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Inphi Corporation Announces Second Quarter 2014 Results

Reports 39% Year-Over-Year Growth and 9% Sequential Growth

SANTA CLARA, CA -- (Marketwired) -- 07/29/14 -- Inphi Corporation (NYSE: IPHI), a leading provider of high-speed mixed signal semiconductor solutions for the communications, data center and computing markets, today announced financial results for its second quarter ended June 30, 2014.

Revenue for the second quarter of 2014 was $33.9 million, up 9% sequentially from $31.2 million reported for the first quarter of 2014. This was up 39% year-over-year compared with $24.3 million reported for the second quarter of 2013.

Gross margin under U.S. generally accepted accounting principles (GAAP) for the second quarter of 2014 was 63.8% of revenue, compared with 63.5% of revenue for the second quarter of 2013.

GAAP net income for the second quarter of 2014 was $2.6 million, or $0.08 per diluted common share, compared with GAAP net loss of $1.5 million, or ($0.05) per diluted common share, for the second quarter of 2013.

Inphi reports gross margin, 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 margin, net income, and 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 news release.

Gross margin on a non-GAAP basis for both the second quarter of 2014 and 2013 was 64.6% of revenue.

Non-GAAP net income for the second quarter of 2014 was $2.9 million, or $0.09 per diluted common share. This compared with non-GAAP net income of $0.3 million, or $0.01 per diluted common share for the second quarter of 2013.

"We are pleased to report that our revenue grew to more than $33.9 million dollars during the second quarter of 2014 -- a 9% sequential increase, and an almost 40% year-over-year increase," said Ford Tamer, President and CEO of Inphi. "This is the sixth quarter in a row, where we have delivered consistent sequential revenue growth. At the same time, we have driven operating margins from 1% five quarters ago to 11% in Q2 2014, resulting in a nine-fold increase in earnings per share during the period. Equally importantly, we achieved these results while continuing to invest in research and development, effectively innovating award winning solutions for our growing list of customers around the world."

First Half 2014 Results
For the six months ended June 30, 2014, revenue was $65.1 million, compared with $46.9 million for the six months ended June 30, 2013. GAAP net income for the six months ended June 30, 2014 was $1.6 million, or $0.05 per diluted share, on approximately 32.9 million diluted weighted average common shares outstanding. This compared with GAAP net loss of $9.1 million, or ($0.31) per diluted share, on approximately 29.1 million diluted weighted average common shares outstanding for the six months ended June 30, 2013.

Non-GAAP net income for the six months ended June 30, 2014 was $5.8 million, or $0.18 per diluted weighted average common share outstanding, on approximately 32.9 million diluted weighted average common shares outstanding. This compared with non-GAAP net income of $0.4 million for the six months ended June 30, 2013, or $0.01 per diluted weighted average common share outstanding.

Business Outlook
The following statements are based on our current expectations for the third quarter of 2014. These statements are forward-looking and actual results may differ materially.

  • Inphi expects revenues to be up 5 % - 9% sequentially in Q3 2014, resulting in a range of $35.6 million to $37.0 million.
  • Non-GAAP gross margin is expected to be approximately 64.5% to 65.5%.
  • Stock-based compensation expense is expected to be in the range of $5.6 million to $5.8 million.
  • GAAP results are expected to be a net loss in a range between $0.2 million to $1.0 million, or ($0.01) - ($0.03) per diluted share, on 31.7 million estimated basic shares outstanding.
  • Non-GAAP net income, excluding stock-based compensation expense, is expected to be in the range of $3.2 million to $3.9 million, or $0.10 - $0.12 per diluted share, on 33.5 million estimated fully diluted shares outstanding.

Quarterly Conference Call Today
Inphi plans to hold a conference call at 5:00 p.m. Eastern Time / 2:00 p.m. Pacific Time today with Ford Tamer, President and Chief Executive Officer, and John Edmunds, Chief Financial Officer, to discuss second quarter 2014 results.

The call can be accessed by dialing 866-318-8615; international callers should dial 617-399-5134, participant passcode: 74484704. 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 http://investors.inphi.com for up to 30 days after the call.

About Inphi
Inphi Corporation is a leading provider of high-speed analog and mixed signal semiconductor solutions for the communications, data center and computing markets. Inphi's end-to-end data transport platform delivers high signal integrity at leading-edge data speeds, addressing performance and bandwidth bottlenecks in networks, from fiber to memory. Inphi's solutions minimize latency in computing environments and enable the rollout of next-generation communications infrastructure. Inphi's solutions provide a vital interface between analog signals and digital information in high-performance systems, such as telecommunications transport systems, enterprise networking equipment, enterprise and data center servers, and storage platforms. To learn more about Inphi, visit www.inphi.com.

