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Table of Contents

 



 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


Form 10-Q


 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

For the quarterly period ended September 30, 2020

Or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number 001-34942

 

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Inphi Corporation

(Exact Name of Registrant as Specified in Its Charter)

 

 

Delaware

 

77-0557980

(State or Other Jurisdiction
of Incorporation or Organization)

 

(I.R.S. Employer
Identification No.)

 

110 Rio Robles 

San Jose, California 95134

(Address of Principal Executive Offices) (Zip Code)

 

Registrant’s telephone number, including area code: (408217-7300

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 par value per share

IPHI

The Nasdaq Stock Market LLC

 

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

 

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

 

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

 

Large accelerated filer  ☑

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company 

Emerging growth company 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

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

 

The total number of shares outstanding of the Registrant’s common stock, $0.001 par value per share, as of November 3, 2020 was 52,112,378.

 



 

 

 

INPHI CORPORATION

QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020

 

TABLE OF CONTENTS

 

 

 

Page

Note Regarding COVID-19 2  

PART I. FINANCIAL INFORMATION

3

 

Item 1.

Financial Statements

3

 

 

Unaudited Condensed Consolidated Balance Sheets at September 30, 2020 and December 31, 2019

3

 

 

Unaudited Condensed Consolidated Statements of Income (Loss) for the Three and Nine Months Ended September 30, 2020 and 2019

4

 

 

Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2020 and 2019

5

 

 

Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2020 and 2019

6

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019

7

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

8

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

26

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

33

 

Item 4.

Controls and Procedures

34

 

 

 

 

 

PART II. OTHER INFORMATION

35

 

Item 1.

Legal Proceedings

35

 

Item 1A.

Risk Factors

35

 

Item 6.

Exhibits

37

 

Signatures

 

 

 

 

NOTE REGARDING COVID-19

 

In March 2020, the World Health Organization declared the outbreak of coronavirus first reported in Wuhan, China (“COVID-19”), a pandemic, and the virus continues to spread in areas where we operate and sell our products and services. Several public health organizations have recommended, and many local governments have implemented, certain measures to slow and limit the transmission of the virus, including shelter in place and social distancing ordinances, which has resulted in a significant deterioration of economic conditions in many of the countries in which we operate.

 

The spread of the COVID-19 virus has caused us to modify our business practices, including implementing work-from-home policies and restricting travel by our employees, among other things.  In response to the outbreak of COVID-19, we have taken the following measures to date:

 

 

Implemented work-from-home and social distancing policies throughout our organization;

 

Suspended all company travel;

 

Issued $506.0 million in convertible senior notes due 2025 in a private placement to provide additional liquidity;

 

Expanded internet capacity at multiple global sites to enable work from home connectivity to our internal networks; 
 

Significantly increased the level of donations and planned contributions by year end towards COVID-19 medical support, supplies, and to abate hunger; and
 

Analyzed supply chain and enabled, in some situations, alternative sources and inventory movements to reduce supply chain risk.

 

COVID-19 has had a significant impact on the global economy, including accelerating a shift to cloud computing and driving a sharp increase in demand for bandwidth.  While we expect our business to continue to be favorably impacted by these phenomena, given the dynamic nature of COVID-19, we have considered its impact when developing our estimates and assumptions. Actual results and outcomes may differ from our estimates and assumptions.  Additionally, while the impact of the pandemic may increase demand for our products either in the short-term or in the long-term, it may also adversely affect our ability to meet that demand, as measures taken in response to the pandemic may affect the operations of our suppliers and customers, as their own workforces are disrupted.  As a result, our supply chain may be interrupted, and we may experience delays in the delivery of our product. 

 

The impact of the pandemic on our business, as well as the business of our suppliers and customers, and the additional measures that may be needed in the future in response to it, will depend on many factors beyond our control and knowledge. We will monitor the situation to determine what actions may be necessary or appropriate to address the impact of the pandemic, which may include actions mandated or recommended by federal, state or local authorities.

 

 

PART I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

 

INPHI CORPORATION

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

 

  

September 30,

  

December 31,

 
  

2020

  

2019

 
         

Assets

        

Current assets:

        

Cash and cash equivalents

 $147,907  $282,723 

Investments in marketable securities (amortized cost of $74,326 and $139,448 as of September 30, 2020 and December 31, 2019, respectively)

  75,077   140,131 

Accounts receivable, net

  95,239   60,295 

Inventories

  108,565   55,013 

Prepaid expenses and other current assets

  16,046   17,463 

Total current assets

  442,834   555,625 

Property and equipment, net

  126,177   79,563 

Goodwill

  181,688   104,502 

Intangible assets, net

  256,170   168,290 

Right of use assets, net

  32,263   33,576 

Other assets, net

  31,549   34,450 

Total assets

 $1,070,681  $976,006 
         

Liabilities and Stockholders’ Equity

        

Current liabilities:

        

Accounts payable

 $43,863  $18,771 

Deferred revenue

  3,238   3,719 

Accrued employee expenses

  17,983   13,164 

Other accrued expenses

  16,134   5,125 

Convertible debt

  107,699   217,467 

Other current liabilities

  43,717   33,531 

Total current liabilities

  232,634   291,777 
Convertible debt  400,426   258,711 

Other long-term liabilities

  64,940   78,917 

Total liabilities

  698,000   629,405 

Commitments and contingencies (Note 17)

          
         

Stockholders’ equity:

        

Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued

      

Common stock, $0.001 par value; 500,000,000 shares authorized; 52,062,081 and 45,909,466 issued and outstanding at September 30, 2020 and December 31, 2019, respectively

  52   46 

Additional paid-in capital

  661,586   587,862 

Accumulated deficit

  (290,524)  (242,807)

Accumulated other comprehensive income

  1,567   1,500 

Total stockholders’ equity

  372,681   346,601 

Total liabilities and stockholders’ equity

 $1,070,681  $976,006 

 

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

 

3

 

 

INPHI CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(in thousands, except share and per share amounts)

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2020

   

2019

   

2020

   

2019

 

Revenue

  $ 180,691     $ 94,231     $ 495,413     $ 262,739  

Cost of revenue

    79,151       39,749       227,244       111,517  

Gross profit

    101,540       54,482       268,169       151,222  

Operating expenses:

                               

Research and development

    66,832       44,895       198,701       133,999  

Sales and marketing

    15,341       12,311       45,274       35,344  

General and administrative

    13,125       8,165       38,508       22,478  

Total operating expenses

    95,298       65,371       282,483       191,821  

Income (loss) from operations

    6,242       (10,889 )     (14,314 )     (40,599 )

Interest expense

    (8,266 )     (8,971 )     (27,325 )     (25,946 )
Loss on early extinguishment of debt     (149 )           (13,446 )      

Other income (expense), net

    (19 )     4,299       8,850       8,294  

Loss before income taxes

    (2,192 )     (15,561 )     (46,235 )     (58,251 )

Provision for income taxes

    1,188       619       1,482       1,252  

Net loss

  $ (3,380 )   $ (16,180 )   $ (47,717 )   $ (59,503 )

Earnings per share:

                               

Basic

  $ (0.07 )   $ (0.36 )   $ (0.97 )   $ (1.32 )

Diluted

  $ (0.07 )   $ (0.36 )   $ (0.97 )   $ (1.32 )
                                 

Weighted-average shares used in computing earnings per share:

                               

Basic

    51,971,621       45,517,862       48,986,248       45,057,539  

Diluted

    51,971,621       45,517,862       48,986,248       45,057,539  

 

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

 

4

 

 

INPHI CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2020

   

2019

   

2020

   

2019

 

Net loss

  $ (3,380 )   $ (16,180 )   $ (47,717 )   $ (59,503 )
                                 

Other comprehensive income (loss):

                               

Available for sale investments:

                               
Realized gain reclassified into earnings, net of tax                 (296 )      

Change in unrealized gain or loss

    (207 )     144       363       1,250  

Comprehensive loss

  $ (3,587 )   $ (16,036 )   $ (47,650 )   $ (58,253 )

 

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

 

5

 

 

INPHI CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

(in thousands, except share amounts) 

 

Nine Months Ended September 30, 2020

 

   

Common Stock

   

Additional Paid-in Capital

   

Accumulated Deficit

   

Accumulated Other Comprehensive Income

   

Total Stock- holders’ Equity

 
                                                 
   

Shares

   

Amount

                                 

Balance at December 31, 2019

    45,909,466     $ 46     $ 587,862     $ (242,807 )   $ 1,500     $ 346,601  

Issuance of common stock from exercise of stock options

    103,318             995                   995  

Issuance of common stock from restricted stock unit grant, net of shares withheld for tax

    60,651             (2,490 )                 (2,490 )

Issuance of common stock from employee stock purchase plan purchases

    74,896             4,112                   4,112  

Stock-based compensation expense

                24,029                   24,029  

Net loss

                      (20,286 )           (20,286 )

Other comprehensive loss, net

                            (895 )     (895 )

Balance at March 31, 2020

    46,148,331     $ 46     $ 614,508     $ (263,093 )   $ 605     $ 352,066  
                                                 

Issuance of common stock from exercise of stock options

    77,051             904                   904  

Issuance of common stock from restricted stock unit grant, net of shares withheld for tax

    702,180       1       (39,840 )                 (39,839 )

Conversion feature of convertible debt, net of issuance costs

                100,616                   100,616  

Purchase of capped calls

                (55,660 )                 (55,660 )

Impact of convertible debt repurchases

    4,942,490       5       (14,025 )                 (14,020 )

Conversion of convertible debt to common stock

    24                                

Stock-based compensation expense

                28,226                   28,226  

Net loss

                      (24,051 )           (24,051 )

Other comprehensive income, net

                            1,169       1,169  

Balance at June 30, 2020

    51,870,076     $ 52     $ 634,729     $ (287,144 )   $ 1,774     $ 349,411  
                                                 

Issuance of common stock from exercise of stock options

    27,055             285                   285  

Issuance of common stock from restricted stock unit grant, net of shares withheld for tax

    90,309             (6,234 )                 (6,234 )

Issuance of common stock from employee stock purchase plan purchases

    53,996             3,781                   3,781  

Stock-based compensation expense

                29,046                   29,046  
Conversion of convertible debt to common stock     20,645             (21 )                 (21 )

Net loss

                      (3,380 )           (3,380 )

Other comprehensive loss, net

                            (207 )     (207 )

Balance at September 30, 2020

    52,062,081     $ 52     $ 661,586     $ (290,524 )   $ 1,567     $ 372,681  

 

 

Nine Months Ended September 30, 2019

 

   

Common Stock

   

Additional Paid-in Capital

   

Accumulated Deficit

   

Accumulated Other Comprehensive Income

   

Total Stock- holders’ Equity

 
                                                 
   

Shares

   

Amount

                                 

Balance at December 31, 2018

    44,292,722     $ 44     $ 536,157     $ (169,896 )   $ 389     $ 366,694  

Issuance of common stock from exercise of stock options

    78,205             646                   646  

Issuance of common stock from restricted stock unit grant, net of shares withheld for tax

    168,227       1       (4,017 )                 (4,016 )

Issuance of common stock from employee stock purchase plan purchases

    121,549             3,477                   3,477  

Stock-based compensation expense

                18,758                   18,758  

Net loss

                      (22,745 )           (22,745 )

Other comprehensive income, net

                            540       540  

Balance at March 31, 2019

    44,660,703     $ 45     $ 555,021     $ (192,641 )   $ 929     $ 363,354  
                                                 

Issuance of common stock from exercise of stock options

    45,317             486                   486  

Issuance of common stock from restricted stock unit grant, net of shares withheld for tax

