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EX-99.2 - EXHIBIT 99.2 - INPHI Corpex_176191.htm
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8-K/A - FORM 8-K/A - INPHI Corpiphi20200308_8ka.htm

Exhibit 99.3

 

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

On January 10, 2020, Inphi Corporation (the Company) completed the acquisition of eSilicon Corporation (eSilicon). Prior to the acquisition, eSilicon divested its memory business to Synopsys, Inc.

 

The following unaudited pro forma condensed combined financial information are based on the historical consolidated financial statements of the Company and historical financial statements of eSilicon after giving proforma effect to the divestiture of memory business by eSilicon which was acquired by Synopsys, Inc. and acquisition of eSilicon by the Company as described in the following paragraphs and accompanying notes. The unaudited pro forma condensed combined balance sheet is presented as if the acquisition had occurred on September 30, 2019. The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2019 and the twelve months ended December 31, 2018 are presented as if the acquisition occurred on January 1, 2018. The Company’s fiscal year end is December 31 while eSilicon’s fiscal year end is March 31. The unaudited pro forma condensed statement of operations for the year ended December 31, 2018 presents the Company’s results of operations for the year ended December 31, 2018 and eSilicon’s results of operations for year ended March 31, 2019. Due to different fiscal year ends of the Company and eSilicon, the pro forma condensed statements of operations for the year ended December 31, 2018 and nine months ended September 30, 2019 both include eSilicon’s results of operations for the three months ended March 31, 2019.  There were no unusual charges or adjustments to eSilicon’s gross profit, operating expenses or operating loss for the three months ended March 31, 2019.

 

Pursuant to the purchase method of accounting, the purchase price paid by the Company in connection with the acquisition has been preliminarily allocated to assets acquired and liabilities assumed based on their respective fair values. The Company’s management has determined the preliminary fair value of the intangible assets and tangible assets acquired and liabilities assumed at the acquisition date. Any differences between the fair value of the consideration issued and the fair value of the assets acquired and liabilities assumed are recorded as goodwill. Since these unaudited pro forma condensed combined financial statements have been prepared based on preliminary estimates of fair values, the final amounts recorded may differ materially from the information presented. The allocation of purchase consideration is subject to change based on further review of the fair value of the assets acquired and liabilities assumed.

 

The pro forma condensed combined financial information is presented for illustrative purposes only and are not necessarily indicative of the financial position or results of operations that would have been realized if the acquisition had been completed on the dates indicated, nor are they indicative of future operating results or financial position.

 

The unaudited pro forma condensed combined financial information does not reflect:

 

 

the costs to integrate the operations of the Company and eSilicon;

 

 

any cost savings, operating synergies or revenue enhancements that the combined company may achieve as a result of the acquisition; or

 

 

the costs necessary to achieve any such cost savings, operating synergies and revenue enhancements.

 

The unaudited pro forma condensed combined financial information should be read in conjunction with (a) accompanying notes to the unaudited pro forma condensed combined financial information, (b) the Company’s annual report on Form 10-K for the year ended December 31, 2018 and its Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 and other filings with the Securities and Exchange Commission, and (c) eSilicon Corporation historical financial statements and notes thereto filed herewith.

 

 

 

 

Unaudited Pro Forma Condensed Combined Balance Sheet

As of September 30, 2019

(Thousands of dollars)

 

                                           
   

Inphi Corporation Historical

   

eSilicon Corporation Historical

(Note 3)

   

eSilicon Corporation Memory Operations (Note 1)

    Pro Forma Adjustments (Note 4)      

Inphi Corporation Pro Forma Combined

 
                                           

Assets

                                         

Current assets:

                                         

Cash and cash equivalents

  $  151,118     $  6,585     $  (112)     $  18,557  

(s)

  $  176,148  

Restricted cash

          2,100                     2,100  

Investments in marketable securities

    273,643                   (214,844)  

(a)

    58,799  

Accounts receivable, net

    54,829       7,042             (859)  

(s)

    61,012  

Unbilled receivables

          10       (10)                

Inventories

    56,715       19,598             5,005  

(b)

    77,801  
                              (3,517)  

(s)

       

Prepaid expenses and other current assets

    7,011       9,417       (263)       (1,646)  

(c)

    12,746  
                              (1,773)  

(s)