Cautionary Note Concerning Forward-Looking Statements
Statements in the press release and certain matters to be discussed on the second quarter of 2014 conference call regarding Inphi Corporation, which are not historical facts, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by terms such as outlook, believe, expect, may, will, provide, could, and should, and the negative of these terms or other similar expressions. These statements include statements relating to: our business outlook and current expectations for the third quarter of 2014, including our revenue, gross margin, stock-based compensation expense, operating performance, net income, earnings per share; expectations of our growth; expectations of economic trends and macroeconomic conditions; and benefits of using non-GAAP financial measures. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially from those anticipated as a result of various factors, including: the Company's ability to sustain profitable operations due to its history of losses and accumulated deficit; dependence on a limited number of customers for a substantial portion of revenue and lack of long-term purchase commitments from our customers; product defects; risk related to intellectual property matters, lengthy sales cycle and competitive selection process; lengthy and expensive qualification processes; ability to develop new or enhanced products in a timely manner; development of the markets that the Company targets; market demand for the Company's products; reliance on third parties to manufacture, assemble and test products; ability to compete; and other risks inherent in fabless semiconductor businesses. In addition, actual results could differ materially due to changes in tax rates or tax benefits available, changes in 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, 2013, 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         Six Months Ended
                                 June 30,                  June 30,
                         ------------------------  ------------------------
                             2014         2013         2014         2013
                         -----------  -----------  -----------  -----------
Revenue                  $    33,922  $    24,339  $    65,111  $    46,923
Cost of revenue               12,296        8,893       23,359       17,185
                         -----------  -----------  -----------  -----------

Gross margin                  21,626       15,446       41,752       29,738
                         -----------  -----------  -----------  -----------

Operating expenses:
 Research and development     15,729       12,796       29,468       24,394
 Sales and marketing           4,362        3,706        8,312        7,653
 General and
  administrative               3,234        2,842        6,299        5,997
                         -----------  -----------  -----------  -----------

Total operating expenses      23,325       19,344       44,079       38,044
                         -----------  -----------  -----------  -----------

Income (loss) from
 operations                   (1,699)      (3,898)      (2,327)      (8,306)

Other income                     172          213          332          426
                         -----------  -----------  -----------  -----------

Income (loss) before
 income taxes                 (1,527)      (3,685)      (1,995)      (7,880)
Provision (benefit) for
 income taxes                 (4,161)      (2,211)      (3,634)       1,265
                         -----------  -----------  -----------  -----------

Net income (loss)        $     2,634  $    (1,474) $     1,639  $    (9,145)
                         ===========  ===========  ===========  ===========


Earnings per share:
   Basic                 $      0.08  $     (0.05) $      0.05  $     (0.31)
                         ===========  ===========  ===========  ===========
   Diluted               $      0.08  $     (0.05) $      0.05  $     (0.31)
                         ===========  ===========  ===========  ===========

Weighted-average shares
 used in computing
 earnings per share:
   Basic                  31,378,909   29,216,338   31,040,240   29,075,504
   Diluted                33,013,652   29,216,338   32,905,244   29,075,504

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         Six Months Ended
                              June 30,                  June 30,
                      ------------------------  ------------------------
                          2014         2013         2014         2013
                      -----------  -----------  -----------  -----------
                                   (in thousands of dollars)
                                          (Unaudited)
Cost of revenue       $       298  $       281  $       549  $       514
Research and
 development                2,992        2,256        5,381        4,229
Sales and marketing           940          753        1,798        1,556
General and
 administrative             1,170        1,001        2,178        2,018
                      -----------  -----------  -----------  -----------

                      $     5,400  $     4,291  $     9,906  $     8,317
                      ===========  ===========  ===========  ===========



                             INPHI CORPORATION
                        CONSOLIDATED BALANCE SHEETS
                         (in thousands of dollars)
                                (Unaudited)

                                                   June 30,    December 31,
                                                     2014          2013
                                                 ------------  ------------
Assets
Current assets:
  Cash and cash equivalents                      $     33,325  $     31,667
  Short-term investments in marketable
   securities                                          88,931        90,890
  Accounts receivable, net                             14,418        13,073
  Inventories                                           7,428         6,767
  Other current assets                                  7,069         3,700
                                                 ------------  ------------
    Total current assets                              151,171       146,097

Property and equipment, net                            25,320        22,460
Goodwill                                                5,875         5,875
Deferred tax charge and other assets                    9,621         7,910
                                                 ------------  ------------
    Total assets                                 $    191,987  $    182,342
                                                 ============  ============

Liabilities and Stockholders' Equity

Current liabilities:
  Accounts payable                               $      7,531  $      7,280
  Accrued expenses and other current liabilities        6,959         8,118
  Deferred revenue                                      1,528         1,686
                                                 ------------  ------------

    Total current liabilities                          16,018        17,084

Other liabilities                                       4,677         5,865
                                                 ------------  ------------
    Total liabilities                                  20,695        22,949
                                                 ------------  ------------

Stockholders' equity:
  Common Stock                                             32            30
  Additional paid-in capital                          235,184       225,007
  Accumulated deficit                                 (64,943)      (66,582)
  Accumulated other comprehensive income                1,019           938
                                                 ------------  ------------
Total stockholders' equity                            171,292       159,393
                                                 ------------  ------------

Total liabilities and stockholders' equity       $    191,987  $    182,342
                                                 ============  ============



                              INPHI CORPORATION
                 RECONCILIATION OF GAAP TO NON-GAAP MEASURES
        (in thousands of dollars, except share and per share amounts)

To supplement the audited financial data presented on a GAAP basis, the Company discloses certain non-GAAP financial measures, which exclude stock-based compensation, abandoned office space costs 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, 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.


