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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)
1. Organization and Basis of Presentation
Inphi Corporation (the “Company”), a Delaware corporation, was incorporated in November 2000. The Company is a fabless provider of high-speed analog and mixed signal semiconductor solutions for the communications and data center markets. The Company’s 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 and data center infrastructures. In addition, the semiconductor 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 and data centers.
The interim unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. They do not include all of the information and footnotes required by GAAP for complete financial statements. Therefore, these interim unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2018, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 28, 2019.
The interim condensed consolidated financial statements included herein are unaudited; however, they contain all normal recurring accruals and adjustments that, in the opinion of management, are necessary to state fairly the Company’s consolidated financial position as of September 30, 2019, its consolidated results of operations and stockholders’ equity for the three and nine months ended September 30, 2019 and 2018, and cash flows for the nine months ended September 30, 2019 and 2018. The results of operations for the three and nine months ended September 30, 2019, are not necessarily indicative of the results to be expected for future quarters or the full year.
2. Recent Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued guidance that requires companies that lease assets (lessees) to recognize on the balance sheet the assets and liabilities for the rights and obligations created by leases with lease terms of more than 12 months. The FASB also issued additional updates to such guidance. For leases less than twelve months, an entity is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. The guidance requires entities to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach or allows entities to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company adopted this guidance on January 1, 2019. See note 7 in the Notes to Unaudited Condensed Consolidated Financial Statements for further details.
In June 2016, the FASB issued guidance which requires entities to estimate an expected lifetime credit loss on certain financial assets. This guidance is effective for the annual and interim periods of the Company beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the impact that this new guidance will have on its consolidated financial statements and related disclosures.
In January 2017, the FASB issued guidance to simplify the measurement of goodwill by eliminating the Step 2 impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. The new guidance requires an entity to compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The new guidance becomes effective for goodwill impairment tests in fiscal years beginning after December 15, 2019, though early adoption is permitted. The Company adopted this guidance on January 1, 2019. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
In February 2018, the FASB issued guidance that allows an option to reclassify from accumulated other comprehensive income to retained earnings any stranded tax effects resulting from the Tax Cuts and Jobs Act. The guidance is effective for fiscal years beginning after December 15, 2018. The Company adopted this guidance on January 1, 2019. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
Inphi Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)
In June 2018, the FASB issued guidance to eliminate the separate guidance applicable to share-based payments to nonemployees. Under the new guidance, equity-classified share-based payment awards issued to nonemployees will be measured on the grant date, instead of being remeasured through the performance completion date (generally the vesting date), as required under the current guidance. The new guidance will also require recognition of compensation cost for awards with performance conditions when achievement of those conditions are probable, rather than upon their achievement. Further, the new guidance will eliminate the requirement to reassess the classification of nonemployee awards under the financial instruments literature upon vesting. The guidance is effective for fiscal years beginning after December 15, 2018. The Company adopted this guidance on January 1, 2019. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
In August 2018, the FASB issued guidance that eliminates certain disclosure requirements for fair value measurements for all entities, requiring public entities to disclose certain new information and modifies some disclosure requirements. The new guidance will no longer require disclosure of the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will require disclosure of the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements, with early adoption permitted. The guidance will be effective for fiscal years beginning after December 15, 2019. The Company is currently evaluating the impact that this new guidance will have on its consolidated financial statements and related disclosures.
In August 2018, the FASB issued guidance requiring a customer in a cloud computing arrangement under a service contract to follow the internal use software guidance in Accounting Standards Codification (“ASC”) 350-40 to determine which implementation costs to capitalize as assets. Capitalized implementation costs are expensed over the term of the hosting arrangement beginning when the module or component of the hosting arrangement is ready for its intended use. The guidance will be effective for fiscal years beginning after December 15, 2019. The Company is currently evaluating the impact that this new guidance will have on its consolidated financial statements and related disclosures.
In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders' equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders' equity presented in the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed. This final rule became effective on November 5, 2018. The Company adopted the rule in the fourth quarter of 2018. The adoption on this standard requires the Company to present comparative consolidated statements of stockholders’ equity as part of the interim period financial statements.
In November 2018, the FASB issued amendments to guidance on “Collaborative Arrangements” and “Revenue from Contracts with Customers”, that require transactions in collaborative arrangements to be accounted for under “Revenue from Contracts with Customers” if the counterparty is a customer for a good or service (or bundle of goods and services) that is a distinct unit of account. The amendments also preclude entities from presenting consideration from transactions with a collaborator that is not a customer together with revenue recognized from contracts with customers. The amendments to the guidance are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, though early adoption is permitted, including adoption in any interim period. The Company is currently evaluating the impact that this new guidance will have on its consolidated financial statements and related disclosures.
3. Investments
The following table summarizes the investments in marketable securities by investment category:
|
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
|
$
|
3,745
|
|
|
$
|
3,748
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Municipal bonds
|
|
|
6,041
|
|
|
|
6,100
|
|
|
|
6,751
|
|
|
|
6,733
|
|
|
Agency bonds
|
|
|
10,999
|
|
|
|
10,999
|
|
|
|
—
|
|
|
|
—
|
|
|
Corporate notes/bonds
|
|
|
178,582
|
|
|
|
179,289
|
|
|
|
146,466
|
|
|
|
146,126
|
|
|
Variable rate demand notes
|
|
|
12,900
|
|
|
|
12,900
|
|
|
|
8,900
|
|
|
|
8,900
|
|
|
Asset backed securities
|
|
|
15,167
|
|
|
|
15,215
|
|
|
|
32,986
|
|
|
|
32,923
|
|
|
Commercial paper
|
|
|
45,034
|
|
|
|
45,042
|
|
|
|
39,707
|
|
|
|
39,701
|
|
|
Certificate of deposit
|
|
|
350
|
|
|
|
350
|
|
|
|
956
|
|
|
|
956
|
|
|
Total investments
|
|
$
|
272,818
|
|
|
$
|
273,643
|
|
|
$
|
235,766
|
|
|
$
|
235,339
|
|
Inphi Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)
As of September 30, 2019, the Company had 24 investments that were in an unrealized loss position. The gross unrealized losses on these investments at September 30, 2019 of $16 were determined to be temporary in nature. The Company reviews the investments to identify and evaluate investments that have an indication of possible other-than-temporary impairment. Factors considered in determining whether a loss is other-than-temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition and near-term prospects of the investee, and the intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value.
The contractual maturities of available-for-sale securities at September 30, 2019 are presented in the following table:
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Due in one year or less
|
|
$
|
161,970
|
|
|
$
|
162,238
|
|
|
Due between one and five years
|
|
|
95,130
|
|
|
|
95,689
|
|
|
Due after five years
|
|
|
15,718
|
|
|
|
15,716
|
|
|
|
|
$
|
272,818
|
|
|
$
|
273,643
|
|
The Company has a marketable equity investment in a company located in Taiwan. The fair value of the investment and unrealized loss as of September 30, 2019 was $1,359 and $634, respectively. During the three months ended September 30, 2019, the Company acquired a marketable equity investment in a company located in the United States. The fair value of the investment and unrealized gain as of September 30, 2019 was $1,678 and $178, respectively. These investments are included in Other assets, net on the condensed consolidated balance sheets.
