (g) | - | |||||||
| Non-GAAP research and development | $ | 30,971 | $ | 33,495 | $ | 128,633 | $ | 132,247 | |||||
| GAAP sales and marketing | $ | 10,608 | $ | 10,801 | $ | 43,080 | $ | 42,381 | |||||
| Adjustments to GAAP sales and marketing: | |||||||||||||
| Stock-based compensation | (3,285 | ) | (a) | (2,292 | ) | (a) | (13,470 | ) | (a) | (8,340 | ) | (a) | |
| Acquisition related expenses | - | (179 | ) | (b) | (259 | ) | (b) | (772 | ) | (b) | |||
| Amortization of intangibles | (2,431 | ) | (d) | (2,432 | ) | (d) | (9,726 | ) | (d) | (9,725 | ) | (d) | |
| Depreciation on step-up values of fixed assets | (4 | ) | (e) | (28 | ) | (e) | (64 | ) | (e) | (103 | ) | (e) | |
| Restructuring expenses | - | - | (367 | ) | (g) | - | |||||||
| Non-GAAP sales and marketing | $ | 4,888 | $ | 5,870 | $ | 19,194 | $ | 23,441 | |||||
| GAAP general and administrative | $ | 6,535 | $ | 5,605 | $ | 28,302 | $ | 23,782 | |||||
| Adjustments to GAAP general and administrative: | |||||||||||||
| Stock-based compensation | (2,829 | ) | (a) | (1,895 | ) | (a) | (10,490 | ) | (a) | (5,602 | ) | (a) | |
| Acquisition related expenses | - | (3 | ) | (b) | (6 | ) | (b) | (756 | ) | (b) | |||
| Amortization of intangibles | (116 | ) | (d) | (116 | ) | (d) | (464 | ) | (d) | (464 | ) | (d) | |
| Depreciation on step-up values of fixed assets | (6 | ) | (e) | 67 | (e) | (56 | ) | (e) | 279 | (e) | |||
| Restructuring expenses | - | - | (133 | ) | (g) | - | |||||||
| Loss on claim settlement from ClariPhy acquisition | - | - | (2,250 | ) | (h) | - | |||||||
| Non-GAAP general and administrative | $ | 3,584 | $ | 3,658 | $ | 14,903 | $ | 17,239 | |||||
| Non-GAAP total operating expenses | $ | 39,443 | $ | 43,023 | $ | 162,730 | $ | 172,927 | |||||
| Non-GAAP income from operations | $ | 20,512 | $ | 17,207 | $ | 39,015 | $ | 73,739 | |||||
| GAAP net income (loss) to Non-GAAP net income | |||||||||||||
| GAAP net income (loss) to Non-GAAP net income | $ | (21,631 | ) | $ | 102 | $ | (95,751 | ) | $ | (74,904 | ) | ||
| Adjusting items to GAAP net income (loss): | |||||||||||||
| Operating expenses related to stock-based compensation expense | 16,375 | (a) | 12,465 | (a) | 63,884 | (a) | 44,833 | (a) | |||||
| Acquisition related expenses | - | 569 | (b) | 875 | (b) | 3,510 | (b) | ||||||
| Amortization of inventory fair value step-up | - | - | (c) | 1,166 | (c) | 9,304 | (c) | ||||||
| Amortization of intangibles related to purchase price | 12,271 | (d) | 9,300 | (d) | 43,036 | (d) | 38,691 | (d) | |||||
| Depreciation on step-up values of fixed assets | 107 | (e) | 160 | (e) | 474 | (e) | 586 | (e) | |||||
| Impairment of certain intangibles from ClariPhy acquisition | - | - | - | 47,014 | (f) | ||||||||
| Restructuring expenses | - | - | 1,491 | (g) | - | ||||||||
| Loss on claim settlement from ClariPhy acquisition | - | - | 2,250 | (h) | - | ||||||||
| Loss on retirement of certain property and equipment from acquisitions | - | - | 66 | (i) | 77 | (i) | |||||||
| Unrealized loss (gain) on equity investment | (66 | ) | (j) | - | (2,440 | ) | (j) | - | |||||
| Impairment of investment | 7,000 | (k) | - | 7,000 | (k) | - | |||||||
| Accretion and amortization expense on convertible debt | 6,828 | (l) | 6,356 | (l) | 26,394 | (l) | 24,574 | (l) | |||||
| Valuation allowance and tax effect of the adjustments above from GAAP to non-GAAP | (354 | ) | (m) | (12,723 | ) | (m) | (9,635 | ) | (m) | (26,523 | ) | (m) | |
| Non-GAAP net income | $ | 20,530 | $ | 16,229 | $ | 38,810 | $ | 67,162 | |||||
| Shares used in computing non-GAAP basic earnings per share | 44,152,932 | 42,595,179 | 43,690,581 | 42,165,213 | |||||||||
| Shares used in computing non-GAAP diluted earnings per share before offsetting shares from call option | 45,516,402 | 44,335,639 | 44,986,718 | 44,524,224 | |||||||||
| Offsetting shares from call option | - | - | - | (201,291 | ) | ||||||||
| Shares used in computing non-GAAP diluted earnings per share | 45,516,402 | 44,335,639 | 44,986,718 | 44,322,933 | |||||||||
| Non-GAAP earnings per share: | |||||||||||||
| Basic | $ | 0.46 | $ | 0.38 | $ | 0.89 | $ | 1.59 | |||||
| Diluted | $ | 0.45 | $ | 0.37 | $ | 0.86 | $ | 1.52 | |||||
| GAAP gross margin as a % of revenue | 57.2 | % | 62.0 | % | 56.1 | % | 56.4 | % | |||||
| Stock-based compensation | 0.8 | % | 0.5 | % | 0.9 | % | 0.6 | % | |||||
| Amortization of inventory fair value step-up and intangibles | 11.3 | % | 7.8 | % | 11.5 | % | 13.8 | % | |||||
| Non-GAAP gross margin as a % of revenue | 69.3 | % | 70.3 | % | 68.5 | % | 70.8 | % | |||||
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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
- 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.
- 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 2019 GUIDANCE | ||||||
| (in thousands of dollars, except share and per share amounts) | ||||||
| (Unaudited) | ||||||
|
Three Months Ending
March 31, 2019 | ||||||
| High | Low | |||||
| Estimated GAAP net loss | $ | (21,800 | ) | $ | (22,800 | ) |
| Adjusting items to estimated GAAP net loss: | ||||||
| Operating expenses related to stock-based compensation expense | 16,300 | 16,700 | ||||
| Amortization of intangibles | 12,200 | 12,200 | ||||
| Amortization of convertible debt interest cost | 6,800 | 6,800 | ||||
| Tax effect of GAAP to non-GAAP adjustments | (260 | ) | (240 | ) | ||
| Estimated non-GAAP net income | $ | 13,240 | $ | 12,660 | ||
| Shares used in computing estimated non-GAAP diluted earnings per share | 46,130,000 | 46,130,000 | ||||
| Estimated non-GAAP diluted earnings per share | $ | 0.29 | $ | 0.27 | ||
| Revenue | $ | 82,000 | $ | 80,000 | ||
| GAAP gross margin | $ | 47,400 | $ | 45,175 | ||
| as a % of revenue | 57.8 | % | 56.5 | % | ||
| Adjusting items to estimated GAAP gross margin: | ||||||
| Stock-based compensation | 700 | 700 | ||||
| Amortization of intangibles | 9,700 | 9,700 | ||||
| Estimated non-GAAP gross margin | $ | 57,800 | $ | 55,575 | ||
| as a % of revenue | 70.5 | % | 69.5 | % | ||