                            INPHI CORPORATION
               RECONCILIATION OF GAAP TO NON-GAAP MEASURES
      (in thousands of dollars, except share and per share amounts)
                               (Unaudited)

                    Three Months Ended             Six Months Ended
                         June 30,                      June 30,
                --------------------------    --------------------------
                    2014           2013           2014           2013
                -----------    -----------    -----------    -----------
GAAP net income
 (loss)         $     2,634    $    (1,474)   $     1,639    $    (9,145)
Adjusting items
 to GAAP net
 income (loss):
  Operating
   expenses
   related to
   stock-based
   compensation
   expense, net
   of tax effect      4,086 (a)      2,628 (a)      7,299 (a)      5,135 (a)
  Abandoned
   office costs           -            (43)(b)          -             90 (b)
  Valuation
   allowance and
   delta in
   interim
   period tax
   allocation
   from GAAP to
   non-GAAP          (3,791)(c)       (782)(c)     (3,110)(c)      4,280 (c)
                -----------    -----------    -----------    -----------
Non-GAAP net
 income         $     2,929    $       329    $     5,828    $       360
                ===========    ===========    ===========    ===========

Shares used in
 computing non-
 GAAP basic
 earnings per
 share           31,378,909     29,216,338     31,040,240     29,075,504
                ===========    ===========    ===========    ===========

Shares used in
 computing non-
 GAAP diluted
 earnings per
 share           33,013,652     30,778,280     32,905,244     30,625,873
                ===========    ===========    ===========    ===========

Non-GAAP
 earnings per
 share:
    Basic       $      0.09    $      0.01    $      0.19    $      0.01
                ===========    ===========    ===========    ===========
    Diluted     $      0.09    $      0.01    $      0.18    $      0.01
                ===========    ===========    ===========    ===========

GAAP gross
 margin as a %
 of revenue            63.8%          63.5%          64.1%          63.4%
Stock-based
 compensation:
  Cost of
   revenue              0.8%           1.1%           0.9%           1.1%
Adjustment to
 revenue as a
 result of
 warranty claim           -              -              -              -
                -----------    -----------    -----------    -----------
Non-GAAP gross
 margin as a %
 of revenue            64.6%          64.6%          65.0%          64.5%
                ===========    ===========    ===========    ===========
(a)  Reflects the stock-based compensation expense recorded relating to
     stock-based awards. The Company excludes this item when it evaluates
     the continuing operational performance of the Company as management
     believes this GAAP measure is not indicative of its core operating
     performance.
(b)  Reflects the cost of abandoned office space. The Company excludes this
     item when it evaluates the continuing operational performance of the
     Company as management believes this GAAP measure is not indicative of
     its core operating performance.
(c)  Reflects the change in valuation allowance and delta in interim period
     tax allocation from GAAP to non-GAAP related to non-GAAP adjustments.
     Starting 2014, the Company, prospectively changed its method of
     calculating income taxes on a non-GAAP basis related to considering
     $213,000 -- the quarterly amortization of a deferred tax charge on an
     ARB 51-related intercompany transfer of assets. The deferred tax charge
     relates to intercompany transfer of intellectual property in 2010 for
     which taxes were already paid. The Company decided to exclude the
     amortization from the calculation prospectively as it is strictly non-
     cash accounting amortization that will never convert into cash tax
     expense. The change is only made prospectively, therefore, a similar
     amount remains included in the comparable Q2 2013 non-GAAP tax expense.
     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 -THIRD QUARTER 2014 GUIDANCE
       (in thousands of dollars, except share and per share amounts)
                                (Unaudited)

                                                      Three Months Ending
                                                      September 30, 2014
                                                   ------------------------
                                                       High         Low
                                                   -----------  -----------
Estimated GAAP net income (loss)                   $      (200) $    (1,000)
Adjusting items to estimated GAAP net income
 (loss):
  Operating expenses related to stock-based
   compensation expense                                  5,800        5,600
  Tax effect of stock-based compensation expense        (1,700)      (1,400)
                                                   -----------  -----------
Estimated non-GAAP net income                      $     3,900  $     3,200
                                                   ===========  ===========

Shares used in computing estimated non-GAAP diluted
 earnings per share                                 33,500,000   33,500,000
                                                   ===========  ===========

Estimated non-GAAP diluted earnings per share      $      0.12  $      0.10
                                                   ===========  ===========

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