Table Of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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 Form 10-Q

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(Mark One)
☑		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2016
Or
☐		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number 001-34942

Inphi Corporation

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware		77-0557980
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

 

2953 Bunker Hill Lane, Suite 300,

Santa Clara, California 95054

(Address of Principal Executive Offices) (Zip Code)

 

Registrant’s telephone number, including area code: (408) 217-7300

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ☑      No  ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  ☑      No  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer  ☑	Accelerated filer  ☐	Non-accelerated filer  ☐	Smaller reporting company  ☐
		(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in 12b-2 of the Exchange Act).  Yes  ☐      No  ☑

 

The total number of shares outstanding of the Registrant’s common stock, $0.001 par value per share, as of April 29, 2016 was 40,381,432.

 

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INPHI CORPORATION

 

QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 2016

 

TABLE OF CONTENTS

 

		Page
PART I. FINANCIAL INFORMATION		2
Item 1.	Financial Statements	2
	Unaudited Condensed Consolidated Balance Sheets at March 31, 2016 and December 31, 2015	2
	Unaudited Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2016 and 2015	3
	Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2016 and 2015	4
	Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2016 and 2015	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	23
Item 4.	Controls and Procedures	24
PART II. OTHER INFORMATION		24
Item 1.	Legal Proceedings	24
Item 1A.	Risk Factors	24
Item 6.	Exhibits	25

 

 

PART I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements

INPHI CORPORATION

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

INPHI CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except share and per share amounts)

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

INPHI CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

INPHI CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

  

INPHI CORPORATION

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

 

 

INPHI CORPORATION

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)  

 

 

INPHI CORPORATION

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

 

 

 

 

  

 

 

INPHI CORPORATION

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

 

 

 

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 Quarterly Report. This Management’s Discussion and Analysis of Financial Condition and Results of Operations and this report contain 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 include statements regarding our anticipated trends and challenges in our business and the markets in which we operate, including the market for 40G and 100G high-speed analog semiconductor solutions, our plans for future products and anticipated features and benefits thereof, expansion of our product offerings and enhancements of existing products, critical accounting policies and estimates, our expectations regarding our expenses and revenue, sources of revenue, our tax benefits, the benefits of our products and services, our technological capabilities and expertise, timing of the development of our products, our liquidity position and sufficiency thereof, including our anticipated cash needs, our operating capital expenditures and requirements and our needs for additional financing and potential consequences thereof, our anticipated growth and growth strategies, our ability to retain and attract customers, particularly in light of our dependence on a limited number of customers for a substantial portion of our revenue, our expectations regarding competition, interest rate sensitivity, adequacy of our disclosure controls, our legal proceedings and warranty claims. 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™, ColorZ™ 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, datacenter and computing markets. We often refer to our business as covering various data transport segments from “fiber to memory”. Our analog and mixed signal 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, datacenter 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, datacenter and enterprise servers, storage platforms, test and measurement equipment and military systems. We provide 40G and 100G high-speed analog semiconductor solutions for the communications market and high-speed memory interface solutions for the computing market. We have a wide range product portfolio with many products sold in communication and datacenter markets as of March 31, 2016.

 

In the first quarter of 2016, we announced the availability of our highly integrated, lowest power 4-level Pulse Amplitude Modulation (PAM4) chipset solutions for intra-data center and inter-data center cloud interconnects. We introduced ColorZ™ reference design, the industry’s first Silicon Photonics 100G PAM4 platform solution for 80km DWDM Data Center Interconnect in QSFP28 form factor. Utilizing advanced Pulse Amplitude Modulation signaling, ColorZ delivers up to 4Tb/s of bandwidth over a single fiber and allows multiple data centers located up to 80km of each other to be connected and act like a single data center. We introduced a highly integrated Silicon Photonics (SiPho) technology platform for 100Gbit/s data center applications. The single-chip SiPho optics includes multi-channel modulators, photodetectors, multiplexers, demultiplexers, optical power monitors and fiber coupling structures all integrated onto a single integrated circuit. We also announced the availability of the industry’s lowest power Clock and Data Recovery Retimer for module applications, IN012525-CQ CMOS CDR and 45GBaud Linear Coherent Product Family, the industry’s first linear ICs enabling 400G coherent solutions for next-generation long haul, metro, and data center applications.

 

 

     A detailed discussion of our business may be found in Part I, Item 1, “Business,” of our 2015 Annual Report on Form 10-K.