The Company has non-marketable equity investments in privately held companies without readily determinable market values. The Company adjusts the carrying value of non-marketable equity investments to fair value upon observable transactions for identical or similar investments of the same issuer or impairment (referred to as the measurement alternative). All gains and losses on non-marketable equity investments, realized and unrealized, are recognized in Other income, net. As of September 30, 2019, non-marketable equity investments had a carrying value of approximately $21,792, of which $8,792 was remeasured to fair value based on observable transactions during the three months ended March 31, 2018 and September 30, 2019. These investments are included in Other assets, net on the condensed consolidated balance sheets. An unrealized gain of $1,926 and $3,066 was recorded in other income and included as an adjustment to the carrying value of non-marketable equity investments for the three months ended September 30, 2019 and March 31, 2018, respectively.
4. Inventories
Inventories consist of the following:
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Raw materials
|
|
$
|
20,414
|
|
|
$
|
12,435
|
|
|
Work in process
|
|
|
21,904
|
|
|
|
13,602
|
|
|
Finished goods
|
|
|
14,397
|
|
|
|
7,015
|
|
|
|
|
$
|
56,715
|
|
|
$
|
33,052
|
|
5. Property and Equipment, net
Property and equipment consist of the following:
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Laboratory and production equipment
|
|
$
|
142,905
|
|
|
$
|
121,716
|
|
|
Office, software and computer equipment
|
|
|
34,231
|
|
|
|
30,190
|
|
|
Furniture and fixtures
|
|
|
1,585
|
|
|
|
1,558
|
|
|
Leasehold improvements
|
|
|
7,908
|
|
|
|
7,609
|
|
|
|
|
|
186,629
|
|
|
|
161,073
|
|
|
Less accumulated depreciation and amortization
|
|
|
(106,757
|
)
|
|
|
(90,333
|
)
|
|
|
|
$
|
79,872
|
|
|
$
|
70,740
|
|
Inphi Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)
Depreciation and amortization expense of property and equipment for the three and nine months ended September 30, 2019 was $5,668 and $16,726, respectively. Depreciation and amortization expense of property and equipment for the three and nine months ended September 30, 2018 was $5,134 and $14,931, respectively.
As of September 30, 2019 and December 31, 2018, computer software costs included in property and equipment were $7,128 and $6,879, respectively. Amortization expense of capitalized computer software costs was $94 and $280 for the three and nine months ended September 30, 2019, respectively. Amortization expense of capitalized computer software costs was $126 and $471 for the three and nine months ended September 30, 2018, respectively.
Property and equipment not yet paid in cash as of September 30, 2019 and December 31, 2018 was $11,525 and $2,580, respectively.
6. Intangible Assets
The following table presents details of intangible assets:
|
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
|
|
|
Gross
|
|
|
Accumulated Amortization
|
|
|
Net
|
|
|
Gross
|
|
|
Accumulated Amortization
|
|
|
Net
|
|
|
Developed technology
|
|
$
|
186,800
|
|
|
$
|
115,550
|
|
|
$
|
71,250
|
|
|
$
|
186,800
|
|
|
$
|
86,378
|
|
|
$
|
100,422
|
|
|
Customer relationships
|
|
|
70,540
|
|
|
|
28,977
|
|
|
|
41,563
|
|
|
|
70,540
|
|
|
|
21,681
|
|
|
|
48,859
|
|
|
Trade name
|
|
|
2,310
|
|
|
|
1,696
|
|
|
|
614
|
|
|
|
2,310
|
|
|
|
1,350
|
|
|
|
960
|
|
|
Patents
|
|
|
1,579
|
|
|
|
980
|
|
|
|
599
|
|
|
|
1,579
|
|
|
|
881
|
|
|
|
698
|
|
|
Software
|
|
|
74,943
|
|
|
|
46,804
|
|
|
|
28,139
|
|
|
|
61,406
|
|
|
|
31,898
|
|
|
|
29,508
|
|
|
|
|
$
|
336,172
|
|
|
$
|
194,007
|
|
|
$
|
142,165
|
|
|
$
|
322,635
|
|
|
$
|
142,188
|
|
|
$
|
180,447
|
|
The following table presents amortization of intangible assets for the three and nine months ended September 30, 2019 and 2018:
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
Cost of goods sold
|
|
$
|
9,724
|
|
|
$
|
9,723
|
|
|
$
|
29,172
|
|
|
$
|
23,121
|
|
|
Research and development
|
|
|
5,806
|
|
|
|
5,058
|
|
|
|
16,722
|
|
|
|
14,138
|
|
|
Sales and marketing
|
|
|
2,432
|
|
|
|
2,432
|
|
|
|
7,296
|
|
|
|
7,296
|
|
|
General and administrative
|
|
|
147
|
|
|
|
151
|
|
|
|
445
|
|
|
|
458
|
|
|
|
|
$
|
18,109
|
|
|
$
|
17,364
|
|
|
$
|
53,635
|
|
|
$
|
45,013
|
|
Based on the amount of intangible assets subject to amortization at September 30, 2019, the expected amortization expense for each of the next five fiscal years and thereafter is as follows:
|
2019 (remaining)
|
|
$
|
18,988
|
|
|
2020
|
|
|
42,743
|
|
|
2021
|
|
|
37,892
|
|
|
2022
|
|
|
29,268
|
|
|
2023
|
|
|
12,435
|
|
|
Thereafter
|
|
|
839
|
|
|
|
|
$
|
142,165
|
|
The weighted-average amortization periods remaining by intangible asset category were as follows (in years):
|
Developed technology
|
|
|
3.2
|
|
|
Customer relationship
|
|
|
4.3
|
|
|
Trade name
|
|
|
2.2
|
|
|
Patents
|
|
|
7.6
|
|
|
Software
|
|
|
2.2
|
|
Inphi Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)
7. Leases
On January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), using the modified retrospective method through a cumulative adjustment to the beginning accumulated deficit balance. Prior comparative periods have not been restated under this method. The adoption of this guidance resulted in no cumulative effect adjustment as of January 1, 2019. However, total assets and liabilities increased by $10,670 as a result of the adoption. Based on the new guidance, for leases less than twelve months, an entity is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. The Company made this election, along with other available practical expedients. This guidance had a material impact on the condensed consolidated balance sheet as of January 1, 2019, but did not have an impact on the condensed consolidated statements of income (loss) and cash flows. The most significant impact was the recognition of right of use (“ROU”) asset and lease liabilities for operating leases related to facility leases.
The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease ROU assets, other current liabilities and other long-term liabilities on the condensed consolidated balance sheets. Finance leases are included in property and equipment, other current liabilities, and other long-term liabilities on the condensed consolidated balance sheets. As of the adoption date and September 30, 2019, the Company does not have material finance leases.
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of the leases do not provide an implicit rate, the Company uses the incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments and initial direct costs incurred, net of lease incentives. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components, which are generally accounted for separately.
The Company has operating leases for office facilities. The leases have remaining lease terms of one year to seven years and some may include options to extend the lease for up to five years.
Information related to operating leases for the three and nine months ended September 30, 2019 are as follows:
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
September 30, 2019
|
|
|
September 30, 2019
|
|
|
Operating lease cost
|
|
$
|
1,170
|
|
|
$
|
3,268
|
|
|
Cash paid for leases
|
|
|
1,028
|
|
|
|
3,219
|
|
|
Right of use assets obtained in exchange for lease obligations
|
|
|
2,927
|
|
|
|
3,151
|
|
Weighted average remaining lease term and weighted average discount as of September 30, 2019 are as follows:
|
Weighted average remaining lease term (years)
|
|
|
4.41
|
|
|
Weighted average discount rate
|
|
|
3.3
|
%
|
Future minimum lease payments under non-cancellable leases as of September 30, 2019 are as follows:
|
2019 (remaining)
|
|
$
|
1,345
|
|
|
2020
|
|
|
3,489
|
|
|
2021
|
|
|
2,547
|
|
|
2022
|
|
|
2,573
|
|
|
2023
|
|
|
2,506
|
|
|
Thereafter
|
|
|
2,365
|
|
|
Total future minimum lease payments
|
|
|
14,825
|
|
|
Less: Imputed interest
|
|
|
1,172
|
|
|
Lease incentive
|
|
|
975
|
|
|
Present value of lease obligations
|
|
$
|
12,678
|
|
Inphi Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)
As of September 30, 2019, the Company has an additional operating lease for an office facility that has not yet commenced of $232. This operating lease will commence in the fourth quarter of 2019 with a lease term of five years.