    695,379       1       (18,386 )                 (18,385 )

Stock-based compensation expense

                17,961                   17,961  

Net loss

                      (20,578 )           (20,578 )

Other comprehensive income, net

                            566       566  
Balance at June 30, 2019     45,401,399     $ 46     $ 555,082     $ (213,219 )   $ 1,495     $ 343,404  
                                                 
Issuance of common stock from exercise of stock options     65,923             775                   775  
Issuance of common stock from restricted stock unit grant, net of shares withheld for tax     96,717             (3,176 )                 (3,176 )
Issuance of common stock from employee stock purchase plan purchases     87,172             2,897                   2,897  
Stock-based compensation expense                 19,878                   19,878  
Net loss                       (16,180 )           (16,180 )
Other comprehensive income, net                             144       144  

Balance at September 30, 2019

    45,651,211     $ 46     $ 575,456     $ (229,399 )   $ 1,639     $ 347,742  

 

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

 

6

 

 

INPHI CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

   

Nine Months Ended September 30,

 
   

2020

   

2019

 
                 

Cash flows from operating activities

               

Net loss

  $ (47,717 )   $ (59,503 )

Adjustments to reconcile net loss to net cash provided by operating activities:

               

Depreciation and amortization

    93,235       73,358  

Stock-based compensation

    81,301       56,597  

Deferred income taxes

    1,158       936  

Accretion of convertible debt and amortization of debt issuance costs

    22,584       21,015  

Net unrealized gain on equity investments

    (1,943 )     (2,077 )
Realized gain on an equity investment     (4,999 )      

Amortization of premium (discount) on marketable securities

    47       (856 )

Loss on termination of software lease contracts

    3,370        
Loss on early extinguishment of debt     13,446        

Other noncash items

    126       323  

Changes in assets and liabilities, net of acquisition:

               

Accounts receivable

    (34,644 )     4,942  

Inventories

    (32,340 )     (23,663 )

Prepaid expenses and other assets

    21,191       785  

Income tax payable/receivable

    (153 )     215  

Accounts payable

    11,885       2,627  

Accrued expenses

    (9,903 )     (11 )

Deferred revenue

    (7,982 )     (1,042 )

Other liabilities

    2,281       1,343  

Net cash provided by operating activities

    110,943       74,989  
                 

Cash flows from investing activities

               

Purchases of property and equipment

    (52,515 )     (17,227 )

Purchases of marketable securities

    (41,909 )     (216,126 )

Sales of marketable securities

    65,588       21,920  

Maturities of marketable securities

    41,724       157,327  
Purchases of intangible assets     (628 )     (1,137 )

Purchase of equity investments

    (5,999 )     (3,000 )

Proceeds from eSilicon investment

    14,999        

Acquisitions of business, net of cash

    (223,731 )      

Net cash used in investing activities

    (202,471 )     (58,243 )
                 

Cash flows from financing activities

               

Proceeds from exercise of stock options

    2,177       1,907  

Proceeds from employee stock purchase plan purchases

    7,893       6,374  
Proceeds from issuance of convertible debt, net of cost     492,743        

Payment for convertible debt repurchases

    (410,002 )      

Payment of obligations related to equipment financing

    (278 )     (334 )
Payment of obligations related to purchase of intangible assets     (30,991 )     (19,895 )
Purchase of capped call options     (55,660 )      

Minimum tax withholding paid on behalf of employees for net share settlement

    (49,170 )     (25,698 )

Net cash used in financing activities

    (43,288 )     (37,646 )

Net decrease in cash and cash equivalents

    (134,816 )     (20,900 )

Cash and cash equivalents at beginning of period

    282,723       172,018  

Cash and cash equivalents at end of period

  $ 147,907     $ 151,118  
                 

Supplemental cash flow information:

               

Interest paid

  $ 3,660     $ 4,842  

Income taxes paid

    1,058       177  

Supplemental disclosure of non-cash investing and financing activities:

               

Software license intangible assets

    1,509       15,350  
Settlement of net receivable from eSilicon as part of purchase consideration     5,250        
Marketable equity investment acquired as settlement of receivable from customer           1,500  

 

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

 

7

 

Inphi Corporation

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 cloud 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 cloud 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.

 

On January 10, 2020, the Company completed the acquisition of eSilicon Corporation (“eSilicon”) for $214,644. The revenue and expenses of eSilicon from January 10, 2020 onwards are included in the condensed consolidated statement of income (loss).

 

On May 18, 2020, the Company purchased  certain assets and rights of  Arrive Technologies, Inc. ("Arrive") for $20,141.  The revenue and expenses related to this purchase from May 18, 2020 onwards are included in the condensed consolidated statement of income (loss).

 

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, 2019, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 2, 2020.

 

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, 2020, its consolidated results of operations and stockholders’ equity for the three and nine months ended  September 30, 2020 and 2019, and cash flows for the nine months ended September 30, 2020 and 2019. The results of operations for the three and nine months ended  September 30, 2020 are not necessarily indicative of the results to be expected for future quarters or the full year.

 

Use of Estimates and Judgments

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and judgments that affect the amounts reported and disclosed in the condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. On an ongoing basis, the Company evaluates its estimates and judgments compared to historical experience and expected trends. In March 2020, the outbreak of COVID-19 was declared a pandemic by the World Health Organization. While the nature of the situation is dynamic, the Company has considered the impact when developing its estimates and assumptions. Actual results and outcomes may differ from management's estimates and assumptions.

 

Revisions

 

As previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2019, in connection with the preparation of the Company’s 2019 year-end consolidated financial statements, a classification error in the Company’s previously issued consolidated statements of cash flows was identified. Specifically, it was determined that payments made under the Company’s multiyear agreements for the purchase of internal use intangible assets should have been classified as use of cash for financing activities and not as use of cash for investing activities as originally presented. Such classification error had no impact on the Company’s consolidated balance sheets, statements of income (loss), statements of comprehensive income (loss) or statements of stockholders’ equity. Although the Company assessed the materiality of the error and concluded that the error was not material to the previously issued annual or interim financial statements, the Company did revise its previously issued 2018 and 2017 annual financial statements to correct for such classification error in connection with the filing of its 2019 Annual Report on Form 10-K, and disclosed that it would be revising its unaudited quarterly condensed consolidated statements of cash flows in connection with the filing of its Quarterly Reports on Form 10-Q in fiscal year 2020.  In connection with the filing of this Quarterly Report on Form 10-Q, the Company has revised the accompanying 2019 unaudited condensed consolidated statement of cash flows to correct for such classification error. The effect of the revisions on the unaudited condensed consolidated statement of cash flows for the nine months ended September 30, 2019 was as follows: (i) cash used in investing activities decreased by $19,895 from $78,138 to $58,243, and (ii) cash used in financing activities increased by $19,895 from $17,751 to $37,646.  

 

Summary of Significant Accounting Policies

 

Refer to the Company’s Annual Report on Form 10-K for a summary of significant accounting policies. On January 1, 2020, the Company adopted Accounting Standards Codification (“ASC”) Topic 326, Measurement of Credit Losses on Financial Instruments (“ASC 326”), and accordingly, modified its policy on accounting for allowance for doubtful accounts on trade accounts receivable and available-for-sale debt securities as stated below. As described under the “Recent Accounting Pronouncements” below, the impact of adopting ASC 326 for the Company was not material.

 

There have been no other significant changes to the Company’s significant accounting policies during the three and nine months ended September 30, 2020.

 

Accounts Receivable

 

The Company performs ongoing credit evaluations of its customers and assesses each customer’s credit worthiness. The Company monitors collections and payments from its customers and maintains an allowance for doubtful accounts based upon applying an expected credit loss rate to receivables based on the historical loss rate from similar high risk customers adjusted for current conditions, including any specific customer collection issues identified, and forecasts of economic conditions. Delinquent account balances are written off after management has determined that the likelihood of collection is remote. The allowance for credit losses as of September 30, 2020 was $1,202.  The allowance for doubtful accounts as of December 31, 2019 was $1,152. The activities in this account, including the current-period provision for expected credit losses for the three and nine months ended September 30, 2020, were not material.

 

8

 

Inphi Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

 

Debt Securities

 

The Company performs an evaluation of its available-for-sale debt securities in unrealized loss position.  The Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis.  If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through the statement of income (loss).  For available-for-sale debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors.  In making this assessment, the Company considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors.  If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security.  If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis.  Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense.  Losses are charged against the allowance when the Company believes the uncollectibility of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met.  There was no allowance for credit loss as of September 30, 2020.  Accrued interest receivable on available-for-sale debt securities as of September 30, 2020 was $454 and excluded from the estimate of credit losses. Accrued interest receivable on available-for-sale debt securities is reported within Prepaid expenses and other current assets on the condensed consolidated balance sheets. Any interest accrued that is past due by more than 90 days is written off through reversal of interest income.

 

 

2. Recent Accounting Pronouncements

 

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASC 326, to replace the incurred loss methodology with an expected credit loss model that requires consideration of a broader range of information to estimate credit losses over the lifetime of the asset, including current conditions and reasonable and supportable forecasts in addition to historical loss information, to determine expected credit losses. Pooling of assets with similar risk characteristics and the use of a loss model are also required. Also, in April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, to clarify the inclusion of recoveries of trade receivables previously written off when estimating an allowance for credit losses. The guidance is effective for the Company beginning with fiscal year 2020, including interim periods. The adoption of this guidance 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 of significant unobservable inputs used to develop Level 3 fair value measurements. The guidance will be effective for fiscal years beginning after December 15, 2019. The Company adopted this guidance on January 1, 2020. 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 requiring a customer in a cloud computing arrangement under a service contract to follow the internal use software guidance in 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 adopted this guidance on January 1, 2020. The adoption of this standard did not have a material impact on the Company’s consolidated 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.  The Company adopted this guidance on January 1, 2020. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

 

In December 2019, the FASB issued guidance that simplifies the accounting for income taxes as part of FASB's overall initiative to reduce complexity in accounting standards. Amendments include removal of certain exceptions to the general principles of ASC 740, Income Taxes, and simplification in general other areas such as accounting for a franchise tax (or similar tax) that is partially based on income. The guidance will be effective for fiscal years beginning after December 15, 2020, though early adoption is permitted. The Company is currently evaluating the impact that this new guidance will have on its consolidated financial statements.

 

In August 2020, the FASB issued guidance that simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity.   The guidance will reduce the number of accounting models for convertible debt instruments and convertible preferred stock.  This will result in fewer embedded conversion features being separately recognized from the host contract compared with current GAAP. More convertible debt instruments will be reported as a single liability instrument, and more convertible preferred stock will be reported as a single equity instrument with no separate accounting for embedded conversion features.  FASB also made changes to the disclosures for convertible instruments and earnings-per-share guidance.  The guidance will be effective for fiscal years beginning after December 15, 2021, though early adoption is permitted. The Company is currently evaluating the impact that this new guidance will have on its consolidated financial statements.

 

 

3.  Acquisitions

 

eSilicon 

 

On January 10, 2020, the Company completed the acquisition of eSilicon for approximately $214,644. The Company acquired eSilicon to accelerate the Company’s roadmap in developing electro-optics solutions for cloud and telecommunications customers. An amount of $10,000 was placed in an escrow fund for 12 months (up to 36 months in certain circumstances) following the closing for the satisfaction of certain potential indemnification claims. The condensed consolidated financial statements include the results of operations of eSilicon from the acquisition date.