       

Total current assets

    543,316       44,752       (385)       (199,077)         388,606  

Property and equipment, net

    79,872       7,297       (210)       1,469  

(d)

    87,167  
                              (1,261)  

(s)

       

Goodwill

    104,502       11,368             53,186  

(e)

    176,094  
                              7,038  

(s)

       

Intangible assets, net

    142,165       647             154,037  

(f)

    294,366  
                              (2,483)  

(s)

       

Right of use assets, net

    10,823                   1,176  

(g)

    11,801  
                              (198)  

(s)

       

Other assets, net

    31,025       1,163       (311)       3  

(s)

    31,880  

Total assets

  $  911,703     $  65,227     $  (906)     $  13,890       $  989,914  
                                           

Liabilities and Stockholders’ Equity

                                         

Current liabilities:

                                         

Accounts payable

  $  27,568     $  12,490     $  (32)     $  (1,598)  

(h)

  $  46,056  
                              7,628  

(s)

       

Line of credit

          11,000             (11,000)  

(i)

     

Long-term debt, current portion

          15,974             (15,974)  

(i)

     

Deferred revenue

    4,390       14,652       (1,315)       687  

(j)

    11,865  
                              (6,549)  

(s)

       

Accrued employee expenses

    10,252       3,214       (317)       5,143  

(k)

    36,466  
                              18,174  

(s)

       

Other accrued expenses

    8,313       9,023       (483)       2,422  

(l)

    18,065  
                              (1,210)  

(s)

       

Deferred research and development reimbursement

          2,154       (387)       (1,767)  

(m)

     

Other current liabilities

    20,761                   10,579  

(n)

    28,590  
                              (2,750)  

(s)

       

Total current liabilities

    71,284       68,507       (2,534)       3,785         141,042  

Convertible debt

    468,840                           468,840  

Long-term debt, net of current portion

          833             (833)  

(i)

     

Convertible preferred stock warrant liability

          2,673             (2,673)  

(o)

     

Other long-term liabilities

    23,837       1,527       (443)       8,351  

(p)

    33,486  
                              214  

(s)

       

Total liabilities

    563,961       73,540       (2,977)       8,844         643,368  
                                           

Convertible preferred stock

          174,333             (174,333)  

(q)

     
                                           

Stockholders’ equity:

                                         

Common stock

    46       22             (22)  

(q)

    46  

Additional paid-in capital

    575,456       34,716             (34,716)  

(q)

    575,456  

Accumulated deficit

    (229,399)       (217,384)       2,071       214,117  

(r)

    (230,595)  

Accumulated other comprehensive income

    1,639                           1,639  

Total stockholders’ equity

    347,742       (182,646)       2,071       179,379         346,546  

Total liabilities and stockholders’ equity

  $  911,703     $  65,227     $  (906)     $  13,890       $  989,914  

 

 

See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Information

2

 

 

Unaudited Pro Forma Combined Statement of Operations

For the Nine Months Ended September 30, 2019

 (Thousands of dollars except per share amounts)

 

                                           
   

Inphi Corporation Nine Months Ended

September 30, 2019 Historical

    eSilicon Corporation Nine Months Ended September 30, 2019 Historical    

eSilicon Corporation Nine Months Ended

September 30, 2019 Memory Operations

(Note 1)

    Pro Forma Adjustments (Note 4)      

Inphi Corporation Pro Forma Combined Nine Months Ended

September 30, 2019

 

Revenue

  $ 262,739     $ 77,036     $ (5,221 )   $ 9,597  

(A)

  $ 344,151  

Cost of revenue

    111,517       44,040       (31 )     32,002  

(B)

    187,528  

Gross profit

    151,222       32,996       (5,190 )     (22,405 )       156,623  

Operating expenses:

                                         

Research and development

    133,999       34,994       (5,127 )     (2,515 )

(C)

    161,351  

Sales and marketing

    35,344       5,785             (4 )

(D)

    41,125  

General and administrative

    22,478       7,965       (436 )     (512 )

(D)

    29,495  

Impairment of assets

          2,387                     2,387  

Other income

          (5,180 )           5,180  

(A)

     

Total operating expenses

    191,821       45,951       (5,563 )     2,149         234,358  

Loss from operations

    (40,599 )     (12,955 )     373       (24,554 )       (77,735 )