As previously reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 and under legacy lease accounting (ASC 840), future minimum lease payments under non-cancelable leases and service agreements as of December 31, 2018 are as follows:
|
2019
|
|
$
|
4,588
|
|
|
2020
|
|
|
2,252
|
|
|
2021
|
|
|
1,883
|
|
|
2022
|
|
|
1,722
|
|
|
2023
|
|
|
1,615
|
|
|
2024 and thereafter
|
|
|
1,698
|
|
|
Total
|
|
$
|
13,758
|
|
For the three and nine months ended September 30, 2018, operating lease expense was $1,142 and $4,590, respectively.
8. Product Warranty Obligation
As of September 30, 2019 and December 31, 2018, the product warranty liability was $110. There was no change in product warranty liability during the three and nine months ended September 30, 2019 and 2018.
9. Convertible debt
The carrying amount of the Company’s long-term debt consists of the following:
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Principal
|
|
$
|
517,500
|
|
|
$
|
517,500
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
Unamortized debt discount
|
|
|
(44,863
|
)
|
|
|
(64,222
|
)
|
|
Unamortized debt issuance costs
|
|
|
(3,797
|
)
|
|
|
(5,453
|
)
|
|
Net carrying amount of long-term debt
|
|
|
468,840
|
|
|
|
447,825
|
|
|
Less current portion of long-term debt
|
|
|
—
|
|
|
|
—
|
|
|
Long-term debt, non-current portion
|
|
$
|
468,840
|
|
|
$
|
447,825
|
|
In December 2015, the Company issued $230,000 of 1.125% convertible senior notes due 2020 (the “Convertible Notes 2015”). The Convertible Notes 2015 will mature December 1, 2020, unless earlier converted or repurchased. Interest on the Convertible Notes 2015 is payable on June 1 and December 1 of each year, beginning on June 1, 2016. The initial conversion rate is 24.8988 shares of common stock per $1 principal amount of Convertible Notes 2015, which represents an initial conversion price of approximately $40.16 per share. The total interest expense recognized for the three months ended September 30, 2019 was $3,877, which consists of $650 of contractual interest expense, $2,960 of amortization of debt discount and $267 of amortization of debt issuance costs. The total interest expense recognized for the nine months ended September 30, 2019 was $11,340, which consists of $1,936 of contractual interest expense, $8,627 of amortization of debt discount and $777 of amortization of debt issuance costs. The total interest expense recognized for the three months ended September 30, 2018 was $3,652, which consists of $650 of contractual interest expense, $2,754 of amortization of debt discount and $248 of amortization of debt issuance costs. The total interest expense recognized for the nine months ended September 30, 2018 was $10,685, which consists of $1,936 of contractual interest expense, $8,026 of amortization of debt discount and $723 of amortization of debt issuance costs.
In connection with the issuance of the Convertible Notes 2015, the Company entered into capped call transactions (the “Capped Call 2015”) in private transactions. Under the Capped Call 2015, the Company purchased capped call options that in aggregate relate to 100% of the total number of shares of the Company's common stock underlying the Convertible Notes 2015, with a strike price equal to the conversion price of the Convertible Notes 2015 and with a cap price equal to $52.06 per share.
Inphi Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)
In September 2016, the Company issued $287,500 of 0.75% convertible senior notes due 2021 (the “Convertible Notes 2016”, and together with the Convertible Notes 2015, the “Convertible Notes”). The Convertible Notes 2016 will mature on September 1, 2021, unless earlier converted or repurchased. Interest on the Convertible Notes 2016 is payable on March 1 and September 1 of each year, beginning on March 1, 2017. The initial conversion rate is 17.7508 shares of common stock per $1 principal amount of the Convertible Notes 2016, which represents an initial conversion price of approximately $56.34 per share. The total interest expense recognized for the three months ended September 30, 2019 was $4,525, which consists of $541 of contractual interest expense, $3,682 of amortization of debt discount and $302 of amortization of debt issuance costs. The total interest expense recognized for the nine months ended September 30, 2019 was $13,219, which consists of $1,608 of contractual interest expense, $10,732 of amortization of debt discount and $879 of amortization of debt issuance costs. The total interest expense recognized for the three months ended September 30, 2018 was $4,253, which consists of $542 of contractual interest expense, $3,430 of amortization of debt discount and $281 of amortization of debt issuance costs. The total interest expense recognized for the nine months ended September 30, 2018 was $12,425, which consists of $1,608 of contractual interest expense, $9,998 of amortization of debt discount and $819 of amortization of debt issuance costs.
In connection with the issuance of the Convertible Notes 2016, the Company entered into capped call transactions (the “Capped Call 2016”) in private transactions. Under the Capped Call 2016, the Company purchased capped call options that in aggregate relate to 100% of the total number of shares of the Company's common stock underlying the Convertible Notes 2016, with a strike price approximately equal to the conversion price of the Convertible Notes 2016 and with a cap price equal to approximately $73.03 per share.
10. Other liabilities
Other current liabilities consist of the following:
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Intangible asset liability
|
|
$
|
11,708
|
|
|
$
|
21,945
|
|
|
Operating lease liability
|
|
|
2,837
|
|
|
|
—
|
|
|
Payable to end customer
|
|
|
5,017
|
|
|
|
162
|
|
|
Others
|
|
|
1,199
|
|
|
|
2,212
|
|
|
|
|
$
|
20,761
|
|
|
$
|
24,319
|
|
Other long-term liabilities consist of the following:
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Deferred rent
|
|
$
|
31
|
|
|
$
|
1,100
|
|
|
Income tax payable
|
|
|
692
|
|
|
|
706
|
|
|
Intangible asset liability
|
|
|
12,516
|
|
|
|
7,961
|
|
|
Operating lease liability
|
|
|
9,841
|
|
|
|
—
|
|
|
Others
|
|
|
757
|
|
|
|
1,144
|
|
|
|
|
$
|
23,837
|
|
|
$
|
10,911
|
|
11. Income Taxes
The Company normally determines its interim income tax 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. The Company incurred pretax loss during the three and nine months ended September 30, 2019 and 2018 from its U.S. operations and will not recognize a tax benefit of the losses due to the full valuation allowance established against deferred tax assets. Thus, a separate effective tax rate was applied to losses from the U.S. jurisdiction to compute the Company’s September 30, 2019 and 2018 interim tax provision.
The Company recorded an income tax provision of $619 and $1,252 in the three and nine months ended September 30, 2019, respectively. The effective tax rates were (4.0%) and (2.1%) in the three and nine months ended September 30, 2019, respectively. The difference between the effective tax rates and the 21% federal statutory rate was primarily due to change in valuation allowance, foreign income taxes provided at lower rates, geographic mix in expected operating results, unrecognized tax benefits, recognition of federal and state research and development credits and windfall tax benefits from stock-based compensation.