 

Quarterly Update

 

As discussed in more detail below, for the three months ended March 31, 2016 compared to the three months ended March 31, 2015, we delivered the following financial performance:

 

•

Total revenue increased by $7.4 million, or 12%, to $66.5 million.

 

	•		Gross profit as a percentage of revenue increased from 51% to 64%.
	•		Total operating expenses increased by $4.3 million, or 12%, to $39.7 million.

 

•

Income from operations increased by $8.0 million, to $2.5 million.

 

•

Diluted earnings per share increased by $0.27, to $0.01.

 

The increase in our revenue for the three months ended March 31, 2016 was primarily a result of the increase in consumption of our dual linear transimpedance amplifiers (TIA), quad linear driver products and iPHY products.

 

The increase in gross margin was due to increase in sale of high margin products as discussed above and lower product cost from the inventory fair value step-up related to the acquired Cortina inventories for the three months ended March 31, 2016 compared to three months ended March 31, 2015.

 

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 April 2015 to March 2016, our headcount increased by 31 new employees, primarily in the engineering department. We expect expenses to continue to increase in absolute dollars as we continue to invest resources to develop more products and to support the growth of our business. Our diluted earnings per share increased primarily due to increase in operating expenses and provision for income taxes, partially offset by increase in revenues.

 

Our cash and cash equivalents were $138.9 million at March 31, 2016, compared with $283.0 million at December 31, 2015. Cash provided by operating activities of $13.1 million during the three months ended March 31, 2016 compared to $13.5 million during the three months ended March 31, 2015. Cash used in investing activities during the three months ended March 31, 2016 was $155.2 million primarily due to purchases of marketable securities of $148.9 million, purchases of property and equipment of $7.0 million and cost method investment of $2.0 million partially offset by sales and maturities of marketable securities of $2.7 million. Cash used in financing activities of $2.0 million was primarily due to minimum tax withholding paid on behalf of employees of $5.6 million partially offset by proceeds from exercise of stock options and employee stock purchase plan of $4.0 million.

 

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 and intangible assets valuation, deferred income tax asset valuation allowances, uncertain tax positions, litigation, other loss contingencies and business combinations. 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, 2015. There have been no material changes in any of our critical accounting policies during the three months ended March 31, 2016.   We early adopted Accounting Standards Update 2016-09, Improvements to Employee Share-Based Payment Accounting. The effect of adoption is discussed in Note 12 of Notes to Unaudited Condensed Consolidated Financial Statements.

 

 

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 Ended March 31,
		2016				2015
Total revenue			100	%			100	%
Cost of revenue			36				49
Gross profit			64				51
Operating expense:
Research and development			42				38
Sales and marketing			11				12
General and administrative			7				10
Total operating expenses			60				60
Income (loss) from operations			4				(9	)
Interest expense			(5	)			—
Other income			1				—
Income (loss) before income taxes			—				(9	)
Provision (benefit) for income taxes			—				7
Net income (loss)			—				(16	)%

 

Comparison of Three Months Ended March 31, 2016 and 2015

 

Revenue

 

		Three Months Ended March 31,								Change
		2016				2015				Amount				%
		(dollars in thousands)
Revenue		$	66,531			$	59,160			$	7,371				12	%

 

Total revenue for the three months ended March 31, 2016 increased by $7.4 million primarily due to an increase in average selling price of 39% partially offset by decrease in number of units sold by 19%. The increase in average selling price was due mainly from increased sales and mix of our higher priced products, including dual linear TIA, quad linear driver products and iPHY products. For the three months ended March 31, 2016, the number of units sold decreased by 19% mainly from decrease in consumption of our high speed memory interface products as the enterprise server memory market transitioned from DDR3 solutions to a greater amount of DDR4 solutions where our market share was lower.

 

Cost of Revenue and Gross Profit

 

		Three Months Ended March 31,								Change
		2016				2015				Amount				%
		(dollars in thousands)
Cost of revenue		$	24,272			$	29,238			$	(4,966	)			(17%	)
Gross profit			42,259				29,922				12,377				41	%
Gross profit as a percentage of revenue			64	%			51	%			—				13	%

 

Cost of revenue decreased by $5.0 million and gross profit increased by $12.4 million for the three months ended March 31, 2016 compared to the prior year primarily due to increase in revenue from sales our dual linear TIA, quad linear driver and iPHY products which generated higher margins. Gross profit, as a percentage of revenue increased due to sale of high margin products as discussed above and lower product cost from inventory fair value step-up related to the acquired Cortina inventories by $5.9 million, sold during the three months ended March 31, 2015. 