Interest expense

    (25,946 )     (3,064 )           3,064  

(E)

    (25,946 )

Other income, net

    8,294       (146 )     (113 )     (4,263 )

(F)

    3,772  

Loss before income taxes

    (58,251 )     (16,165 )     260       (25,753 )       (99,909 )

Provision (benefit) for income taxes

    1,252       1,403       (867 )             1,788  

Net loss

  $ (59,503 )   $ (17,568 )   $ 1,127     $ (25,753 )     $ (101,697 )

Earnings per share:

                                         

Basic

  $ (1.32 )                             $ (2.26 )

Diluted

  $ (1.32 )                             $ (2.26 )

Weighted-average shares used in computing earnings per share:

                                         

Basic

    45,057,539                                 45,057,539  

Diluted

    45,057,539                                 45,057,539  

 

 

See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Information

3

 

 

Unaudited Pro Forma Condensed Combined Statement of Operations

For the Year Ended December 31, 2018

(Thousands of dollars except per share amounts)

 

 

   

Inphi Corporation Year Ended

December 31, 2018 Historical

   

eSilicon Corporation Year Ended

March 31, 2019

Historical

   

eSilicon Corporation Year Ended

March 31, 2019

Memory Operations (Note 1)

    Pro Forma Adjustments (Note 4)      

Inphi Corporation Pro Forma Combined

Year Ended

December 31, 2018

 

Revenue

  $ 294,490     $ 112,159     $ (8,899 )   $ 19,000  

(A)

  $ 416,750  

Cost of revenue

    129,345       68,144       (537 )     58,038  

(B)

    254,990  

Gross profit

    165,145       44,015       (8,362 )     (39,038 )       161,760  

Operating expenses:

                                         

Research and development

    167,924       56,915       (6,304 )     (13,993 )

(C)

    204,542  

Sales and marketing

    43,080       6,844       (1 )     9  

(D)

    49,932  

General and administrative

    28,302       11,673       (572 )     (524 )

(D)

    38,879  

Impairment of assets

          2,387                     2,387  

Other operating income

          (5,930 )           5,930  

(A)

     

Total operating expenses

    239,306       71,889       (6,877 )     (8,578 )       295,740  

Loss from operations

    (74,161 )     (27,874 )     (1,485 )     (30,460 )       (133,980 )

Interest expense

    (32,209 )     (3,334 )           3,334  

(E)

    (32,209 )

Other income, net

    2,408       578       18       (5,009 )

(F)

    (2,005 )

Loss before income taxes

    (103,962 )     (30,630 )     (1,467 )     (32,135 )       (168,194 )

Provision (benefit) for income taxes

    (8,211 )     1,811       (85 )             (6,485 )

Net loss

    (95,751 )     (32,441 )     (1,382 )     (32,135 )       (161,709 )

Deemed dividend related to repurchase of Series G-1 Convertible Preferred Stock

          868             (868 )

(G)

     

Net loss available to common stockholders

  $ (95,751 )   $ (31,573 )   $ (1,382 )   $ (33,003 )     $ (161,709 )

Earnings per share:

                                         

Basic

  $ (2.19 )                             $ (3.70 )

Diluted

  $ (2.19 )                             $ (3.70 )

Weighted-average shares used in computing earnings per share:

                                         

Basic

    43,690,581                                 43,690,581  

Diluted

    43,690,581                                 43,690,581  

 

 

See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Information 

4

 

 

Notes to the Unaudited Pro Forma Combined Financial Statements

(All dollar amounts in thousands)

 

1. General

 

On January 10, 2020, Inphi Corporation (the Company) completed the acquisition of eSilicon Corporation (eSilicon) for approximately $214.8 million in cash. Prior to the acquisition, eSilicon divested its memory business to Synopsys, Inc. and therefore, amounts related to memory business were eliminated in the unaudited pro forma condensed combined financial information.