Inphi Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)
The Company recorded an income tax benefit of $203 and $8,406 in the three and nine months ended September 30, 2018, respectively. The effective tax rate for both the three and nine months ended September 30, 2018 was 0.9% and 10.2%, respectively. The difference between the effective tax rates and the 21% federal statutory rate was primarily due to change in valuation allowance, foreign income taxes provided at lower rates, geographic mix in expected operating results, unrecognized tax benefits, recognition of federal and state research and development credits and windfall tax benefits from stock-based compensation. The income tax benefit for the nine months ended September 30, 2018, primarily consisted of the partial release of federal valuation allowance resulting from the transfer of acquired in-process research and development to developed technology in 2018, which allowed the related deferred tax liability to be considered a source of income for realizing deferred tax assets, as well as the revaluation of the foreign deferred tax liability on the in-process research and development based on the foreign tax rates applicable to the anticipated reversal periods.
During the three and nine months ended September 30, 2019, the gross amount of the Company’s unrecognized tax benefits increased approximately $853 and $5,234, respectively, primarily as a result of tax positions taken during the current year. Substantially all of the unrecognized tax benefits as of September 30, 2019, if recognized, would affect the Company’s effective tax rate.
The Company does not provide for U.S. income taxes on undistributed earnings of its controlled foreign corporations as the Company intends to reinvest these earnings indefinitely outside the U.S.
12. Earnings Per Share
The following securities were not included in the computation of diluted earnings per share as inclusion would have been anti-dilutive:
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
Common stock options
|
|
|
999,357
|
|
|
|
1,186,358
|
|
|
|
1,061,221
|
|
|
|
1,220,323
|
|
|
Unvested restricted stock units and market value stock units
|
|
|
2,781,820
|
|
|
|
2,945,422
|
|
|
|
2,787,656
|
|
|
|
2,886,675
|
|
|
Convertible debt
|
|
|
10,830,038
|
|
|
|
10,830,038
|
|
|
|
10,830,038
|
|
|
|
10,830,038
|
|
|
|
|
|
14,611,215
|
|
|
|
14,961,818
|
|
|
|
14,678,915
|
|
|
|
14,937,036
|
|
13. Stock–Based Compensation
In June 2010, the Company's Board of Directors (the “Board”) approved the Company’s 2010 Stock Incentive Plan (the “2010 Plan”), which became effective in November 2010. The 2010 Plan provides for the grants of restricted stock, stock appreciation rights and stock unit awards to employees, non-employee directors, advisors and consultants. The compensation committee of the Board administers the 2010 Plan, including the determination of the recipient of an award, the number of shares subject to each award, whether an option is to be classified as an incentive stock option or nonstatutory option, and the terms and conditions of each award, including the exercise and purchase prices and the vesting or duration of the award. Options granted under the 2010 Plan are exercisable only upon vesting. At September 30, 2019, 4,997,941 shares of common stock have been reserved for future grants under the 2010 Plan.
Stock Option Awards
The Company did not grant any stock options during the three and nine months ended September 30, 2019 and 2018.
Inphi Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)
The following table summarizes information regarding options outstanding:
|
|
|
Number of Shares
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Contractual Life (Years)
|
|
|
Aggregate Intrinsic Value
|
|
|
Outstanding at December 31, 2018
|
|
|
1,159,121
|
|
|
$
|
12.94
|
|
|
|
2.62
|
|
|
$
|
22,267
|
|
|
Exercised
|
|
|
(189,445
|
)
|
|
$
|
10.07
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2019
|
|
|
969,676
|
|
|
$
|
13.50
|
|
|
|
2.01
|
|
|
$
|
46,107
|
|
|
Vested and Exercisable at September 30, 2019
|
|
|
969,676
|
|
|
$
|
13.50
|
|
|
|
2.01
|
|
|
$
|
46,107
|
|
The intrinsic value of options outstanding, exercisable and vested and expected to vest is calculated based on the difference between the exercise price and the fair value of the Company’s common stock as of the respective balance sheet dates.
The total intrinsic value of options exercised during the nine months ended September 30, 2019 and 2018 was $7,953 and $3,887, respectively. The intrinsic value of exercised options is calculated based on the difference between the exercise price and the fair value of the Company’s common stock as of the exercise date. Cash received from the exercise of stock options was $1,907 and $522 for the nine months ended September 30, 2019 and 2018, respectively.
Restricted Stock Units
The Company granted restricted stock units (“RSUs”) to members of the Board and its employees. Most of the Company’s outstanding RSUs vest over four years with vesting contingent upon continuous service. The Company estimates the fair value of RSUs using the market price of the common stock on the date of the grant. The fair value of these awards is amortized on a straight-line basis over the vesting period.
The following table summarizes information regarding outstanding RSUs:
|
|
|
Number of Shares
|
|
|
Weighted Average Grant
Date Fair Value Per Share
|
|
|
Outstanding at December 31, 2018
|
|
|
4,051,685
|
|
|
$
|
34.68
|
|
|
Granted
|
|
|
1,857,453
|
|
|
$
|
46.77
|
|
|
Vested
|
|
|
(1,500,158
|
)
|
|
$
|
32.73
|
|
|
Canceled
|
|
|
(363,418
|
)
|
|
$
|
37.68
|
|
|
Outstanding at September 30, 2019
|
|
|
4,045,562
|
|
|
$
|
40.69
|
|
|
Expected to vest at September 30, 2019
|
|
|
3,956,449
|
|
|
|
|
|
The RSUs include performance-based stock units subject to achievement of pre-established revenue goal and earnings per share on a non-GAAP basis. Once the goals are met, the performance-based stock units are subject to four years of vesting from the original grant date, contingent upon continuous service. The total performance-based units that vested for the nine months ended September 30, 2019 was 55,759. As of September 30, 2019, the total performance-based units outstanding was 72,053.
Employee Stock Purchase Plan
In December 2011, the Company adopted the Employee Stock Purchase Plan (the “ESPP”). Participants purchase the Company's stock using payroll deductions, which may not exceed 15% of their total cash compensation. Pursuant to the terms of the ESPP, the "look-back" period for the stock purchase price is six months. Offering and purchase periods will begin on February 10 and August 10 of each year. Participants will be granted the right to purchase common stock at a price per share that is 85% of the lesser of the fair market value of the Company's common stock at the beginning or the end of each six-month period.
The ESPP imposes certain limitations upon an employee’s right to acquire common stock, including the following: (i) no employee shall be granted a right to participate if such employee would own stock possessing 5% or more of the total combined voting power or value of all classes of stock of the Company immediately after the election to purchase common stock, and (ii) no employee may be granted rights to purchase more than $25 of fair value of common stock in each calendar year. The maximum aggregate number of shares of common stock available for purchase under the ESPP is 2,750,000 shares. Total common stock issued under the ESPP during the nine months ended September 30, 2019 and 2018 was 208,721 and 283,493, respectively.