 

The acquisition has been accounted for using the purchase method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The Company allocated the purchase price to tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The fair value of identifiable intangible assets acquired was based on estimates and assumptions made by management at the time of acquisition. As additional information becomes available, such as finalization of the estimated fair value of tax related items, the Company may revise the preliminary purchase price allocation during the measurement period (which will not exceed 12 months from the acquisition date). Any such revisions or changes may be material as the Company finalizes the fair values of the tangible and intangible assets acquired and liabilities assumed.

 

 

Inphi Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

 

The following table summarizes the preliminary purchase price allocation as of the acquisition date:
 

Cash

 $704 

Restricted cash

  2,100 

Accounts receivable

  5,750 

Inventories

  21,086 

Prepaid expenses and other current assets

  21,012 

Property and equipment

  7,106 

Intangible assets

  148,720 

Right of use asset

  1,022 

Other noncurrent assets

  252 

Accounts payable

  (9,105)

Accrued expenses

  (25,060)

Deferred revenue

  (7,501)

Other current liabilities

  (13,886)

Other liabilities

  (3,567)

Total identifiable net assets

 $148,633 

Goodwill

  66,011 

Net assets acquired

 $214,644 

 

As of the acquisition date, the fair value of receivables, other assets, accounts payable, accrued expenses and other liabilities approximated the book value acquired.

 

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) 

Contract manufacturing rights

 $105,160   5.0 

Developed technology

  33,630   8.0 

Software

  9,930   0.5 to 2.0 
  $148,720     

 

Developed technology was valued using the multi-period excess earnings method under the income approach. This method involves discounting the direct cash flows expected to be generated by the technologies over their remaining lives, net of returns on contributory assets. The estimated useful life was determined based on the technology cycle related to product family and its expected contribution to forecasted revenue. Contract manufacturing rights were valued using a multi-period excess earnings method, which involved discounting the direct cash flow expected to be generated by these rights over their remaining economic lives, net of returns on contributory assets. The estimated useful life was determined to be five years based on the estimated life of the product, assuming that the existing customers will remain with the Company until the product becomes obsolete.  The cash flows for the two intangible assets were distinctly separate and bifurcated for the purposes of the valuation of each asset.

 

Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and is attributable to the workforce of eSilicon, the Company’s going concern value with the opportunity to leverage its workforce 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 Company incurred acquisition costs of $1,550, of which $1,015 was incurred in the year ended  December 31, 2019 and $535 was included in general and administrative expense in the condensed consolidated statement of income (loss) for the nine months ended September 30, 2020.

 

eSilicon contributed revenue of $31,455 and pre-tax income of $1,108 to the Company for the three months ended September 30, 2020.  eSilicon contributed revenue of $91,306 and pre-tax loss of $13,884 for the period from January 10, 2020 to September 30, 2020.  

 

Prior to the acquisition, the Company owned a minority equity interest in eSilicon.  The fair value of the equity interest immediately before the acquisition date was $14,999, which resulted in a gain of $4,999 and was included in Other income, net in the condensed consolidated statement of income (loss) for the nine  months ended September 30, 2020.  The fair value was determined based on the proceeds received as a holder of eSilicon's preferred stock.

 

Arrive 

 

On May 18, 2020, the Company purchased  certain assets and rights of Arrive for $20,141. The Company acquired Arrive for the purpose of expanding its presence into strategic geographic regions for talent acquisition.  An amount of $3,000 was withheld by the Company for 12 months  following the closing for the satisfaction of certain potential indemnification claims. The condensed consolidated financial statements include the results of operations of Arrive from the acquisition date.

 

10

 

Inphi Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

 

The acquisition has been accounted for using the purchase method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The Company allocated the purchase price to tangible and intangible assets acquired based on their estimated fair values. The fair value of the identifiable intangible asset acquired was based on estimates and assumptions made by management at the time of acquisition. As additional information becomes available, such as finalization of the estimated fair value of tax related items, the Company may revise the preliminary purchase price allocation during the measurement period (which will not exceed 12 months from the acquisition date). Any such revisions or changes may be material as the Company finalizes the fair values of the tangible and intangible assets acquired.
 
The following table summarizes the preliminary purchase price allocation as of the acquisition date:
 

Inventories

 $126 

Intangible asset

  8,840 

Total identifiable net assets

  8,966 

Goodwill

  11,175 

Net assets acquired

 $20,141 

     

The estimated fair value of developed technology was $8,840 with an estimated useful life of five years.  The developed technology was valued using the multi-period excess earnings method under the income approach. This method involves discounting the direct cash flows expected to be generated by the technologies over their remaining lives, net of returns on contributory assets. The estimated useful life was determined to be five years based on the estimated life of the product, assuming that the existing customers will remain with the Company until the product becomes obsolete.  

 

Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and is attributable to the workforce of Arrive, the Company’s going concern value with the opportunity to leverage its workforce to develop new technologies and the ability of the Company to grow the business faster and more profitable than was possible by Arrive as a stand-alone company. Since this is an asset purchase agreement, the goodwill is amortized and is deductible for tax purposes.

 

The Company incurred acquisition costs of $180 included in general and administrative expense in the condensed consolidated statement of income (loss) for the nine months ended September 30, 2020.

 

Arrive contributed revenue of $975 and pre-tax loss of $1,087 to the Company for the three months ended September 30, 2020.  Arrive contributed revenue of $1,546 and pre-tax loss of $1,207 to the Company for the period from May 18, 2020 to September 30, 2020.  

 

Pro Forma Information

 

The following unaudited pro forma financial information presents a summary of the Company’s condensed consolidated results of operations for the three and nine months ended September 30, 2020 and 2019, assuming the eSilicon and Arrive acquisitions have been completed as of January 1, 2019. The pro forma information includes adjustments to revenue, amortization and depreciation for intangible assets and property and equipment acquired, amortization of the purchase accounting effect on inventory acquired from eSilicon and interest income for reduction in short-term investments to fund the acquisition.

 

  

Pro Forma Three Months Ended

  

Pro Forma Nine Months Ended

 
  

September 30, 2020

  

September 30, 2019

  

September 30, 2020

  

September 30, 2019

 
  

(unaudited)

 

(unaudited)

 

Revenue

 $180,691  $121,206  $502,892  $344,433 

Net loss

 $(2,447) $(25,497) $(50,328) $(110,400)

 

The unaudited pro forma financial information was prepared using the acquisition method of accounting and are based on the historical financial information of the Company, eSilicon and Arrive, reflecting the results of operations for the three and nine months ended September 30, 2020 and 2019. The unaudited pro forma financial information is not necessarily indicative of what the Company’s consolidated results of operations actually would have been had the Company completed the acquisitions as of the beginning of the period presented. In addition, the unaudited pro forma financial information does not purport to project the future results of operations of the combined company nor do they reflect the expected realization of any cost savings associated with the acquisitions.

 

 

Inphi Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

 

 

4. Investments

 

The following table summarizes the investments in marketable securities by investment category: 

 

   

September 30, 2020

   

December 31, 2019

 
   

Cost

   

Fair Value

   

Cost

   

Fair Value

 

Available-for-sale securities:

                               

U.S. Treasury securities

  $     $     $ 3,752     $ 3,759  

Municipal bonds

    18,963       19,093       6,062       6,119  

Corporate notes/bonds

    49,325       49,925       118,859       119,449  

Asset backed securities

    2,500       2,520       4,239       4,268  

Commercial paper

    3,538       3,539       6,464       6,464  

Certificate of deposit

                72       72  

Total investments

  $ 74,326     $ 75,077     $ 139,448     $ 140,131  

 

As of September 30, 2020, there were no investments that had an unrealized loss position. 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 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, 2020 are presented in the following table:

 

   

Cost

   

Fair Value

 

Due in one year or less

  $ 58,928     $ 59,357  

Due between one and five years

    15,398       15,720  
    $ 74,326     $ 75,077  

 

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, 2020 was $1,804 and $190, respectively.  The fair value of the investment and unrealized loss as of December 31, 2019 was $1,662 and $332, respectively.  This investment is included in Other assets, net in 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 in the condensed consolidated statement of income (loss).  As of September 30, 2020, non-marketable equity investments had a carrying value of approximately $23,593, of which $11,093 was remeasured to fair value based on an observable transaction during the nine months ended September 30, 2020.  These investments are included in Other assets, net in the condensed consolidated balance sheets.  An unrealized gain of $1,801 was recorded in Other income and included as an adjustment to the carrying value of non-marketable equity investments for the nine months ended September 30, 2020.

 

 

5. Inventories

 

Inventories consist of the following:

 

    September 30, 2020     December 31, 2019  

Raw materials

  $ 49,900     $ 18,593  
Work in process     36,178       19,081  
Finished goods     22,487       17,339  
    $ 108,565     $ 55,013  

 

 

6. Property and Equipment, net

 

Property and equipment consist of the following:

 

  September 30, 2020  December 31, 2019 

Laboratory and production equipment

 $183,647  $144,866 

Office, software and computer equipment

  46,261   37,241 

Furniture and fixtures

  1,869   1,617 

Leasehold improvements

  20,351   8,282 
   252,128   192,006 

Less accumulated depreciation and amortization

  (125,951)  (112,443)
  $126,177  $79,563 

 

 

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, 2020 was $6,540 and $19,805, respectively.  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.

  

As of September 30, 2020 and December 31, 2019, computer software costs included in property and equipment were $8,222 and $7,339, respectively. Amortization expense of capitalized computer software costs was $254 and $757 for the three and nine months ended  September 30, 2020, respectively.  Amortization expense of capitalized computer software costs was $94 and $280 for the three and nine months ended  September 30, 2019, respectively. 

 

Property and equipment not yet paid in cash as of September 30, 2020 and December 31, 2019 was $11,010 and $4,728, respectively.

 

 

7. Intangible Assets

 

The following table presents details of intangible assets:

 

  

September 30, 2020

  

December 31, 2019

 
  

Gross

  Accumulated Amortization  

Net

  

Gross

  Accumulated Amortization  

Net

 

Developed technology

 $229,270  $144,368  $84,902  $186,800  $123,365  $63,435 

Customer relationships

  70,540   38,704   31,836   70,540   31,409   39,131 
Contract manufacturing rights  102,388   14,795   87,593          

Trade name

  2,310   1,974   336   2,310   1,766   544 

Patents

  1,579   1,086   493   1,579   1,010   569 

Software

  79,075   28,065   51,010   74,022   9,411   64,611 
  $485,162  $228,992  $256,170  $335,251  $166,961  $168,290 

 

The following table presents amortization of intangible assets for the three and nine months ended  September 30, 2020 and 2019:

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2020

  

2019

  

2020

  

2019

 

Cost of goods sold

 $12,380  $9,724  $35,938  $29,172 

Research and development

  7,083   5,806   20,667   16,722 

Sales and marketing

  2,432   2,432   7,296   7,296 

General and administrative

  93   147   285   445 
  $21,988  $18,109  $64,186  $53,635 

 

Based on the amount of intangible assets subject to amortization at September 30, 2020, the expected amortization expense for each of the next five fiscal years and thereafter is as follows:

 

2020 (remaining)

 $21,942 

2021

  80,982 

2022

  69,614 

2023

  42,365 

2024

  27,122 

Thereafter

  14,145 
  $256,170 

 

The weighted-average amortization periods remaining by intangible asset category were as follows (in years):

 

Developed technology

  4.4 

Customer relationship

  3.3 
Contract manufacturing rights  4.3 

Trade name

  1.2 

Patents

  7.2 

Software

  2.0 

 

 

Inphi Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

 

 

8. Leases

 

The Company has operating leases for office facilities. The leases have remaining lease terms of one year to ten years and some may include options to extend the lease for up to five years.