 

 

Research and Development

 

		Three Months Ended March 31,								Change
		2016				2015				Amount				%
		(dollars in thousands)
Research and development		$	27,663			$	22,722			$	4,941				22	%

 

Research and development expense for the three months ended March 31, 2016 increased by $5.0 million due, in part to an increase in research and development headcount and equity awards, which resulted in a $1.4 million increase in personnel costs and stock-based compensation expense. In addition, external test services, pre-production engineering mask costs and laboratory supplies increased by $0.7 million. Further, reimbursement from customers related to research and development contracts decreased by $2.7 million due to completion of projects. Depreciation and allocated expenses increased by $0.8 million, primarily, due to an increase in equipment and research and development activities. These increases were partially offset by decrease in third-party consultants by $0.4 million due to increase in number of employees.   The increase in research and development expense was primarily driven by our strategy to expand our product offerings and enhance our existing products.

 

Sales and Marketing

 

		Three Months Ended March 31,								Change
		2016				2015				Amount				%
		(dollars in thousands)
Sales and marketing		$	7,093			$	6,869			$	224				3	%

 

Sales and marketing expense for the three months ended March 31, 2016 increased slightly primarily due to increase in personnel costs, including stock-based compensation expense of $0.1 million and expenses related to trade shows of $0.1 million.

 

 

General and Administrative

 

		Three Months Ended March 31,								Change
		2016				2015				Amount				%
		(dollars in thousands)
General and administrative		$	4,957			$	5,812			$	(855	)			(15%	)

 

General and administrative expenses for the three months ended March 31, 2016 decreased by $0.9 million primarily due to decrease in outside legal and accounting fees by $0.6 million in connection with the completion of the Cortina acquisition and reduced expenditures for litigation matters described in Note 15 of the notes to our condensed consolidated financial statements.

 

 

 

Provision for Income Tax

 

		Three Months Ended March 31,								Change
		2016				2015				Amount				%
		(dollars in thousands)
Provision (benefit) for income tax		$	(161	)		$	4,394			$	(4,555	)			(104%	)

 

We determined its interim provision using an estimated single annual effective tax rate for all tax jurisdictions for the three months ended March 31, 2016. For the three months ended March 31, 2015, the Company determined its interim tax provision applying a separate estimated annual effective tax rate to its loss 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 months ended March 31, 2015 from the Singapore operation and did not recognize tax benefit of the losses due to full valuation allowance established against deferred tax assets. Thus, a separate effective tax rate was applied to the Singapore jurisdiction to compute the March 31, 2015 interim tax provision.

 

The income tax benefit of $0.2 million for the three months ended March 31, 2016 reflects an effective tax rate of (273%). The effective tax rate for the three months ended March 31, 2016 differed 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, recognition of federal and state research and development credits and windfall tax benefits from stock-based compensation from early adoption of Accounting Standards Update 2016-9.

 

 

The income tax expense of $4.4 million for the three months ended March 31, 2015 reflects an effective tax rate of (83%). This effective tax rate for the three months ended March 31, 2015 differed 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.

 

Liquidity and Capital Resources

 

As of March 31, 2016, we had cash, cash equivalents and investments in marketable securities of $328.2 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. In 2015, we issued convertible debt, which resulted in an increase in cash, cash equivalents and investments in marketable securities. 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.

 

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

 

		Three Months Ended March 31,
		2016				2015
		(in thousands)
Net cash provided by operating activities		$	13,078			$	13,505
Net cash used in investing activities			(155,230	)			(3,211	)
Net cash used in financing activities			(1,953	)			(1,118	)
Net increase (decrease) in cash and cash equivalents		$	(144,105	)		$	9,176

 

Net Cash Provided by Operating Activities

 

Net cash provided by operating activities during the three months ended March 31, 2016 primarily reflected depreciation and amortization of $7.2 million, stock-based compensation expense of $7.0 million, accretion of convertible debt of $2.4 million and increase in accounts payable of $3.4 million partially offset by increases in accounts receivable of $2.6 million, prepaid expenses and other assets of $1.4 million and decrease in accrued expenses of $3.4 million. Our accounts payable increased due to increased production volume. Our accounts receivable increased due to shipments to higher product shipments to customers. Our accrued expenses decreased due to timing of payment of employee related expenses.

 

Net cash provided by operating activities during the three months ended March 31, 2015 primarily reflected decreases in inventories of $3.3 million and prepaid expenses and other assets of $1.6 million, change in income tax payable/receivable of $2.3 million, depreciation and amortization of $6.4 million, stock-based compensation expense of $6.4 million and deferred income taxes of $2.6 million, partially offset by net loss of $9.7 million. Our inventories decreased due to shipments and amortization of inventory step-up value and prepaid expenses and other assets decreased due to settlement of non-trade receivable.