Inphi Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)
The fair value of the ESPP purchases is estimated at the start of the offering period using the Black-Scholes option pricing model with the following assumptions:
|
|
|
Three Months ended
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
Risk-free interest rate
|
|
|
1.93
|
%
|
|
|
2.24
|
%
|
|
|
2.26
|
%
|
|
|
2.01
|
%
|
|
Expected life (in years)
|
|
|
0.50
|
|
|
|
0.50
|
|
|
|
0.49
|
|
|
|
0.50
|
|
|
Dividend yield
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Expected volatility
|
|
|
39
|
%
|
|
|
45
|
%
|
|
|
43
|
%
|
|
|
46
|
%
|
|
Estimated fair value
|
|
$
|
16.50
|
|
|
$
|
9.29
|
|
|
$
|
13.35
|
|
|
$
|
8.35
|
|
Stock-Based Compensation Expense
Stock-based compensation expense is included in the Company’s condensed consolidated statements of income (loss) as follows:
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
Cost of goods sold
|
|
$
|
1,953
|
|
|
$
|
636
|
|
|
$
|
4,432
|
|
|
$
|
1,810
|
|
|
Research and development
|
|
|
10,297
|
|
|
|
9,614
|
|
|
|
30,954
|
|
|
|
27,853
|
|
|
Sales and marketing
|
|
|
4,312
|
|
|
|
3,702
|
|
|
|
11,729
|
|
|
|
10,185
|
|
|
General and administrative
|
|
|
3,316
|
|
|
|
2,788
|
|
|
|
9,482
|
|
|
|
7,661
|
|
|
|
|
$
|
19,878
|
|
|
$
|
16,740
|
|
|
$
|
56,597
|
|
|
$
|
47,509
|
|
Total unrecognized compensation cost related to unvested restricted stock units at September 30, 2019, prior to the consideration of expected forfeitures, is approximately $138,157 and is expected to be recognized over a weighted-average period of 2.56 years.
14. Fair Value Measurements
The guidance on fair value measurements requires fair value measurements to be classified and disclosed in one of the following three categories:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; or
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
The Company measures its investments in marketable securities at fair value using the market approach, which uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The Company has cash equivalents which consist of money market funds valued using the amortized cost method, in accordance with Rule 2a-7 under the 1940 Act which approximates fair value.
The Convertible Notes are carried on the condensed consolidated balance sheets at their original issuance value including accreted interest, net of unamortized debt discount and issuance cost. The Convertible Notes are not marked to fair value at the end of each reporting period. As of September 30, 2019 and December 31, 2018, the fair value of the Convertible Notes was determined on the basis of market prices observable for similar instruments and is considered Level 2 in the fair value hierarchy. The fair value of the Convertible Notes as of September 30, 2019 and December 31, 2018 was $718,151 and $512,428, respectively.
Inphi Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)
The following table presents information about assets and liabilities required to be carried at fair value on a recurring basis:
|
September 30, 2019
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
1,137
|
|
|
$
|
63
|
|
|
$
|
1,074
|
|
|
Commercial paper
|
|
|
62,662
|
|
|
|
—
|
|
|
|
62,662
|
|
|
Municipal bonds
|
|
|
2,149
|
|
|
|
—
|
|
|
|
2,149
|
|
|
Investment in marketable debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
|
|
3,748
|
|
|
|
3,748
|
|
|
|
—
|
|
|
Municipal bonds
|
|
|
6,100
|
|
|
|
—
|
|
|
|
6,100
|
|
|
Agency bonds
|
|
|
10,999
|
|
|
|
—
|
|
|
|
10,999
|
|
|
Corporate notes/bonds
|
|
|
179,289
|
|
|
|
—
|
|
|
|
179,289
|
|
|
Variable rate demand notes
|
|
|
12,900
|
|
|
|
—
|
|
|
|
12,900
|
|
|
Asset backed securities
|
|
|
15,215
|
|
|
|
—
|
|
|
|
15,215
|
|
|
Commercial paper
|
|
|
45,042
|
|
|
|
—
|
|
|
|
45,042
|
|
|
Certificate of deposit
|
|
|
350
|
|
|
|
350
|
|
|
|
—
|
|
|
|
|
$
|
339,591
|
|
|
$
|
4,161
|
|
|
$
|
335,430
|
|
|
December 31, 2018
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
740
|
|
|
$
|
38
|
|
|
$
|
702
|
|
|
Commercial paper
|
|
|
96,759
|
|
|
|
—
|
|
|
|
96,759
|
|
|
Investment in marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds
|
|
|
6,733
|
|
|
|
—
|
|
|
|
6,733
|
|
|
Corporate notes/bonds
|
|
|
146,126
|
|
|
|
—
|
|
|
|
146,126
|
|
|
Variable rate demand notes
|
|
|
8,900
|
|
|
|
—
|
|
|
|
8,900
|
|
|
Asset-backed securities
|
|
|
32,923
|
|
|
|
—
|
|
|
|
32,923
|
|
|
Commercial paper
|
|
|
39,701
|
|
|
|
—
|
|
|
|
39,701
|
|
|
Certificate of deposit
|
|
|
956
|
|
|
|
956
|
|
|
|
—
|
|
|
|
|
$
|
332,838
|
|
|
$
|
994
|
|
|
$
|
331,844
|
|
As discussed in note 3, the Company has marketable equity investments. The marketable equity investments are classified as Level 1 in the fair value hierarchy. As discussed in note 3, the Company has non-marketable equity investments, which are classified within Level 3 in the fair value hierarchy because the Company estimates the value based on valuation methods using the observable transaction price at the most recent transaction date.
15. Segment and Geographic Information
The Company operates in one reportable segment. The Company’s Chief Executive Officer, who is considered to be the chief operating decision maker, manages the Company’s operations as a whole and reviews consolidated financial information for purposes of evaluating financial performance and allocating resources. Revenue by region is classified based on the locations to which the products are shipped, which may differ from the customer’s principal offices.
The following table sets forth the Company’s revenue by geographic region:
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
China
|
|
$
|
34,503
|
|
|
$
|
31,723
|
|
|
$
|
110,769
|
|
|
$
|
70,710
|
|
|
United States
|
|
|
32,936
|
|
|
|
25,746
|
|
|
|
73,902
|
|
|
|
72,710
|
|
|
Thailand
|
|
|
14,816
|
|
|
|
10,687
|
|
|
|
41,661
|
|
|
|
26,807
|
|
|
Other
|
|
|
11,976
|
|
|
|
9,853
|
|
|
|
36,407
|
|
|
|
37,732
|
|
|
|
|
$
|
94,231
|
|
|
$
|
78,009
|
|
|
$
|
262,739
|
|
|
$
|
207,959
|
|
Inphi Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)
As of September 30, 2019, $35,491 of long-lived tangible assets are located outside the United States, of which $29,539 are located in Taiwan. As of December 31, 2018, $32,631 of long-lived tangible assets are located outside the United States of which $28,428 are located in Taiwan.
16. Commitments and Contingencies
Noncancelable Purchase Obligations
The Company has noncancelable service agreements, including software licenses, colocation and cloud services used in research and development activities expiring in various years through 2024. As of September 30, 2019, future minimum payments under the noncancelable agreements are as follows:
|
2019 (remaining)
|
|
$
|
448
|
|
|
2020
|
|
|
14,472
|
|
|
2021
|
|
|
13,867
|
|
|
2022
|
|
|
9,952
|
|
|
2023
|
|
|
5
|
|
|
Thereafter
|
|
|
2
|
|
|
Total
|
|
$
|
38,746
|
|
The Company depends upon third-party subcontractors to manufacture its wafers. The Company’s subcontractor relationships typically allow for the cancellation of outstanding purchase orders, but require payment of all expenses incurred through the date of cancellation. As of September 30, 2019, the total value of open purchase orders for wafers was approximately $15,180.
Legal Proceedings
Netlist, Inc. v. Inphi Corporation, Case No. 09-cv-6900 (C.D. Cal.)
On September 22, 2009, Netlist filed suit in the United States District Court, Central District of California ( the “Court”), asserting that the Company infringes U.S. Patent No. 7,532,537. Netlist filed an amended complaint on December 22, 2009, further asserting that the Company infringes U.S. Patent Nos. 7,619,912 and 7,636,274, collectively with U.S. Patent No. 7,532,537, the patents-in-suit, and seeking both unspecified monetary damages to be determined and an injunction to prevent further infringement. These infringement claims allege that the iMB™ and certain other memory module components infringe the patents-in-suit. The Company answered the amended complaint on February 11, 2010 and asserted that the Company does not infringe the patents-in-suit and that the patents-in-suit are invalid. In 2010, the Company filed inter partes requests for reexamination with the United States Patent and Trademark Office (the “USPTO”), asserting that the patents-in-suit are invalid. As a result of the proceedings at the USPTO, the Court has stayed the litigation, with the parties advising the Court on status every 120 days.