 

Information related to operating leases are as follows:

 

  Three Months Ended September 30,  Nine Months Ended September 30, 
  

2020

  

2019

  

2020

  

2019

 

Operating lease cost

 $2,394  $1,170  $6,920  $3,268 

Cash paid for leases

  1,820   1,028   5,147   3,219 

Right of use assets obtained in exchange for lease obligations

  418   2,927   4,161   3,151 

 

Weighted average remaining lease term and weighted average discount are as follows:

 

  

September 30, 2020

  

December 31, 2019

 

Weighted average remaining lease term (years)

  7.88   8.52 

Weighted average discount rate

  3.8%  3.9%

 

Future minimum lease payments under non-cancellable leases as of September 30, 2020 are as follows:

 

2020 (remaining)

 $1,785 

2021

  6,878 

2022

  7,087 

2023

  7,050 

2024

  6,734 

Thereafter

  23,984 

Total future minimum lease payments

  53,518 

Less: Imputed interest

  7,896 
Lease incentive recognized as offset to lease liability  3,139 

Present value of lease obligations

 $42,483 

 

 

 

 

Inphi Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

 

 

9. Product Warranty Obligation

 

As of  September 30, 2020 and December 31, 2019, the product warranty liability was $110. There was no change in product warranty liability during the three and nine months ended  September 30, 2020 and 2019.

 

 

10. Convertible Debt 

 

The carrying amount of the Company’s long-term debt consists of the following:

 

  September 30, 2020  December 31, 2019 

Principal

 $617,737  $517,500 

Less:

        

Unamortized debt discount

  (99,360)  (38,105)

Unamortized debt issuance costs

  (10,252)  (3,217)

Net carrying amount of long-term debt

  508,125   476,178 

Less current portion of long-term debt

  107,699   217,467 

Long-term debt, non-current portion

 $400,426  $258,711 

 

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.   

 

Interest expense for the Convertible Notes 2015 are as follows:

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2020

  

2019

  

2020

  

2019

 

Contractual interest expense

 $139  $650  $1,152  $1,936 

Amortization of debt discount

  686   2,960   5,426   8,627 

Amortization of debt issuance costs

  62   267   489   777 

Total interest expense

 $887  $3,877  $7,067  $11,340 

 

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 approximately 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”). 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.  

 

Interest expense for the Convertible Notes 2016 are as follows:

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2020

  

2019

  

2020

  

2019

 

Contractual interest expense

 $110  $541  $1,044  $1,608 

Amortization of debt discount

  855   3,682   7,504   10,732 

Amortization of debt issuance costs

  70   302   615   879 

Total interest expense

 $1,035  $4,525  $9,163  $13,219 

 

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.  

 

In April 2020, the Company issued $506,000 of 0.75% convertible senior notes due 2025 (“Convertible Notes 2020” and, together with the Convertible Notes 2015 and Convertible Notes 2016, the “Convertible Notes”). The Convertible Notes 2020 will mature April 15, 2025, unless earlier converted or repurchased. Interest on the Convertible Notes 2020 is payable on April 15 and October 15 of each year, beginning on October 15, 2020. The initial conversion rate is 8.0059 shares of common stock per $1 principal amount of Convertible Notes 2020, which represents an initial conversion price of approximately $124.91 per share.  The Convertible Notes 2020 will be subject to repurchase at the option of the holders following certain fundamental corporate changes, at a fundamental change in repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. The conversion rate will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. Certain corporate events that occur prior to the stated maturity date can cause the Company to increase the conversion rate for a holder.

 

Prior to the close of business on the business day immediately preceding October 15, 2024, holders may convert all or any portion of their Convertible Notes 2020 only under the following circumstances: (i) during any calendar quarter commencing after the calendar quarter ending on June 30, 2020 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock, for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price for the Convertible Notes 2020 on each applicable trading day; (ii) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price (as defined in the Indenture 2020 (as defined below)) per $1 principal amount of Convertible Notes 2020 for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the common stock and the conversion rate on each such trading day; (iii) if the Company calls any or all of the Convertible Notes 2020 for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or (iv) upon the occurrence of specified corporate events. On or after October 15, 2024 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their Convertible Notes 2020 at any time, regardless of the foregoing circumstances. Upon conversion of a Convertible Notes 2020, the Company will pay or deliver, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock, at the Company’s election. The Company's current intent is to settle the principal amount of the Convertible Notes 2020 in cash upon conversion. If the conversion value exceeds the principal amount, the Company would deliver shares of its common stock in respect to the remainder of its conversion obligation in excess of the aggregate principal amount.

 

The Company may not redeem the Convertible Notes 2020 prior to April 20, 2023. The Company may redeem for cash all or any portion of the Convertible Notes 2020, at its option, on or after April 20, 2023 if the last reported sale price of the common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the Convertible Notes 2020 to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

 

Upon the occurrence of certain fundamental changes, the holders of the Convertible Notes 2020 may require the Company to repurchase all or a portion of the Convertible Notes 2020 for cash at a price equal to 100% of the principal amount of the Convertible Notes 2020, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.  

 

16

 

Inphi Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

 

The Convertible Notes 2020 are governed by an Indenture dated April 24, 2020 (the “Indenture 2020”) between the Company and U.S. Bank National Association, as trustee (the “Trustee”). The Indenture 2020 does not contain any financial or operating covenants, or restrictions on the payments of dividends, the incurrence of indebtedness or the issuance or repurchase of securities by the Company or any of its subsidiaries.  The Indenture 2020 contains customary terms and covenants, including that upon certain events of default occurring and continuing, either the Trustee or the holders of not less than 25% in aggregate principal amount of the Convertible Notes 2020 then outstanding may declare 100% of the principal of and accrued and unpaid interest, if any, on all the Convertible Notes 2020, to be due and payable. Upon events of default involving specified bankruptcy events involving the Company, 100% of the principal of and accrued and unpaid interest, if any, on all of the Convertible Notes 2020 will be due and payable immediately.  Notwithstanding the foregoing, the Indenture 2020 provides that, to the extent the Company elects, the sole remedy for an event of default relating to certain failures by the Company to comply with certain reporting covenants in the Indenture 2020 consists exclusively of the right to receive additional interest on the Convertible Notes 2020.  As of September 30, 2020, none of the conditions allowing holders of the Convertible Notes 2020 to convert had been met.

 

In accounting for the issuance of the Convertible Notes 2020, the Company separated the Convertible Notes 2020 into liability and equity components. The carrying amount of the liability component was calculated by measuring the estimated fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the face value of the Convertible Notes 2020 as a whole. The excess of the face amount of the liability component over its carrying amount is amortized to interest expense over the term of the Convertible Notes 2020 using the effective interest method. The gross proceeds of $506,000 were accordingly allocated between long-term debt of $402,624 and stockholders' equity of $103,376.  Issuance costs of $13,507 were allocated between long-term debt of $10,747 and equity of $2,760

 

Interest expense for the Convertible Notes 2020 for the three and nine months ended September 30, 2020 are as follows:

 

  

Three Months Ended September 30, 2020

  

Nine Months Ended September 30, 2020

 

Contractual interest expense

 $1,042  $1,801 

Amortization of debt discount

  4,511   7,745 

Amortization of debt issuance costs

  469   805 

Total interest expense

 $6,022  $10,351 

 

In connection with the issuance of the Convertible Notes 2020, the Company entered into capped call transactions (“Capped Call 2020”) in private transactions. Under the Capped Call 2020, 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 2020, with a strike price approximately equal to the conversion price of the Convertible Notes 2020 and with a cap price equal to $188.54 per share. The Capped Call 2020 were purchased for $55,660 and recorded as a reduction to additional paid-in-capital in accordance with ASC 815-40, Contracts in Entity’s Own Equity.

 

The purchased Capped Call 2020 allows the Company to receive shares of its common stock and/or cash from counterparties equal to the amounts of common stock and/or cash related to the excess of the market price per share of the common stock, as measured under the terms of the Capped Call 2020 over the strike price of the Capped Call 2020 during the relevant valuation period. The purchased Capped Call 2020 is intended to reduce the potential dilution to common stock upon future conversion of the Convertible Notes 2020 by effectively increasing the initial conversion price to $188.54 as well as to offset potential cash payments the Company is required to make in excess of the principal amount of the Convertible Notes 2020 in applicable events.

 

The Capped Call 2020 is a separate transaction entered into by the Company with the option counterparties, is not part of the terms of the Convertible Notes 2020 and will not change the holders' rights under the Convertible Notes 2020.

 

During the three months ended June 30, 2020, the Company repurchased $180,454 and $223,090 aggregate principal amount of the Convertible Notes 2015 and Convertible Notes 2016, respectively.  During the three months ended September 30, 2020, the Company repurchased $2,219 aggregate principal amount of the Convertible Notes 2016.  The repurchase was accounted for as debt extinguishment.  The Company paid a total of $410,002 cash (excluding payment for accrued interest) and issued a total of 4,963,135 shares of common stock.  The total repurchase consideration was allocated to the liability and equity components of respective Convertible Notes.  The total repurchase consideration allocated to the liability component was based on the fair value of the liability component using discount rates based on the Company's estimated rate for a similar liability with the same maturity, but without the conversion option.  The repurchase consideration allocated to the equity component was calculated by deducting the fair value of the liability component from the aggregate repurchase consideration.  The loss on extinguishment was determined by comparing the allocated purchase consideration with the carrying value of the liability component, which includes the proportionate amounts of unamortized debt discount and the remaining unamortized debt issuance costs.  

 

     

 

17

 

Inphi Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

 

The net carrying amount of the liability component of the convertible debt immediately prior to the repurchase was as follows:

 

  

Convertible Notes 2015

  

Convertible Notes 2016

 

Principal

 $180,454  $225,309 

Unamortized debt discount

  (5,596)  (15,850)

Unamortized debt issuance costs

  (504)  (1,299)

Total

 $174,354  $208,160 

 

The loss on early extinguishment of debt is calculated as follows:

 

  

Convertible Notes 2015

  

Convertible Notes 2016

 

Repurchase consideration allocated to the liability component

 $177,622  $218,338 

Net carrying value of debt

  (174,354)  (208,160)

Loss on early extinguishment

 $3,268  $10,178 

 

The repurchase consideration allocated to the equity component of $299,458 and $272,348 for the Convertible Notes 2015 and Convertible Notes 2016, respectively, was recorded as a reduction to additional paid-in capital in the Company's balance sheet.  The total value of common stock issued in relation to the repurchases was $295,660 and $262,105 for the Convertible Notes 2015 and Convertible Notes 2016, respectively.

 

The conversion condition for the Convertible Notes 2015 and Convertible Notes 2016 was met during the three months ended September 30, 2020.  During the three months ended September 30, 2020, the Company received conversion requests on the aggregate principal amount for the Convertible Notes 2016 of $1,674, which remain unsettled as of  September 30, 2020.  

 

 

11. Other Liabilities

 

Other current liabilities consist of the following:

 

  September 30, 2020  December 31, 2019 

Software license agreements liability

 $25,292  $25,810 

Operating lease liability

  2,321   2,545 

Others

  16,104   5,176 
  $43,717  $33,531 

 

18

 

Inphi Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

 

Other long-term liabilities consist of the following:

 

  September 30, 2020  December 31, 2019 

Income tax payable

 $1,035  $692 

Software license agreements liability

  20,793   36,144 

Operating lease liability

  40,162   41,074 

Others

  2,950   1,007 
  $64,940  $78,917 

 

 

12. 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, 2020 and 2019 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, 2020 and 2019 interim tax provision.