 

Net Cash Used in Investing Activities

 

Net cash used in investing activities during the three months ended March 31, 2016 consisted of cash used to purchase property and equipment of $7.0 million and purchases of marketable securities of $148.9 million and cost method investment of $2.0 million, partially offset by sales and maturities of marketable securities of $2.7 million.

 

Net cash used in investing activities during the three months ended March 31, 2015, consisted of cash used to purchase property and equipment of $3.4 million and purchases of marketable securities of $4.6 million, partially offset by sales and maturities of marketable securities of $4.7 million.

 

Net Cash Used in Financing Activities

 

Net cash used in financing activities during the three months ended March 31, 2016 consisted of minimum tax withholding paid on behalf of employees for restricted stock units of $5.6 million, payment of costs related to debt issuance of $0.4 million partially offset by proceeds from exercise of stock options and employee stock purchase plan of $4.0 million.

 

 

Net cash used in financing activities during the three months ended March 31, 2015 consisted of minimum tax withholding paid on behalf of employees for restricted stock units of $4.1 million partially offset by proceeds from exercise of stock options and employee stock purchase plan of $3.0 million.

 

 

 Operating and Capital Expenditure Requirements

 

Our principal source of liquidity as of March 31, 2016 consisted of $328.2 million of cash, cash equivalents and investments in marketable securities, of which $28.1 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 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.

 

We do not plan to repatriate cash balances from foreign subsidiaries to fund our operations in the United States. There may be adverse tax effects upon repatriation of these funds to the United States.

 

 Contractual Payment Obligations

 

Our contractual obligations for 2016 and beyond are included in our Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC on February 29, 2016. See note 15 of the notes to our unaudited condensed consolidated financial statements for information regarding obligations as of March 31, 2016.

 

 

 Off-Balance Sheet Arrangements

 

At March 31, 2016, we had no material off-balance sheet arrangements, other than our facility operating leases.

 

Recent Authoritative Accounting Guidance

 

See note 2 of the notes to our unaudited condensed consolidated financial statements for information regarding recently issued accounting pronouncements.

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

Interest Rate Sensitivity

 

We had cash and cash equivalents and investments in marketable securities of $328.2 million and $326.7 million at March 31, 2016 and December 31, 2015, respectively, which was held for working capital purposes. Our exposure to market interest-rate risk relates primarily to our investment portfolio. We do not use derivative financial instruments to hedge the market risks of our investments. We manage our total portfolio to encompass a diversified pool of investment-grade securities to preserve principal and maintain liquidity. We place our investments with high-quality issuers, money market funds and debt securities. Our investment portfolio as of March 31, 2016 consisted of money market funds, U.S. Treasuries, municipal bonds, corporate/government agency bonds, commercial papers and asset backed securities. Investments in both fixed rate and floating rate instruments carry a degree of interest rate risk. Fixed rate securities may have their market value adversely impacted due to an increase in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates or if the decline in fair value of our publicly traded debt investments is judged to be other-than-temporary. We may suffer losses in principal if we are forced to sell securities that have declined in market value due to changes in interest rates. However, because any debt securities we hold are classified as available-for-sale, no gains or losses are realized in the income statement due to changes in interest rates unless such securities are sold prior to maturity or unless declines in value are determined to be other-than-temporary. These securities are reported at fair value with the related unrealized gains and losses, net of applicable taxes, included in accumulated other comprehensive income (loss), reported in a separate component of stockholders' equity. Although, we currently expect that our ability to access or liquidate these investments as needed to support our business activities will continue, we cannot ensure that this will not change.

 

 

In a low interest rate environment, as short-term investments mature, reinvestment may occur at less favorable market rates. Given the short-term nature of certain investments, the current interest rate environment may negatively impact our investment income.

 

As of March 31, 2016, we had outstanding debt of $230 million in the form of Convertible Notes. The fair value of our Convertible Notes is subject to interest rate risk, market risk and other factors due to the convertible feature. The fair value of the Convertible Notes will generally increase as interest rates fall and decrease as interest rates rise. In addition, the fair value of the Convertible Notes will generally increase as our common stock price increases and will generally decrease as our common stock price declines in value. The interest and market value changes affect the fair value of our Convertible Notes but do not impact our financial position, cash flows or results of operations due to the fixed nature of the debt obligation.