As to the proceeding at the USPTO, reexamination has been ordered for all of the patents that Netlist alleged to infringe. At present, the USPTO has determined that almost all of the originally filed claims are not valid, and determined certain amended claims to be patentable. The Reexamination Certificate for U.S. Patent No. 7,532,537 was issued on August 2, 2016 based on amended claims. The Reexamination Certificate for U.S. Patent No. 7,636,274 was issued on November 5, 2018, indicating that all claims, 1 through 97, were cancelled. The parties continue to assert their respective positions with respect to the reexamination proceeding for U.S. Patent No. 7,619,912.
While the Company intends to defend the foregoing USPTO proceedings and lawsuit vigorously, the USPTO proceedings and litigation, whether or not determined in the Company’s favor or settled, could be costly and time-consuming and could divert management’s attention and resources, which could adversely affect the Company’s business.
Due to the nature of USPTO proceedings and litigation, the Company is currently unable to predict the final outcome of this lawsuit and therefore cannot determine the likelihood of loss nor estimate a range of possible loss. However, because of the nature and inherent uncertainties of litigation, should the outcome of these actions be unfavorable, the Company’s business, financial condition, results of operations or cash flows could be materially and adversely affected.
Inphi Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)
Claims Against ClariPhy
Certain customers of ClariPhy had made claims associated with matters occurring prior to the acquisition date, including a demand letter the Company received relating to products purchased by a customer from ClariPhy. A customer alleged that the products did not meet the specification or workmanship warranties provided in the agreement with ClariPhy, and requested reimbursement and damages. In July 2019, the Company settled the claim for an immaterial amount.
Indemnifications
In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to customers, vendors, lessors, investors, directors, officers, employees and other parties with respect to certain matters, including, but not limited to, losses arising out of the Company’s breach of such agreements, services to be provided by the Company, or from intellectual property infringement claims made by third-parties. These indemnifications may survive termination of the underlying agreement and the maximum potential amount of future payments the Company could be required to make under these indemnification provisions may not be subject to maximum loss clauses. The Company has not incurred material costs to defend lawsuits or settle claims related to these indemnifications. Accordingly, the Company has no liabilities recorded for these agreements as of September 30, 2019 and December 31, 2018.
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,” “will,” “intend,” “should,” “could,” “can,” “would,” “expect,” “believe,” “estimate,” “predict,” “potential,” “plan,” “anticipate,” “seek,” “future,” “strategy,” “likely,” or the negative of these terms, and similar expressions are 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 25G to 600G high speed analog semiconductor solutions, demand for our current products, our plans for future products and anticipated features and benefits thereof, expansion of our product offerings and business activities, enhancements of existing products, our ability to forecast demand and its effects, the impact of U.S. government export restrictions on Huawei, critical accounting policies and estimates, our expectations regarding our expenses and revenue, sources of revenue, our effective tax rate and tax benefits, the benefits of our products and services, our technological capabilities and expertise, our liquidity position and sufficiency thereof, including our anticipated cash needs and uses of cash, our ability to generate cash, our operating and capital expenditures and requirements and our needs for additional financing and potential consequences thereof, repatriation of cash balances from our foreign subsidiaries, our contractual obligations, our anticipated growth and growth strategies, including growing our end customer base, 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, our ability to qualify for tax holidays and incentives, 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®, iKON™, InphiNityCore™, ColorZ®, ColorZ-Lite™, Polaris™, Vega™, M200 LightSpeed-III™, Porrima™ and the Inphi logo are among the trademarks, registered trademarks, or service marks owned by Inphi.
Overview
Our Company
We are a fabless provider of high-speed analog and mixed signal semiconductor solutions for the communications and data center markets. 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 and data center 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 and data centers. We provide 25G to 600G high-speed analog semiconductor solutions for the communications market.
A detailed discussion of our business may be found in Part I, “Item 1. Business.” of our Annual Report on Form 10-K for the year ended December 31, 2018.
Quarterly Update
As discussed in more detail below, for the three and nine months ended September 30, 2019 compared to the three and nine months ended September 30, 2018, we delivered the following financial performance:
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Revenue increased by $16.2 million, or 21%, to $94.2 million in the three months ended September 30, 2019. In the nine months ended September 30, 2019, revenue increased by $54.8 million, or 26%, to $262.7 million.
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Gross profit as a percentage of revenue increased from 56% to 58% in the three and nine months ended September 30, 2019.
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Total operating expenses increased by $5.9 million, or 10%, to $65.4 million in the three months ended September 30, 2019. In the nine months ended September 30, 2019, total operating expenses increased by $10.3 million, or 6%, to $191.8 million.
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Loss from operations decreased by $5.2 million, to $10.9 million in the three months ended September 30, 2019. In the nine months ended September 30, 2019, loss from operations decreased by $25.3 million to $40.6 million.
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Loss per share decreased to $0.36 from $0.52 in the three months ended September 30, 2019. In the nine months ended September 30, 2019 loss per share decreased to $1.32 from $1.70.
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The increase in our revenue for the three months ended September 30, 2019 was primarily a result of higher level of consumption of our data center products and higher non-product revenue. In the nine months ended September 30, 2019, the increase in revenue was primarily due to higher consumption of data center and long haul metro products and higher non-product revenue.
The increase in gross profit as a percentage of revenue in the three and nine months ended September 30, 2019 was due to product and revenue mix.
Total operating expenses for the three and nine months ended September 30, 2019 increased year-over-year primarily due to an increase in stock-based compensation expense as a result of new equity grants. Our expenses primarily consist of personnel costs, which include compensation, benefits, payroll related taxes and stock-based compensation. 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 loss per share decreased primarily due to higher gross profit, partially offset by higher operating expenses. In addition, in the nine months ended September 30, 2019, provision for income tax increased due to benefit for income tax recognized in 2018 due to partial release of valuation allowance.
Our cash and cash equivalents were $151.1 million at September 30, 2019, compared with $172.0 million at December 31, 2018. Cash provided by operating activities was $75.0 million during the nine months ended September 30, 2019 compared to $48.4 million during the nine months ended September 30, 2018. Cash used in investing activities during the nine months ended September 30, 2019 was $78.1 million due to purchases of marketable securities of $216.1 million and property and equipment of $17.2 million and payments related to the purchase of intangible assets of $21.0 million, partially offset by maturities and sales of marketable securities of $179.2 million. Cash used in financing activities during the nine months ended September 30, 2019 was $17.8 million primarily due to minimum tax withholding paid on behalf of employees for net share settlement of $25.7 million and payments of obligations relating to equipment financing of $0.3 million, partially offset by proceeds from ESPP purchases and exercise of stock options of $8.3 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, allowance for distributors’ price discounts, valuation of equity securities, recognition and disclosure of fair value of convertible debt, 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, 2018. There have been no material changes in any of our critical accounting policies during the nine months ended September 30, 2019. On January 1, 2019, we adopted ASU 2016-02, Leases (Topic 842). The effects of this adoption are discussed in note 7 of Notes to Unaudited Condensed Consolidated Financial Statements.