 

The Company recorded an income tax provision of $1,188 and $1,482 in the three and nine months ended  September 30, 2020, respectively. The effective tax rates were (54.2%) and (3.2%) in the three and nine months ended  September 30, 2020, 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, windfall tax benefits from stock-based compensation and global intangible low-taxed income ("GILTI") inclusion. The income tax expense for the nine months ended September 30, 2020 included a reversal of certain unrecognized tax benefit as a result of the Internal Revenue Service exam conclusion with a no change report.  The reversal of the unrecognized tax benefit had no impact on the Company’s income tax provision as a result of the full federal valuation allowance.  The income tax expense for the nine months ended September 30, 2020 included an accrual for unrecognized tax benefit for foreign taxes and an income tax benefit for the remeasurement of certain net foreign deferred tax liability based on the renewed tax holiday period in Singapore.

 

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)

 

 During the three and nine months ended  September 30, 2020, the gross amount of the Company’s unrecognized tax benefits decreased approximately $1,203 and $4,856,  respectively.  The decrease for the three months ended September 30, 2020 was primarily a result of the remeasurement of certain foreign unrecognized tax benefits, partially offset by the results of tax positions taken during the current year.  The decrease for the nine months ended September 30, 2020 was primarily a result of the Internal Revenue Service exam conclusion and the remeasurement of certain foreign unrecognized tax benefits, partially offset by the results of tax positions taken during the current year.  Substantially all of the unrecognized tax benefits as of September 30, 2020, 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.

 

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was signed into law.  The CARES Act includes measures concerning income tax, employer payroll taxes, and loan programs.  The effect of the CARES Act is not expected to have a material impact on the Company’s consolidated financial statements and related disclosures.

 

 

13. 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 September 30,

   

Nine Months Ended September 30,

 
   

2020

   

2019

   

2020

   

2019

 

Common stock options

    711,969       999,357       777,721       1,061,221  

Unvested restricted stock units and market value stock units

    2,758,458       2,781,820       2,872,917       2,787,656  

Convertible debt

    6,402,006       10,830,038       9,091,074       10,830,038  
      9,872,433       14,611,215       12,741,712       14,678,915  

 

 

14. Stock–Based Compensation

 

In June 2010, the Company's Board of Directors (the “Board”) adopted the Company’s 2010 Stock Incentive Plan, which was amended and restated in July 2017 (the “2010 Plan”). 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, 2020, 5,695,657  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, 2020 and 2019.

 

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, 2019

  905,141  $13.68   1.81  $54,616 

Exercised

  (207,424) $10.53         
Outstanding at September 30, 2020  697,717  $14.62   1.29  $68,120 

Vested and Exercisable at September 30, 2020

  697,717  $14.62   1.29  $68,120 

 

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.

 

 

Inphi Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

 

The total intrinsic value of options exercised during the nine months ended September 30, 2020 and 2019 was $17,326 and $7,953, 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 $2,177 and $1,907 for the nine months ended September 30, 2020 and 2019, 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, and RSUs granted to non-employee directors after the initial grant vest on the first anniversary of the date of grant or immediately prior to the Company's next annual meeting of stockholders, if earlier. 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, 2019

  3,822,325  $41.38 

Granted

  1,426,180  $87.74 

Vested

  (1,350,279) $43.86 

Canceled

  (72,790) $55.49 

Outstanding at September 30, 2020

  3,825,436  $57.51 

Expected to vest at September 30, 2020

  3,786,642     

 

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.  As of September 30, 2020, the total performance-based units outstanding was 39,338.

 

Market Value Stock Units

 

In February 2020, the compensation committee of the Board approved long-term market value stock unit (“MVSU”) awards to certain executive officers and employees, subject to certain market and service conditions, in the maximum total amount of 346,201 units. Recipients may earn between 0% to 225% of the target number of shares based on the Company’s achievement of total shareholder return (“TSR”) in comparison to the TSR of companies in the S&P 500 Index over a period of approximately two years and three years in length.  The two-year and three-year MVSU grants will end on February 9, 2022 and 2023, respectively. If the Company’s absolute TSR is negative for the performance period, then the maximum number of shares that may be earned is the target number of shares.  The fair value of the MVSU awards was estimated using a Monte Carlo simulation model and compensation is being recognized ratably over the service period. The expected volatility of the Company’s common stock was estimated based on the historical average volatility rate over the two- and three-year periods. The dividend yield assumption was based on historical and anticipated dividend payouts. The risk-free interest rate assumption was based on observed interest rates consistent with two- and three-year measurement periods. The total amount of compensation to recognize over the service period, and the assumptions used to value the grants are as follows:

 

  

Two-Year Term

  

Three-Year Term

 

Total target shares

  53,448   101,775 

Fair value per share

 $119.90  $125.30 

Total amount to be recognized over the service period

 $6,408  $12,752 

Risk free interest rate

  1.41%  1.38%

Expected volatility

  41.37%  43.79%

Dividend yield

      

 

Employee Stock Purchase Plan

 

In December 2011, the Board adopted the Company's Employee Stock Purchase Plan, which was amended and restated in April 2015, and further amended and restated in April 2018 (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, 2020 and 2019 was 128,892 and 208,721, 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 September 30,

  

Nine Months Ended September 30,

 
  

2020

  

2019

  

2020

  

2019

 

Risk-free interest rate

  0.12%  1.93%  0.88%  2.26%

Expected life (in years)

  0.50   0.50   0.49   0.49 

Dividend yield

            

Expected volatility

  62%  39%  50%  43%

Estimated fair value

 $38.02  $16.50  $29.17  $13.35 

 

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 September 30,

  

Nine Months Ended September 30,

 
  

2020

  

2019

  

2020

  

2019

 

Cost of goods sold

 $2,136  $1,953  $6,033  $4,432 

Research and development

  16,484   10,297   45,995   30,954 

Sales and marketing

  5,858   4,312   16,320   11,729 

General and administrative

  4,568   3,316   12,953   9,482 
  $29,046  $19,878  $81,301  $56,597 

 

Total unrecognized compensation cost related to unvested restricted stock units at September 30, 2020, prior to the consideration of expected forfeitures, is approximately $185,745 and is expected to be recognized over a weighted-average period of 2.64 years.

 

 

15. 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, 2020 and December 31, 2019, 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 outstanding Convertible Notes as of  September 30, 2020 and  December 31, 2019 was $873,967 and $845,296, 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, 2020 

Total

  

Level 1

  

Level 2

 

Assets

            

Cash equivalents:

            

Money market funds

 $10,640  $10,004  $636 

Commercial paper

  17,028      17,028 

Investment in marketable debt securities:

            
Municipal bonds  19,093      19,093 

Corporate notes/bonds

  49,925      49,925 

Asset backed securities

  2,520      2,520 

Commercial paper

  3,539      3,539 
  $102,745  $10,004  $92,741 

 

December 31, 2019

 

Total

  

Level 1

  

Level 2

 

Assets

            

Cash equivalents:

            

Money market funds

 $190,598  $67,494  $123,104 

Commercial paper

  9,465      9,465 

Municipal bonds

  1,250      1,250 

Investments in marketable securities:

            

U.S. Treasury securities

  3,759   3,759    
Municipal bonds  6,119      6,119 

Corporate notes/bonds

  119,449      119,449 

Asset-backed securities

  4,268      4,268 

Commercial paper

  6,464      6,464 

Certificate of deposit

  72   72    
  $341,444  $71,325  $270,119 

 

As discussed in note 4, the Company has a marketable equity investment. The marketable equity investment is classified as Level 1 in the fair value hierarchy. As discussed in note 4, 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. 

 

 

16. 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 September 30,

  

Nine Months Ended September 30,

 
  

2020

  

2019

  

2020

  

2019

 

China

 $102,391  $34,503  $272,251  $110,769 

United States

  37,446   32,936   112,527   73,902 

Thailand

  21,286   14,816   54,017   41,661 

Other

  19,568   11,976   56,618   36,407 
  $180,691  $94,231  $495,413  $262,739 

 

 

Inphi Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

 

As of September 30, 2020, $65,765 of long-lived tangible assets are located outside the United States, of which $55,910 are located in Taiwan. As of December 31, 2019, $33,826 of long-lived tangible assets are located outside the United States, of which $27,750 are located in Taiwan.

 

 

17. 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, 2020, future minimum payments under the noncancelable agreements are as follows:

 

2020 (remaining)

 $243 

2021

  720 

2022

  69 

2023

  4 

2024

  2 

Total

 $1,038 

 

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, 2020, the total value of open purchase orders for wafers was approximately $39,308.  

 

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 Court of Appeals for the Federal Circuit decided the appeals of various parties, and affirmed the decision of the Patent Trial and Appeal Board on June 15, 2020 with respect to the reexamination proceeding for U.S. Patent No. 7,619,912.  The Patent Office is expected to proceed in a manner that is consistent with the decision of the Court of Appeals for the Federal Circuit.

 

While the Company intends to defend the lawsuit vigorously, in view of the USPTO and Federal Circuit proceedings, whether or not determined in the Company’s favor or settled, the lawsuit 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 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 eSilicon

 

In connection with the Company's acquisition of eSilicon, eSilicon and the Company have received written communications from certain former stockholders of eSilicon demanding to inspect eSilicon’s books and records and indicating that such stockholders will be seeking appraisal of shares they held in eSilicon. Certain of these former eSilicon stockholders also have stated that they may assert claims against eSilicon’s directors and senior officers for alleged breaches of fiduciary duty and other violations in connection with the merger between eSilicon and a subsidiary of the Company. The Company is unaware of any petition for appraisal and/or lawsuit being filed by any former eSilicon stockholder. The Company believes that the claims in such written communications are without merit, and plan to vigorously defend against lawsuits arising out of or relating to the merger agreement and/or the merger that may be filed in the future.

 

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, 2020 and December 31, 2019.

 

 

 

18. Subsequent Events

 

Pending Merger with Marvell Technology

 

On October 29, 2020, the Company entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with Marvell Technology Group Ltd., a Bermuda exempted company (“Marvell”), Maui HoldCo, Inc., a Delaware corporation and a wholly-owned subsidiary of Marvell (“HoldCo”), Maui Acquisition Company Ltd, a Bermuda exempted company and a wholly-owned subsidiary of HoldCo (“Bermuda Merger Sub”), and Indigo Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of HoldCo (“Delaware Merger Sub”), pursuant to which, subject to the terms and conditions of the Merger Agreement, Bermuda Merger Sub will merge with and into Marvell, with Marvell surviving the merger as a wholly-owned subsidiary of HoldCo (the “Bermuda Merger”), followed immediately by the merger of Delaware Merger Sub with and into the Company, with the Company surviving the merger as a wholly-owned subsidiary of HoldCo (the “Delaware Merger” and, together with the Bermuda Merger, the “Mergers”).  The Mergers will result in a combined company domiciled in the United States, with Marvell shareholders owning approximately 83% of the combined company, and the Company’s stockholders owning approximately 17% of the combined company.

 

Pursuant to the Merger Agreement, and upon the terms and subject to the conditions described therein, (i) at the effective time of the Bermuda Merger, all issued and outstanding common shares of Marvell (other than shares held by Marvell in Marvell’s treasury or held by HoldCo, Bermuda Merger Sub or any other subsidiary of Marvell) will be automatically converted into the right to receive one share of common stock of HoldCo (“HoldCo Common Stock”) and (ii) at the effective time of the Delaware Merger, all outstanding shares of common stock of the Company (other than (x) shares held by the Company (or held in the Company’s treasury) or held by Marvell, Delaware Merger Sub or any other subsidiary of Marvell or held, directly or indirectly, by any subsidiary of the Company or (y) shares with respect to which appraisal rights are properly exercised and not withdrawn under Delaware law) will be automatically converted into the right to receive 2.323 shares of HoldCo Common Stock and $66.0 in cash per share, without interest, plus cash in lieu of any fractional shares of HoldCo Common Stock.