 

The following table sets forth a preliminary allocation of the purchase consideration to the identifiable tangible and intangible assets acquired and liabilities assumed as of acquisition date:

 

Cash

  $ 25,030  
Restricted cash     2,100  

Accounts receivable

    6,183  

Inventories

    21,086  

Prepaid expenses and other current assets

    5,735  

Property and equipment

    7,295  

Intangible assets

    152,201  

Right of use asset

    978  

Other noncurrent assets

    855  

Accounts payable and accrued expenses

    (53,258 )

Deferred revenue

    (7,475 )
Other current liabilities     (7,829 )

Deferred tax liabilities, noncurrent

    (3,166 )

Other liabilities

    (6,483 )

Total identifiable net assets

  $ 143,252  
Goodwill     71,592  
Net assets acquired   $ 214,844  

  

 

 Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and is attributable to the work force of eSilicon, the Company’s going concern value with the opportunity to leverage its work force to develop new technologies and the ability of the Company to grow the business faster and more profitable than was possible by eSilicon as a stand-alone company. Goodwill is not amortized and is not deductible for tax purposes. The acquisition was structured as stock acquisition for income tax purposes. Therefore, none of the asset step-up or asset recognition required by purchase accounting, including the goodwill described above, is deductible for tax purposes.

 

The following table summarizes the estimated fair value of intangible assets and their estimated useful lives as of the date of acquisition:

 

 

      Estimated Fair Value       Estimated Useful Life (Years)  

Customer product manufacturing rights

  $ 106,110       4.0  

Developed technology

    33,880       8.0  
Licensed software intangible assets     12,211       1.4  
    $ 152,201          

 

5

 

Inphi Corporation

Notes to the Unaudited Pro Forma Combined Financial Statements

(All dollar amounts in thousands)

 

The preliminary estimates of fair value will likely be different from the final acquisition accounting, and the difference could have a material impact on the accompanying unaudited pro forma condensed financial statements.

 

2. Accounting Standards

 

The Company adopted Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606) and ASU 2016-02, Leases (Topic 842) effective January 1, 2018 and January 1, 2019, respectively. eSilicon’s historical financial statements do not include the effects of adoption of these standards. The preliminary pro forma financial statement adjustments discussed in note 4 below includes the effects of adoption of these standards to eSilicon.

 

3. Reclassification Adjustments

 

The financial information of eSilicon in the ‘Historical” column of the unaudited pro forma consolidated financial statements represents the reported balances of eSilicon reclassified to conform to the presentation in Inphi’s consolidated financial statements as follows:

 

 

Reclassified “Deferred contract costs” of $288 to “Prepaid expenses and other current assets”

 

Reclassified $3,214 and $2,799 of “Accrued Liabilities”  to “Accrued employee expenses” and “Deferred revenue” respectively.

 

Reclassified “Accrued contract costs” of $206 to “Other accrued expenses.”

  Reclassified “Deferred tax and other non-current assets” of $9,129 to “Other assets, net.”
  Reclassified “Deferred tax and other non-current liabilities” of $1,527 to “Other long-term liabilities.”

 

4. Pro Forma Financial Information Adjustments

 

The Unaudited Pro Forma Condensed Combined Balance Sheet has been adjusted as follows:

 

 

(a)

Adjustment to reflect the use of investments in marketable securities of $214,844 to purchase eSilicon.

 

 

(b)

Adjustment for step-up in fair value of inventory acquired from eSilicon.

 

 

(c)

Adjustments to record the following:

 

Adoption of ASU 2014-09, Revenue from Contracts with Customers

  $ (179 )

Eliminate prepaid expenses related to software license agreements

    (1,467 )
    $ (1,646 )

 

 

(d)

Adjustment for step-up in fair value of property and equipment acquired from eSilicon.

 

 

(e)

Adjustments to record the following:

 

Adjustment to eliminate recorded goodwill of eSilicon

  $ (11,368 )

Goodwill related to eSilicon acquisition

    64,554  
    $ 53,186  

 

 

(f)

Adjustments to record the following:

 

Recognize intangible assets from software license agreements

  $ 14,694  
Adjustment to eliminate recorded intangible asset of eSilicon     (647 )
Customer product manufacturing rights and developed technology acquired from eSilicon     139,990  
    $ 154,037  

 

 

(g)

Adjustment to recognize right of use asset from adoption of ASU 2016-02, Leases.

 

 

(h)

Adjustment to eliminate liabilities related to software license agreements.

 

 

(i)

Adjustment to eliminate line of credit and long-term debt of eSilicon. Prior to the acquisition, these debts were paid off by eSilicon.