          

 

Foreign Currency Risk

 

To date, our international customer and vendor agreements have been denominated almost exclusively in United States dollars. Accordingly, we have limited exposure to foreign currency exchange rates and currently enter into immaterial foreign currency hedging transactions.

 

 

Item 4.

Controls and Procedures

 

Evaluation of disclosure controls and procedures

 

We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15 (e) under the Securities Exchange Act 1934, or the Exchange Act, that are designed to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer), as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that such controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Our disclosure controls and procedures have been designed to meet reasonable assurance standards, but management does not expect that our disclosure controls and procedures will prevent or detect all error and all fraud. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

 

Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer) have concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

 

Changes in Internal Control over Financial Reporting

 

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

     

The information required by this Item 1 is set forth under Note 15 of Notes to Unaudited Condensed Consolidated Financial Statements, included in Part I, Item 1 of this Report, and is hereby incorporated by reference herein. For an additional discussion of certain risks associated with legal proceedings, see Item 1A, Risk Factors below.

 

Item 1A. Risk Factors

 

You should carefully consider the risks described in Part I, Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, 2015, which are incorporated by reference herein, as our business, financial condition and results of operations could be adversely affected by any of the risks and uncertainties described therein. There have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2015.

 

 

Item 6. Exhibits

 

     (a)  Exhibits. The following Exhibits are attached hereto and incorporated herein by reference:

 

Exhibit
Number		Description
3(i)		Restated Certificate of Incorporation of the Registrant (incorporated by reference to exhibit 3(i) of the Registrant’s annual report on Form 10-K filed with the SEC on March 7, 2011).
3(ii)		Amended and Restated Bylaws of the Registrant (incorporated by reference to exhibit 3.1 of the Registrant’s current report on Form 8-K filed with the SEC on October 20, 2015).
4.1		Specimen Common Stock Certificate (incorporated by reference to exhibit 4.1 filed with Registration Statement on Form S-1 (File No. 333-167564).
4.2		Amended and Restated Investors’ Rights Agreement dated as of August 12, 2010 (incorporated by reference to exhibit 4.2 of the Registrant’s annual report on Form 10-K filed with the SEC on March 7, 2011).
31.1		Certificate of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
31.2		Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
32.1(1)		Certificate of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
32.2(1)		Certificate of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema
101.CAL		XBRL Taxonomy Extension Calculation Linkbase
101.DEF		XBRL Taxonomy Extension Definition Linkbase
101.LAB		XBRL Taxonomy Extension Label Linkbase
101.PRE		XBRL Taxonomy Extension Presentation Linkbase
(1)     The material contained in Exhibit 32.1 and Exhibit 32.2 is not deemed “filed” with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language contained in such filing, except to the extent that the registrant specifically incorporates it by reference.

 

 

SIGNATURES

 

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

INPHI CORPORATION,
(Registrant)
By: /s/ Ford Tamer
Ford Tamer
Chief Executive Officer
(Duly Authorized and Principal Executive Officer)

 

 

By: /s/ John Edmunds
John Edmunds
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)

 

 

May 4, 2016

 

 

 

EXHIBIT INDEX

 

 

Number		Description
3(i)		Restated Certificate of Incorporation of the Registrant (incorporated by reference to exhibit 3(i) of the Registrant’s annual report on Form 10-K filed with the SEC on March 7, 2011).
3(ii)		Amended and Restated Bylaws of the Registrant (incorporated by reference to exhibit 3.1 of the Registrant’s current report on Form 8-K filed with the SEC on October 20, 2015).
4.1		Specimen Common Stock Certificate (incorporated by reference to exhibit 4.1 filed with Registration Statement on Form S-1 (File No. 333-167564).
4.2		Amended and Restated Investors’ Rights Agreement dated as of August 12, 2010 (incorporated by reference to exhibit 4.2 of the Registrant’s annual report on Form 10-K filed with the SEC on March 7, 2011).
31.1		Certificate of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
31.2		Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
32.1(1)		Certificate of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
32.2(1)		Certificate of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema
101.CAL		XBRL Taxonomy Extension Calculation Linkbase
101.DEF		XBRL Taxonomy Extension Definition Linkbase
101.LAB		XBRL Taxonomy Extension Label Linkbase
101.PRE		XBRL Taxonomy Extension Presentation Linkbase
(1)     The material contained in Exhibit 32.1 and Exhibit 32.2 is not deemed “filed” with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language contained in such filing, except to the extent that the registrant specifically incorporates it by reference.

 

 

 

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