 

If the Merger Agreement is terminated under certain circumstances, an alternative acquisition proposal had previously been made with respect to the Company, and within 12 months of the termination of the Merger Agreement, the Company enters into a definitive agreement for certain extraordinary corporate transactions or completes any such transaction, the Company would be obligated to pay Marvell a fee equal to $300,000. The Company would also be obligated to pay this fee if the Merger Agreement is terminated because of certain triggering events by the Company, including the Board changing or withdrawing its recommendation regarding the Mergers, or failing to reaffirm its’ support for the Mergers in certain circumstances. Additionally, the Company would be obligated to pay this fee if it elects to terminate the Merger Agreement to enter into certain superior acquisition transactions.

 

If the Merger Agreement is terminated because of certain triggering events by Marvell, including Marvell’s board of directors changing or withdrawing its recommendation regarding the Mergers, or failing to reaffirm its support for the Mergers in certain circumstances, Marvell would be obligated to pay the Company a fee equal to $400,000. Marvell would also be obligated to pay this fee if it elects to terminate the Merger Agreement to enter into certain superior acquisition transactions. Additionally, if the Merger Agreement is terminated due to failure to receive certain regulatory approvals or because of the existence of certain government orders or litigations, Marvell would be obligated to pay the Company a fee equal to $460,000.

 

If the Merger Agreement is terminated due to the failure to obtain the Company’s stockholder approval or Marvell’s shareholder approval, the party whose stockholders did not approve the transaction will be obligated to reimburse the other party for its fees, costs and other expenses related to the Merger Agreement (including legal fees, financial advisory fees, and consultant fees), up to a maximum of $25,000.

 

 

 

 

25

 

 

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 the potential benefits of the proposed acquisition by Marvell of us, including future financial and operating results, plans, objectives, expectations and intentions, the impact of the COVID-19 pandemic (including any changes in laws or regulations in reaction to same) on our personnel, on our suppliers, and on our customers and their respective end markets, 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, our competitive position, demand for our current products, our plans for future products and anticipated features and benefits thereof, expansion of our product offerings and business activities, our plans to expand international operations, enhancements of existing products, the benefits of outsourcing, our ability to forecast demand and its effects, the impact of U.S. government export restrictions on Huawei, our acquisitions and investments in other companies or technologies, including our acquisitions of eSilicon Corporation and Arrive Technologies, Inc. and the anticipated benefits thereof, 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, expectations regarding settlement of convertible notes, 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, and 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, risks related to the satisfaction of the conditions to closing the acquisition by Marvell of us (including the failure to obtain necessary regulatory and stockholder approvals) in the anticipated timeframe or at all, risks related to the ability to realize the anticipated benefits of the acquisition, including the possibility that the expected benefits to the combined company from the proposed acquisition will not be realized or will not be realized within the expected time period, disruption from the transaction making it more difficult to maintain business, contractual and operational relationships, the unfavorable outcome of any legal proceedings that have been or may be instituted against Marvell, us or the combined company, the ability to retain key personnel, negative effects of this announcement or the consummation of the proposed acquisition on the market price of the capital stock of us or Marvell, and on our and Marvell’s operating results, risks relating to the value of the HoldCo Common Stock to be issued in the transaction, significant transaction costs, fees, expenses and charges, unknown liabilities, the risk of litigation and/or regulatory actions related to the proposed acquisition, the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement, the impact of the COVID-19 pandemic, 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 changes 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, the risks set forth throughout this report, including the risks set forth under Part II, “Item 1A. Risk Factors” and the risks set forth from time to time in our filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2019.  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 do not intend 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, unless otherwise required by law.

 

All references to “Inphi,” “we,” “us” or “our” mean Inphi Corporation.

 

Inphi®, iKON™, InphiNityCore™, Canopus™, ColorZ®, ColorZ-Lite™, iMB™, OmniConnect™, Polaris™, Tri-rate®, Vega™, M200 LightSpeed-III™, Porrima™ and the Inphi logo are among the trademarks, registered trademarks, or service marks owned by Inphi.

 

Overview

 

COVID-19

 

In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic, and the virus continues to spread in areas where we operate and sell our products and services. Several public health organizations have recommended, and many local governments have implemented, certain measures to slow and limit the transmission of the virus, including shelter in place and social distancing ordinances, which has resulted in a significant deterioration of economic conditions in many of the countries in which we operate.

 

The impact of COVID-19 and the related disruptions caused to the global economy and our business did not have a material adverse impact on our business during the nine months ended September 30, 2020. During the nine months ended September 30, 2020, COVID-19 had a significant impact on the global economy, including accelerating the shift to cloud computing and driving a sharp increase in demand for bandwidth.  Our  operating results for the three and nine months ended September 30, 2020 were not significantly affected by the COVID-19 pandemic. However, the spread of the COVID-19 virus caused us to modify our business practices, including implementing work-from-home policies and restricting travel by our employees.  We also took certain actions in response to the pandemic, which are set forth above in “Note Regarding COVID-19.”

 

26

 

Looking forward, we believe that our business will continue to be favorably impacted by the increased demand for bandwidth caused by the impact of the COVID-19 pandemic, however, given the dynamic nature of COVID-19, we have considered its impact when developing our estimates and assumptions. Actual results and outcomes may differ from our estimates and assumptions.  Additionally, while the impact of the pandemic may increase demand for our products either in the short-term or in the long-term, it may also adversely affect our ability to meet that demand, as measures taken in response to the pandemic may affect the operations of our suppliers and customers, as their own workforces are disrupted.  As a result, our supply chain may be interrupted and we may experience delays in the delivery of our product.  The impact of the pandemic on the global economy and on our business, as well as on the business of our suppliers and customers, and the additional measures that may be needed in the future in response to it, will depend on many factors beyond our control and knowledge.  We will monitor the situation to determine what actions may be necessary or appropriate to address the impact of the pandemic, which may include actions mandated or recommended by federal, state or local authorities. 

 

Our Company     

 

We are a fabless provider of high-speed analog and mixed signal semiconductor solutions for the communications and cloud 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 cloud infrastructures. Our solutions provide a vital high-speed interface between analog and mixed 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 and mixed signal semiconductor solutions for the communications market.

 

In January 2020, we completed the acquisition of eSilicon Corporation (“eSilicon”) for approximately $214.6 million. A portion of the consideration has been placed in an escrow fund for up to 12 months (or up to 36 months in certain circumstances) following the closing for the satisfaction of certain indemnification obligations. We acquired eSilicon to accelerate our roadmap in developing electro-optics solutions for cloud and telecommunications customers.

 

In May 2020, we purchased certain assets and rights of Arrive Technologies, Inc. ("Arrive") for approximately $20.1 million.  A portion of the consideration was withheld for 12 months following the closing for the satisfaction of certain potential indemnification claims.  We acquired Arrive for the expansion of our presence into strategic geographic regions for talent acquisition.

 

In April 2020, we issued $506.0 million aggregate principal amount of our 0.75% Convertible Senior Notes due 2025 in a private placement.  We also repurchased some of our Convertible Notes 2015 and Convertible Notes 2016 during the nine months ended September 30, 2020.

 

 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, 2019.

 

Quarterly Update

 

As discussed in more detail below, for the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019, we delivered the following financial performance:

 

 

Revenue increased by $86.5 million, or 92%, to $180.7 million in the three months ended September 30, 2020. In the nine months ended September 30, 2020, revenue increased by $232.7 million, or 89%, to $495.4 million.

     
 

Gross profit as a percentage of revenue decreased from 58% to 56% in the three months ended September 30, 2020.  In the nine months ended September 30, 2020, gross profit as a percentage of revenue decreased from 58% to 54%.  

 

 

 

 

Total operating expenses increased by $29.9 million, or 46%, to $95.3 million in the three months ended September 30, 2020.  In the nine months ended September 30, 2020, total operating expenses increased by $90.7 million, or 47%, to $282.5 million.

 

 

Loss from operations decreased by $17.1 million to income from operations of $6.2 million in the three months ended September 30, 2020.  In the nine months ended September 30, 2020, loss from operations decreased by $26.3 million to $14.3 million.

 

 

During the nine months ended September 30, 2020, we repurchased and converted some of our Convertible Notes 2015 and Convertible Notes 2016 which resulted in a loss on early extinguishment of $13.4 million.

 

 

Loss per share decreased to $0.07 from $0.36 in the three months ended September 30, 2020.  In the nine months ended September 30, 2020, loss per share decreased to $0.97 from $1.32.

 

 

27

 

The increase in our revenue for the three months and nine months ended September 30, 2020 was primarily the result of increases in telecommunication, cloud and legacy products, including eSilicon products.

 

The decrease in gross profit as a percentage of revenue in the three and nine months ended September 30, 2020  was due to amortization of inventory fair value step-up of acquired inventories and amortization of acquired intangibles related to the eSilicon acquisition and change in product and revenue mix.

 

Total operating expenses for the three and nine months ended September 30, 2020 increased year-over-year primarily due to an increase in headcount and 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. From July 2019 to September 2020, our headcount increased by 102 new employees, primarily in the engineering department. In addition, the acquisitions of eSilicon and Arrive added 318 employees, including transition employees.  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 for the three months ended September 30, 2020 decreased primarily due to higher gross profit, partially offset by higher operating expenses and lower interest income and unrealized gain on equity investment. Our loss per share for the nine months ended September 30, 2020 decreased primarily due to higher gross profit, partially offset by higher operating expenses and loss on early extinguishment of debt.

 

Our cash and cash equivalents were $147.9 million at September 30, 2020, compared with $282.7 million at December 31, 2019.  Cash provided by operating activities was $110.9 million during the nine months ended September 30, 2020 compared to $75.0 million during the nine months ended September 30, 2019. Cash used in investing activities during the nine months ended September 30, 2020 was $202.5 million due to the acquisitions of business of $223.7 million, purchases of property and equipment of $52.5 million, marketable securities of $41.9 million, and equity investment of $6.0 million, partially offset by maturities and sales of marketable securities of $107.3 million, and proceeds from the eSilicon investment of $15.0 million. Cash used in financing activities during the nine months ended September 30, 2020 was $43.3 million primarily due to convertible debt repurchases of $410.0 million, payments of obligations relating to purchase of intangible assets of $31.0 million, minimum tax withholding paid on behalf of employees for net share settlement of $49.2 million, purchase of capped call options of $55.7 million, and payments of obligations relating to equipment financing of $0.3 million, partially offset by proceeds from convertible debt, net of cost of $492.7 million, proceeds from ESPP purchases and exercise of stock options of $10.1 million.

 

Recent Development

 

On October 29, 2020, we entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with Marvell Technology Group Ltd., a Bermuda exempted company (“Marvell”), Maui HoldCo, Inc., a Delaware corporation and a wholly-owned subsidiary of Marvell (“HoldCo”), Maui Acquisition Company Ltd, a Bermuda exempted company and a wholly-owned subsidiary of HoldCo (“Bermuda Merger Sub”), and Indigo Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of HoldCo (“Delaware Merger Sub”), pursuant to which, subject to the terms and conditions of the Merger Agreement, Bermuda Merger Sub will merge with and into Marvell, with Marvell surviving the merger as a wholly-owned subsidiary of HoldCo (the “Bermuda Merger”), followed immediately by the merger of Delaware Merger Sub with and into Inphi, with Inphi surviving the merger as a wholly-owned subsidiary of HoldCo (the “Delaware Merger” and, together with the Bermuda Merger, the “Mergers”).  The Mergers will result in a combined company domiciled in the United States, with Marvell shareholders owning approximately 83% of the combined company, and our stockholders owning approximately 17% of the combined company.