Results of Operations
The following table sets forth a summary of our statements of income (loss) as a percentage of each line item to the revenue:
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Three Months Ended
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Nine Months Ended
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September 30,
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September 30,
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2019
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2018
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2019
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2018
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Revenue
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100
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%
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100
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%
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100
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%
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100
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%
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Cost of revenue
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42
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44
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42
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44
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Gross profit
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58
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56
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58
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56
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Operating expenses:
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Research and development
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47
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53
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51
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61
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Sales and marketing
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13
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14
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13
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16
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General and administrative
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9
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9
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9
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11
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Total operating expenses
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69
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76
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73
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88
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Loss from operations
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(11
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)
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(20
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)
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(15
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)
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(32
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)
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Interest expense
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(10
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)
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(11
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)
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(10
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)
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(11
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)
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Other income, net
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5
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2
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3
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3
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Loss before income taxes
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(16
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)
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(29
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)
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(22
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)
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(40
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)
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Provision (benefit) for income taxes
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1
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—
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1
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(4
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)
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Net loss
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(17
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)%
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(29
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)%
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(23
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)%
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(36
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)%
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Comparison of Three and Nine Months Ended September 30, 2019 and 2018
Revenue
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Three Months Ended September 30,
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Change
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2019
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2018
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Amount
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%
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(dollars in thousands)
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Revenue
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$
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94,231
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$
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78,009
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$
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16,222
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21
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%
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Nine Months Ended September 30,
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Change
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2019
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2018
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Amount
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%
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(dollars in thousands)
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Revenue
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$
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262,739
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$
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207,959
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$
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54,780
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26
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%
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Revenue for the three and nine months ended September 30, 2019 increased by $16.2 million and $54.8 million, respectively. Revenue for the three months ended September 30, 2019 increased primarily due to the increase in number of units sold partially offset by decrease in average selling price (“ASP”). Revenue for the three months ended September 30, 2019 increased due to the increase in revenue from data center products by $15.2 million and long haul and metro products by $2.5 million, partially offset by decrease in revenue from legacy products by $1.5 million. Number of units sold increased for the three months ended September 30, 2019 by 49% due to higher data center products sold. Due primarily to the higher mix and higher volume of data center products sold, the ASP was lower by approximately 26%. The majority of this change again was due to the change in mix of products sold in the third quarter of 2019 as compared to third quarter of 2018. In addition, non-product revenue increased by $8.3 million for the three months ended September 30, 2019 due to new license agreements, services provided and completion of milestones. The increase in direct costs associated with the non-product revenue, included in cost of revenue, was $2.5 million for the three months ended September 30, 2019.
Revenue for the nine months ended September 30, 2019 increased primarily due to increase in ASP. Revenue for the nine months ended September 30, 2019 increased primarily due to the increase in revenue from data center products by $41.1 million and long haul and metro products by $21.8 million, partially offset by decline in revenue from legacy products by $8.1 million. The ASP for the nine months ended September 30, 2019 increased by 20%. The increase in ASP was mainly from a decrease in the number of units sold of lower ASP products, such as legacy products, because of larger shipments to customers in the first quarter of 2018 due to end of life programs initiated in 2017. In addition, non-product revenue increased by $14.1 million for the nine months ended September 30, 2019 due to new license agreements, services provided and completion of milestones. The increase in direct costs associated with the non-product revenue, included in cost of revenue, was $5.3 million for the nine months ended September 30, 2019.
The U.S. government export restrictions on Huawei were implemented in the middle of our third quarter of 2019, limiting revenue from that customer. However, the effect of this restriction was not material to our revenue for the third quarter of 2019 and not expected to be material for the fourth quarter of 2019.
Cost of Revenue and Gross Profit
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Three Months Ended September 30,
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Change
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2019
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2018
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Amount
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%
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(dollars in thousands)
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Cost of revenue
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$
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39,749
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$
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34,547
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$
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5,202
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15
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%
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Gross profit
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$
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54,482
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$
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43,462
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$
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11,020
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25
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%
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Gross profit as a percentage of revenue
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58
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%
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56
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%
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—
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2
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%
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Nine Months Ended September 30,
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Change
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2019
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2018
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Amount
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%
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(dollars in thousands)
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Cost of revenue
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$
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111,517
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$
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92,340
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$
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19,177
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21
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%
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Gross profit
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$
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151,222
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|
$
|
115,619
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$
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35,603
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31
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%
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Gross profit as a percentage of revenue
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|
58
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%
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|
56
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%
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—
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2
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%
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Cost of revenue and gross profit for the three and nine months ended September 30, 2019 increased compared to the corresponding 2018 periods primarily due to higher revenue as discussed above. Gross profit as a percentage of revenue for both the three and nine months ended September 30, 2019 increased from 56% to 58% due mainly to product and revenue mix.
Research and Development
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Three Months Ended September 30,
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Change
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2019
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2018
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Amount
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%
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(dollars in thousands)
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Research and development
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|
$
|
44,895
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|
|
$
|
41,558
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|
$
|
3,337
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|
8
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%
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|
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|
Nine Months Ended September 30,
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|
Change
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|
|
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|
2019
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2018
|
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|
Amount
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|
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%
|
|
|
|
|
(dollars in thousands)
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|
Research and development
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|
$
|
133,999
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|
|
$
|
127,300
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|
|
$
|
6,699
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5
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%
|
Research and development expense for the three and nine months ended September 30, 2019 increased compared to the corresponding 2018 periods due to an increase in equity awards, which resulted in a $0.7 million and $3.1 million increase in stock-based compensation expense, respectively. Information technology, software tools expense and allocated expenses increased by $1.6 million and $2.9 million during the three and nine months ended September 30, 2019, respectively, due to increased design activities and higher engineering activities of operations group. Testing, laboratory supplies, packaging and pre-production engineering mask costs increased by $0.8 million and $2.2 million during the three and nine months ended September 30, 2019, respectively, due to an increase in research and development activities. These increases during the nine months ended September 30, 2019 were partially offset by a decrease in salary and employee benefits by $2.4 million due to engineering time included in cost of revenue related to projects for customers in 2019 and severance payments during the three months ended March 31, 2018.
Sales and Marketing
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|
Three Months Ended September 30,
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|
Change
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|
|
|
|
2019
|
|
|
2018
|
|
|
Amount
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%
|
|
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|
(dollars in thousands)
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|
Sales and marketing
|
|
$
|
12,311
|
|
|
$
|
10,819
|
|
|
$
|
1,492
|
|
|
|
14
|
%
|
|
|
|
Nine Months Ended September 30,
|
|
|
Change
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Amount
|
|
|
%
|
|
|
|
|
(dollars in thousands)
|
|
|
Sales and marketing
|
|
$
|
35,344
|
|
|
$
|
32,472
|
|
|
$
|
2,872
|
|
|
|
9
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%
|
Sales and marketing expense for the three and nine months ended September 30, 2019 increased primarily due to an increase in salary and stock-based compensation by $1.2 million and $2.0 million due to new equity grants and salary increases effective April 1, 2019. In addition, commission expense increased by $0.1 million and $0.6 million for the three and nine months ended September 30, 2019, respectively, due to higher revenue.