 

6

 

Inphi Corporation

Notes to the Unaudited Pro Forma Combined Financial Statements

(All dollar amounts in thousands)

 

 

(j)

Adjustments to record the following:

 

Adoption of ASU 2014-09, Revenue from Contracts with Customers

  $ 2,425  

Adjustment to deferred revenue fair value

    (1,738 )
    $ 687  

 

 

(k)

Adjustment to record assumed severance cost liability.

 

 

(l)

Adjustments to record the following:

            

Eliminate accrued interest and bank charges related to the debt

  $ (489 )

Eliminate liabilities related to software license agreements and building leases

    (4,384 )

Accrual of transaction cost

    7,295  
    $ 2,422  

 

 

(m)

Adjustment from adoption of ASU 2014-09, Revenue from Contracts with Customers.

 

 

(n)

Adjustments to record the following:

 

Recognize liabilities from software license agreements

  $ 9,814  

Recognize liabilities from adoption of ASU 2016-02, Leases

    765  
    $ 10,579  

 

 

(o)

Adjustment to eliminate convertible preferred stock warrant liability.

 

 

(p)

Adjustments to record the following:

 

Recognize liabilities from software license agreements

  $ 4,880  

Recognize liabilities from adoption of ASU 2016-02, Leases

    411  

Deferred tax liabilities, noncurrent

    3,166  

Adjustment to eliminate deferred rent

    (39 )

Adjustment to eliminate accrued interest on debt paid by eSilicon prior to acquisition

    (67 )
    $ 8,351  

 

 

(q)

Adjustment to eliminate eSilicon's equity.

 

 

(r)

Adjustments to record the following:

            

Adjustment for accrual of transaction costs

  $ 7,295  

Eliminate accumulated deficit of eSilicon

    (221,412 )
    $ (214,117 )

 

 

(s)

Adjustment to conform to estimated fair value as of acquisition date.  See note 1.

 

The Unaudited Pro Forma Condensed Combined Statements of Operations has been adjusted as follows:

 

 

(A)

Adjustment from adoption of ASU 2014-09, Revenue from Contracts with Customers.

 

 

(B)

Adjustments to record the following:

 

    Nine Months Ended September 30, 2019     Year Ended December 31, 2018  

Adoption of ASU 2014-09, Revenue from Contracts with Customers

  $ 10,409     $ 29,195  
Eliminate historical depreciation of eSilicon     (2,937 )     (3,864 )

Depreciation of acquired property and equipment

    1,458       1,944  

Amortization of acquired intangibles

    23,072       30,763  
    $ 32,002     $ 58,038  

 

7

 

Inphi Corporation

 

 

Notes to the Unaudited Pro Forma Combined Financial Statements

(All tabular dollar amounts in thousands)

 

 

(C)

Adjustments to record the following:

 

    Nine Months Ended September 30, 2019     Year Ended December 31, 2018  

Adoption of ASU 2014-09, Revenue from Contracts with Customers

  $ (2,307 )   $ (13,995 )
Eliminate historical depreciation of eSilicon     (512 )     (733 )

Depreciation of acquired property and equipment

    304       735  
    $ (2,515 )   $ (13,993 )

 

 

(D)

Adjustments to depreciation of property and equipment as follows:

 

Sales and Marketing

 

Nine Months Ended September 30, 2019

   

Year Ended December 31, 2018

 

Eliminate historical depreciation of eSilicon

  $ (21 )   $ (20 )

Depreciation of acquired property and equipment

    17       29  
    $ (4 )   $ 9  
                 

General and Administrative

               

Eliminate historical depreciation of eSilicon

  $ (720 )   $ (1,066 )

Depreciation of acquired property and equipment

    208       542  
    $ (512 )   $ (524 )

 

 

(E)

Eliminate interest expense on eSilicon’s long-term debt that was paid.

 

 

(F)

Adjustments to record the following:

  

   

Nine Months Ended September 30, 2019

   

Year Ended December 31, 2018

 

Eliminate other income related to eSilicon's debt and warrants

  $ (187 )   $ (585 )

Reduction in interest income related to the consideration paid

    (4,076 )     (4,424 )
    $ (4,263 )   $ (5,009 )

 

 

(G)

Eliminate deemed dividend related to repurchase of Series G-1 Convertible Preferred Stock

 

8