 

Pursuant to the Merger Agreement, and upon the terms and subject to the conditions described therein, (i) at the effective time of the Bermuda Merger, all issued and outstanding common shares of Marvell (other than shares held by Marvell in Marvell’s treasury or held by HoldCo, Bermuda Merger Sub or any other subsidiary of Marvell) will be automatically converted into the right to receive one share of common stock of HoldCo (“HoldCo Common Stock”) and (ii) at the effective time of the Delaware Merger, all outstanding shares of our common stock (other than (x) shares held by us (or held in our treasury) or held by Marvell, Delaware Merger Sub or any other subsidiary of Marvell or held, directly or indirectly, by any of our subsidiaries or (y) shares with respect to which appraisal rights are properly exercised and not withdrawn under Delaware law) will be automatically converted into the right to receive 2.323 shares of HoldCo Common Stock and $66.0 in cash per share, without interest, plus cash in lieu of any fractional shares of HoldCo Common Stock.

 

The Merger Agreement contains customary representations and warranties of Marvell and us relating to their and our respective businesses and public filings, in each case generally subject to a materiality and “Material Adverse Effect” qualifiers. Additionally, the Merger Agreement provides for customary pre-closing covenants of us, including a covenant to conduct its business in the ordinary course in all material respects and in accordance with past practice and to refrain from taking certain actions without Marvell’s consent. We have agreed not to solicit proposals, provide information to third parties, or enter into discussions, relating to alternative transaction proposals, or recommend or enter into agreements relating to certain specified alternative transactions, subject, to certain exceptions that would permit us to consider and recommend certain superior proposals if the failure to do so would be inconsistent with our board of directors’ fiduciary duties, or to terminate the Merger Agreement to accept certain superior proposals if the failure to do so would be inconsistent with our board of directors fiduciary duties.

 

Consummation of the Mergers is subject to various conditions, including, among others, (a) adoption of the Merger Agreement by our stockholders; (b) the approval of the Bermuda Merger by Marvell’s shareholders; (c) the effectiveness of a registration statement on Form S-4 to be filed with the SEC by HoldCo in connection with the issuance of HoldCo Common Stock in the Mergers; (d) the approval of the listing of HoldCo Common Stock on The Nasdaq Stock Market LLC; and (e) the expiration of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and certain other regulatory clearances. The obligation of each party to consummate the Mergers is also conditioned upon the other party’s representations and warranties being true and correct (subject to certain materiality exceptions), the other party having performed in all material respects its covenants and obligations under the Merger Agreement and the absence of a “Material Adverse Effect” on the other party (as defined in the Merger Agreement).

 

The Merger Agreement also provides the parties with rights to terminate the Merger Agreement in certain circumstances, including if the Mergers have not been consummated by June 29, 2021 (which may be extended up to March 1, 2022 in order to satisfy certain regulatory closing conditions), if either party fails to obtain the necessary approvals for the Mergers from its stockholders, or if there is an order permanently restraining, enjoining, or otherwise prohibiting either Merger.

 

If the Merger Agreement is terminated under certain circumstances, an alternative acquisition proposal had previously been made with respect to us, and within 12 months of the termination of the Merger Agreement, we enter into a definitive agreement for certain extraordinary corporate transactions or completes any such transaction, we would be obligated to pay Marvell a fee equal to $300.0 million. We would also be obligated to pay this fee if the Merger Agreement is terminated because of certain triggering events by us, including our board of directors changing or withdrawing its recommendation regarding the Mergers, or failing to reaffirm its’ support for the Mergers in certain circumstances. Additionally, we would be obligated to pay this fee if we elect to terminate the Merger Agreement to enter into certain superior acquisition transactions.

 

If the Merger Agreement is terminated because of certain triggering events by Marvell, including Marvell’s board of directors changing or withdrawing its recommendation regarding the Mergers, or failing to reaffirm its support for the Mergers in certain circumstances, Marvell would be obligated to pay us a fee equal to $400.0 million. Marvell would also be obligated to pay this fee if it elects to terminate the Merger Agreement to enter into certain superior acquisition transactions. Additionally, if the Merger Agreement is terminated due to failure to receive certain regulatory approvals or because of the existence of certain government orders or litigations, Marvell would be obligated to pay us a fee equal to $460.0 million.

 

If the Merger Agreement is terminated due to the failure to obtain our stockholder approval or Marvell’s shareholder approval, the party whose stockholders did not approve the transaction will be obligated to reimburse the other party for its fees, costs and other expenses related to the Merger Agreement (including legal fees, financial advisory fees, and consultant fees), up to a maximum of $25.0 million.

 

In connection with the Mergers, Marvell delivered to us a copy of (i) an executed 364-day bridge facility commitment letter, dated as of October 29, 2020, among Marvell, HoldCo and JPMorgan Chase Bank, N.A. (“JPMorgan”) and (ii) an executed facilities commitment letter, dated as of October 29, 2020, among Marvell, HoldCo and JPMorgan, pursuant to which JPMorgan has committed, subject to customary conditions, to lend initially to Marvell and on and after the closing date of the Mergers, HoldCo, up to $4,000.0 million of bridge and term loans for the purpose of funding the Mergers on the closing date (the “Debt Financing”). Marvell’s obligations pursuant to the Merger Agreement are not conditioned on Marvell obtaining the Debt Financing.

  

28

 

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 credit losses, 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.  In March 2020, the outbreak of COVID-19 was declared a pandemic by the World Health Organization.  While the nature of the situation is dynamic, the Company has considered the impact when developing its estimates and assumptions noted above.  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, 2019. There have been no material changes in any of our critical accounting policies during the nine months ended September 30, 2020. On January 1, 2020, we adopted ASU 2016-13, Credit Losses (Topic 326). The effects of this adoption are discussed in note 2 of the 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:

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2020

   

2019

   

2020

   

2019

 

Revenue

    100 %     100 %     100 %     100 %

Cost of revenue

    44       42       46       42  

Gross profit

    56       58       54       58  

Operating expenses:

                               

Research and development

    37       47       40       51  

Sales and marketing

    9       13       9       13  

General and administrative

    7       9       8       9  

Total operating expenses

    53       69       57       73  

Income (loss) from operations

    3       (11 )     (3 )     (15 )

Interest expense

    (5 )     (10 )     (6 )     (10 )
Loss on early extinguishment of debt                 (3 )      

Other income (expense), net

          5       2       3  

Loss before income taxes

    (2 )     (16 )     (10 )     (22 )

Provision for income taxes

          1             1  

Net loss

    (2 )%     (17 )%     (10 )%     (23 )%

 

 

Comparison of Three and Nine Months Ended September 30, 2020 and 2019

 

Revenue

 

   

Three Months Ended September 30,

   

Change

 
   

2020

   

2019

   

Amount

    %  
   

(dollars in thousands)

 

Revenue

  $ 180,691     $ 94,231     $ 86,460       92 %

 

   

Nine Months Ended September 30,

   

Change

 
   

2020

   

2019

   

Amount

   

%

 
   

(dollars in thousands)

 

Revenue

  $ 495,413     $ 262,739     $ 232,674       89 %

 

Revenue for the three and nine months ended September 30, 2020 increased by $86.5 million and $232.7 million, respectively, primarily due to an increase in the number of units sold, partially offset by a decrease in average selling price (“ASP”). Revenue for the three months ended September 30, 2020 increased primarily due to increases in revenue from cloud products by $39.3 million, telecommunication products by $29.8 million and legacy products by $17.4 million. The number of units sold increased for the three months ended September 30, 2020 by 725% primarily due to eSilicon products sold. The ASP decreased by 75% due to an increase in the number of units sold of lower ASP eSilicon products. This was partially offset by a decrease in non-product revenue by $3.7 million due to completion of certain license and nonrecurring engineering development agreements. 

 

In the nine months ended September 30, 2020, revenue increased primarily due to increases in revenue from cloud products by $121.6 million, telecommunication products by $74.9 million and legacy products by $36.1 million.  The number of units sold increased for the nine months ended September 30, 2020 by 578% primarily due to eSilicon products sold. The ASP decreased by 71% due to an increase in the number of units sold of lower ASP eSilicon products. In addition, non-product revenue increased by $6.3 million due to new license and nonrecurring engineering development agreements.

  

29

 

Cost of Revenue and Gross Profit

 

   

Three Months Ended September 30,

   

Change

 
   

2020

   

2019

   

Amount

    %  
   

(dollars in thousands)

 

Cost of revenue

  $ 79,151     $ 39,749     $ 39,402       99 %

Gross profit

  $ 101,540     $ 54,482     $ 47,058       86 %

Gross profit as a percentage of revenue

    56 %     58 %           (2 %)

 

   

Nine Months Ended September 30,

   

Change

 
   

2020

   

2019

   

Amount

   

%

 
   

(dollars in thousands)

 

Cost of revenue

  $ 227,244     $ 111,517     $ 115,727       104 %
Gross profit   $ 268,169     $ 151,222     $ 116,947       77 %

Gross profit as a percentage of revenue

    54 %     58 %           (4 %)

 

Cost of revenue and gross profit for the three and nine months ended September 30, 2020 increased 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, 2020 decreased due mainly to amortization of inventory fair value step-up related to acquired eSilicon inventories of $0.1 million and $4.5 million sold during the three and nine months ended September 30, 2020, respectively, and amortization of acquired intangibles of $6.2 million and $18.0 million for the three and nine months ended September 30, 2020, respectively.

 

  Research and Development

 

   

Three Months Ended September 30,

   

Change

 
   

2020

   

2019

   

Amount

    %  
   

(dollars in thousands)

 

Research and development

  $ 66,832     $ 44,895     $ 21,937       49 %

 

   

Nine Months Ended September 30,

   

Change

 
   

2020

   

2019

   

Amount

   

%

 
   

(dollars in thousands)

 

Research and development

  $ 198,701     $ 133,999     $ 64,702       48 %

 

Research and development expense for the three and nine months ended September 30, 2020 increased compared to the corresponding 2019 periods primarily due to increase in personnel costs and stock-based compensation of $13.6 million and $42.1 million, respectively, mainly as a result of the eSilicon acquisition, new hires and new equity awards granted to employees. Software tools expense increased by $1.4 million and $7.7 million for the three and nine months ended September 30, 2020, respectively, mainly due to new software license subscriptions and cost of termination of eSilicon contracts.  Information technology and allocated expenses increased by $4.1 million and $11.7 million for the three and nine months ended September 30, 2020, respectively, due to the eSilicon acquisition, increased design activities and higher engineering activities.  Testing, laboratory supplies, packaging and pre-production engineering mask costs increased by $2.3 million and $3.7 million for the three and nine months ended September 30, 2020, respectively, due to increased research and development activities.

 

 Sales and Marketing

 

   

Three Months Ended September 30,

   

Change

 
   

2020

   

2019

   

Amount

    %  
   

(dollars in thousands)

 

Sales and marketing

  $ 15,341     $ 12,311     $ 3,030       25 %

 

   

Nine Months Ended September 30,

   

Change

 
   

2020

   

2019

   

Amount

   

%

 
   

(dollars in thousands)

 

Sales and marketing

  $ 45,274     $ 35,344     $ 9,930       28 %

 

Sales and marketing expense for the three and nine months ended September 30, 2020 increased compared to the corresponding 2019 periods primarily due to increase in personnel costs and stock-based compensation by $2.5 million and $8.3 million, respectively, mainly as a result of the eSilicon acquisition, new hires and new equity awards granted to employees.  In addition, commission expense increased by $0.8 million and $1.2 million for the three and nine months ended September 30, 2020, respectively, due to higher revenue.  