General and Administrative
|
|
|
Three Months Ended September 30,
|
|
|
Change
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Amount
|
|
|
%
|
|
|
|
|
(dollars in thousands)
|
|
|
General and administrative
|
|
$
|
8,165
|
|
|
$
|
7,134
|
|
|
$
|
1,031
|
|
|
|
14
|
%
|
|
|
|
Nine Months Ended September 30,
|
|
|
Change
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Amount
|
|
|
%
|
|
|
|
|
(dollars in thousands)
|
|
|
General and administrative
|
|
$
|
22,478
|
|
|
$
|
21,767
|
|
|
$
|
711
|
|
|
|
3
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%
|
General and administrative expenses for the three and nine months ended September 30, 2019 increased compared to the corresponding 2018 periods primarily due to increase in salary and stock-based compensation by $0.9 million and $1.9 million, respectively, due to new equity grants and new hires. In addition, professional fees increased by $0.5 million and $0.9 million during the three and nine months ended September 30, 2019, respectively, due to higher consulting activities and accounting fees. The increases were partially offset by a decrease in bad debts expense by $0.6 million recorded in the three months ended September 30, 2018. Also, during the nine months ended September 30, 2019, the loss on settlement claims related to the ClariPhy acquisition decreased by $1.8 million.
Provision for Income Tax
|
|
|
Three Months Ended September 30,
|
|
|
Change
|
|
|
|
2019
|
|
|
2018
|
|
|
Amount
|
|
%
|
|
|
|
(dollars in thousands)
|
|
Provision (benefit) for income taxes
|
|
$
|
619
|
|
|
$
|
(203
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)
|
|
$
|
822
|
|
|
|
(405%)
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
Change
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Amount
|
|
|
%
|
|
|
|
|
(dollars in thousands)
|
|
|
Provision (benefit) for income taxes
|
|
$
|
1,252
|
|
|
$
|
(8,406
|
)
|
|
$
|
9,658
|
|
|
|
(115
|
%)
|
We normally determine our interim provision for income tax 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 a pretax loss during the three and nine months ended September 30, 2019 and 2018 from our U.S. operations and will not recognize tax benefit of the losses due to the full valuation allowance established against deferred tax assets. Thus, a separate effective tax rate was applied to losses from the U.S. jurisdiction to compute our September 30, 2019 and 2018 interim tax provision.
The income tax expense of $0.6 million and $1.3 million for the three and nine months ended September 30, 2019 reflects an effective tax rate of (4.0%) and (2.1%), respectively. The effective tax rates for the three and nine months ended September 30, 2019 differed from the statutory rate of 21% primarily due to the change in valuation allowance, foreign income taxes paid 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.
The income tax benefit of $0.2 million and $8.4 million for the three and nine months ended September 30, 2018, reflects an effective tax rate of 0.9% and 10.2%, respectively. The effective tax rate for the three and nine months ended September 30, 2018 differed from the statutory rate of 21% 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. The income tax benefit for the nine months ended September 30, 2018, primarily consisted of the partial release of federal valuation allowance resulting from the transfer to developed technology in 2018 of an acquired in-process research and development asset which allowed the related deferred tax liability to be considered a source of income for realizing deferred tax assets, as well as the revaluation of the foreign deferred tax liability on the in-process research and development based on the foreign tax rates applicable to the anticipated reversal periods.
Liquidity and Capital Resources
As of September 30, 2019, we had cash, cash equivalents and investments in marketable securities of $424.8 million. Our primary uses of cash are to fund operating expenses, purchase inventory and acquire property and equipment and business acquisitions. 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 and 2016, 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:
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|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
(in thousands)
|
|
|
Net cash provided by operating activities
|
|
$
|
74,989
|
|
|
$
|
48,402
|
|
|
Net cash used in investing activities
|
|
|
(78,138
|
)
|
|
|
(31,957
|
)
|
|
Net cash used in financing activities
|
|
|
(17,751
|
)
|
|
|
(7,475
|
)
|
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
(20,900
|
)
|
|
$
|
8,970
|
|
Net Cash Provided by Operating Activities
Net cash provided by operating activities during the nine months ended September 30, 2019 primarily reflected depreciation and amortization of $73.4 million, stock-based compensation expense of $56.6 million, accretion of convertible debt and amortization of issuance expenses of $21.0 million, decreases in accounts receivable of $4.9 million, prepaid expenses and other assets of $0.8 million, increases in accounts payable of $2.6 million and other liabilities of $1.3 million, partially offset by a net loss of $59.5 million, net unrealized gain on equity investments of $2.1 million, increase in inventories of $23.7 million and decrease in deferred revenue of $1.0 million. Our accounts receivable decreased due to collections. Prepaid expenses and other current assets decreased due to usage. Our inventories and accounts payable increased due to build-up of inventories for future shipments. Our other liabilities increased mainly from estimated liabilities due to sales channel pricing. Our deferred revenue decreased due to services provided.
Net cash provided by operating activities during the nine months ended September 30, 2018 primarily reflected depreciation and amortization of $59.9 million, stock-based compensation expense of $47.5 million, accretion of convertible debt and amortization of issuance expenses of $19.6 million, decrease in accounts receivable of $19.6 million and prepaid expenses and other assets of $0.7 million and increase in accounts payable of $0.9 million, partially offset by a net loss of $74.1 million, deferred income taxes of $8.9 million, net unrealized gain on equity investments of $2.4 million, increase in inventory of $2.4 million, decreases in accrued expenses of $9.2 million and other liabilities of $1.1 million, and change in income tax payable/receivable of $1.6 million. Our accounts receivable decreased mainly due to collections. Our prepaid and other assets decreased due to amortization. Our inventories and accounts payable increased due to increased production volume for shipment in the fourth quarter of 2018. Our accrued expenses decreased mainly due to the timing of payment of employee-related expenses. Other liabilities decreased due to payment of liability to a customer related to the ClariPhy acquisition.
Net Cash Used in Investing Activities
Net cash used in investing activities during the nine months ended September 30, 2019 primarily consisted of purchases of marketable securities of $216.1 million and equity investment of $3.0 million, purchases of property and equipment of $17.2 million and payments related to the purchase of intangible assets of $21.0 million, partially offset by proceeds from maturities and sales of marketable securities of $179.2 million.
Net cash used in investing activities during the nine months ended September 30, 2018 primarily consisted of purchases of marketable securities of $177.0 million, purchases of property and equipment of $23.9 million, purchases of equity investments of $12.8 million, and payment of debt related to purchase of intangible assets of $17.2 million, partially offset by proceeds from maturities and sales of marketable securities of $196.4 million and proceeds from sale of equity investment of $2.4 million.
Net Cash Used in Financing Activities
Net cash used in financing activities during the nine months ended September 30, 2019 primarily consisted of minimum tax withholding paid on behalf of employees for net share settlement of $25.7 million and payment of obligations related to equipment financing of $0.3 million, partially offset by proceeds from the exercise of stock options and ESPP purchases of $8.3 million.
Net cash used in financing activities during the nine months ended September 30, 2018 primarily consisted of minimum tax withholding paid on behalf of employees for restricted stock of $13.8 million and payment of obligations related to equipment financing of $0.4 million, partially offset by proceeds from exercise of stock options and employee stock purchase plan of $6.4 million and repayment of long-term loan provided to a supplier of $0.3 million.
Operating and Capital Expenditure Requirements
Our principal source of liquidity as of September 30, 2019 consisted of $424.8 million of cash, cash equivalents and investments in marketable securities, of which $37.9 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 outstanding contractual obligations as of December 31, 2018 are included in our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on February 28, 2019. See note 16 in the Notes to Unaudited Condensed Consolidated Financial Statements for information regarding certain contractual obligations as of September 30, 2019.
Off-Balance Sheet Arrangements
As of September 30, 2019, we had no material off-balance sheet arrangements, other than certain noncancelable purchase obligations as discussed in note 16 in the Notes to Unaudited Condensed Consolidated Financial Statements.
Recent Authoritative Accounting Guidance
See note 2 of the Notes to Unaudited Condensed Consolidated Financial Statements for information regarding recently issued accounting pronouncements.