 

 

 

30

 

General and Administrative

 

   

Three Months Ended September 30,

   

Change

 
   

2020

   

2019

   

Amount

    %  
   

(dollars in thousands)

 

General and administrative

  $ 13,125     $ 8,165     $ 4,960       61 %

 

   

Nine Months Ended September 30,

   

Change

 
   

2020

   

2019

   

Amount

   

%

 
   

(dollars in thousands)

 

General and administrative

  $ 38,508     $ 22,478     $ 16,030       71 %

 

General and administrative expenses for the three and nine months ended September 30, 2020 increased compared to the corresponding 2019 periods primarily due to increase in salary and stock-based compensation by $1.6 million and $6.5 million, respectively, mainly as a result of the eSilicon and Arrive acquisitions, new hires and new equity awards granted to employees.  Professional service fees increased by $2.1 million and $4.4 million for the three and nine months ended September 30, 2020, respectively, due to the acquisitions.  In addition, allocated expenses such as facility, human resources and information technology expenses increased by $0.7 million and $3.2 million for the three and nine months ended September 30, 2020, respectively, due to the acquisition of eSilicon and new building lease for the Company's head office in California.

 

Provision for Income Tax

 

   

Three Months Ended September 30,

   

Change

   

2020

   

2019

   

Amount

 

%

   

(dollars in thousands)

Provision for income taxes

  $ 1,188     $ 619     $ 569       92%  

 

   

Nine Months Ended September 30,

   

Change

 
   

2020

   

2019

   

Amount

   

%

 
   

(dollars in thousands)

 

Provision for income taxes

  $ 1,482     $ 1,252     $ 230       18 %

 

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, 2020 and 2019 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, 2020 and 2019 interim tax provision.

 

The income tax expense of $1.2 million and $1.5 million for the three and nine months ended September 30, 2020, respectively, reflects an effective tax rate of (54.2%) and (3.2%), respectively. The effective tax rates for the three and nine months ended September 30, 2020  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, windfall tax benefits from stock-based compensation, and GILTI inclusion. The income tax expense for the nine months ended September 30, 2020 included a reversal of certain unrecognized tax benefit as a result of the Internal Revenue Service exam conclusion with a no change report.  The reversal of the unrecognized tax benefit had no impact on the income tax provision as a result of the full federal valuation allowance. The income tax expense for the nine months ended September 30, 2020 included an accrual for unrecognized tax benefit for foreign taxes and an income tax benefit for the remeasurement of certain net foreign deferred tax liability based on the renewed tax holiday period in Singapore.

 

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.

 

31

 

Liquidity and Capital Resources

 

As of September 30, 2020, we had cash, cash equivalents and investments in marketable securities of $223.0 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, 2016 and 2020, 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 consolidated statement of cash flows for the nine months ended September 30, 2019 has been revised to correct a prior period classification error as discussed in note 1 of the Notes to Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.  Accordingly, the discussion below reflects the impact of those revisions.

 

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

 

    Nine Months Ended September 30,  
   

2020

   

2019

 
   

(in thousands)

 

Net cash provided by operating activities

  $ 110,943     $ 74,989  

Net cash used in investing activities

    (202,471 )     (58,243 )

Net cash used in financing activities

    (43,288 )     (37,646 )

Net decrease in cash and cash equivalents

  $ (134,816 )   $ (20,900 )

 

Net Cash Provided by Operating Activities

 

Net cash provided by operating activities during the nine months ended September 30, 2020 primarily reflected depreciation and amortization of $93.2 million, stock-based compensation expense of $81.3 million, accretion of convertible debt and amortization of issuance expenses of $22.6 million, loss on termination software lease contracts of $3.4 million, loss on early extinguishment of debt of $13.4 million, decrease in prepaid expenses and other assets of $21.2 million, increase in accounts payable of $11.9 million and other liabilities of $2.3 million, partially offset by a net loss of $47.7 million, realized gain on an equity investment of $5.0 million, unrealized gain on equity investments of $1.9 million, increases in accounts receivable of $34.6 million and inventories of $32.3 million, decreases in accrued expenses of $9.9 million, and deferred revenue of $8.0 million. Our prepaid expenses and other current assets decreased due to collection of receivables from eSilicon stockholders to pay eSilicon employees and usage of prepaid expenses.  Our accounts receivable increased due to higher revenue. Our accounts payable and inventories increased due to build-up of inventories for future shipments and addition of eSilicon inventories. Accrued expenses decreased due to payment to eSilicon employees as part of the acquisition.  Our deferred revenue decreased due to services provided or shipment of products.  Other liabilities increased due to estimated liabilities due to sales channel pricing or returns.

 

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 Used in Investing Activities

 

Net cash used in investing activities during the nine months ended September 30, 2020 primarily consisted of acquisitions of business of $223.7 million, purchases of marketable securities of $41.9 million and equity investments of $6.0 million and purchases of property and equipment of $52.5 million, partially offset by proceeds from maturities and sales of marketable securities of $107.3 million and proceeds from eSilicon investment of $15.0 million.

 

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, purchases of intangible assets of $1.1 million, partially offset by proceeds from maturities and sales of marketable securities of $179.2 million.

 

32

 

Net Cash Used in Financing Activities

 

Net cash used in financing activities during the nine months ended September 30, 2020 primarily consisted of payment for debt retirement and conversion of $410.0 million, minimum tax withholding paid on behalf of employees for net share settlement of $49.2 million, purchase of capped call options of $55.7 million, payment of obligations related to purchase of intangible assets and equipment financing of $31.3 million, partially offset by proceeds from convertible debt, net of cost of $492.7 million,  proceeds from the exercise of stock options and ESPP purchases of $10.1 million.

 

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 purchase of intangible assets and equipment financing of $20.2 million, partially offset by proceeds from the exercise of stock options and  ESPP purchases of $8.3 million.

 

 

 Operating and Capital Expenditure Requirements

 

Our principal source of liquidity as of September 30, 2020 consisted of $223.0 million of cash, cash equivalents and investments in marketable securities, of which $48.6 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, 2019 are included in our Annual Report on Form 10-K for the year ended December 31, 2019. See note 17 of the Notes to Unaudited Condensed Consolidated Financial Statements for information regarding certain contractual obligations as of September 30, 2020.

 

The Merger Agreement with Marvell provides Marvell and us with certain termination rights and, under certain circumstances specified in the Merger Agreement, we could be required to pay Marvell a termination fee of up to $300.0 million. Also, we recorded acquisition-related costs associated with the pending merger with Marvell primarily for outside legal and external financial advisory fees and expect additional acquisition-related costs will be incurred through the closing of the Mergers.

 

 Off-Balance Sheet Arrangements

 

 As of September 30, 2020, we had no material off-balance sheet arrangements, other than certain noncancelable purchase obligations as discussed in note 17 of 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.

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

Interest Rate Sensitivity

 

We had cash and cash equivalents and investments in marketable securities of $223.0 million and $422.9 million at September 30, 2020 and December 31, 2019, respectively, which were held for working capital purposes. Our exposure to market interest-rate risk relates primarily to our investment portfolio. We do not use derivative financial instruments to hedge the market risks of our investments. We manage our total portfolio to encompass a diversified pool of investment-grade securities to preserve principal and maintain liquidity. We place our investments with high-quality issuers, money market funds and debt securities. Our investment portfolio as of September 30, 2020 consisted of money market funds, municipal bonds, corporate bonds/notes, commercial papers and asset-backed securities. Investments in both fixed rate and floating rate instruments carry a degree of interest rate risk. Fixed rate securities may have their market value adversely impacted due to an increase in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates or if the decline in fair value of our publicly traded debt investments is judged to be a credit loss. We may suffer losses in principal if we are forced to sell securities that have declined in market value due to changes in interest rates. However, because any debt securities we hold are classified as available-for-sale, no gains or losses are realized in the income statement due to changes in interest rates unless we intend to sell or it is more likely than not that we will be required to sell such securities before recovery or unless declines in value have resulted from credit losses. These securities are reported at fair value with the related unrealized gains and losses, net of applicable taxes, included in accumulated other comprehensive income (loss), reported in a separate component of stockholders' equity. Although we currently expect that our ability to access or liquidate these investments as needed to support our business activities will continue, we cannot ensure that this will not change.

 

33

 

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

 

As of September 30, 2020, we had outstanding debt of $617.7 million of the Convertible Notes. The fair value of the Convertible Notes is subject to interest rate risk, market risk and other factors due to the convertible feature. The fair value of the Convertible Notes will generally increase as interest rates fall and decrease as interest rates rise. In addition, the fair value of the Convertible Notes will generally increase as our common stock price increases and will generally decrease as our common stock price declines in value. The interest and market value changes affect the fair value of the Convertible Notes but do not impact our financial position, cash flows or results of operations due to the fixed nature of the debt obligation.

           

Foreign Currency Risk

 

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

 

Item 4.

Controls and Procedures

 

Evaluation of disclosure controls and procedures

 

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

 

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

 

Changes in Internal Control over Financial Reporting

 

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

 

34

 

PART II. OTHER INFORMATION

Item 1.   Legal Proceedings

     

The information required by this Item 1 is set forth under note 17 of the Notes to Unaudited Condensed Consolidated Financial Statements, included in Part I, Item 1 of this report, and is hereby incorporated by reference herein. For an additional discussion of certain risks associated with legal proceedings, see Item 1A. Risk Factors below.

 

Item 1A.   Risk Factors

 

You should carefully consider the risks described in Part I, Item 1A. Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, 2019, which are incorporated by reference herein, as our business, financial condition and results of operations could be adversely affected by any of the risks and uncertainties described therein. 

 

Our proposed acquisition by Marvell is subject to a number of conditions beyond our control. Failure to complete the acquisition could materially and adversely affect our future business, results of operations, financial condition and stock price.

 

As described elsewhere in this Quarterly Report on Form 10-Q, on October 29, 2020, we entered into the Merger Agreement with Marvell, HoldCo, Bermuda Merger Sub and Delaware Merger Sub, providing for the merger of Bermuda Merger Sub with and into Marvell, with Marvell surviving the Bermuda Merger as a wholly-owned subsidiary of HoldCo, and immediately after the consummation of the Bermuda Merger, the merger of Delaware Merger Sub with and into us, with us surviving the Delaware Merger as a wholly owned subsidiary of HoldCo. The consummation of the Mergers are conditioned on the receipt of the approval of our stockholders and Marvell shareholders, as well as the satisfaction of other customary closing conditions, including domestic and foreign regulatory approvals and performance in all material respects by each party of its obligations under the Merger Agreement.

 

We cannot predict whether and when the conditions will be satisfied. If one or more of these conditions is not satisfied, and as a result, we do not complete the Mergers, or in the event the proposed Mergers are not completed or are delayed for any other reason, our business, results of operations, financial condition and stock price may be harmed because:

 

 

management’s and our employees’ attention may be diverted from our day-to-day operations as they focus on matters related to preparing for integration of our operations with those of Marvell;

 

 

we could potentially lose key employees if such employees experience uncertainty about their future roles with us and decide to pursue other opportunities in light of the proposed Mergers and we may have difficulty hiring and retaining new employees;

 

 

we could potentially lose customers or vendors, and new customer or vendor contracts could be delayed or decreased;

 

 

we have agreed to restrictions in the Merger Agreement that limit how we conduct our business prior to the consummation of the Mergers, including, among other things, restrictions on our ability to make certain capital expenditures, investments and acquisitions, sell, transfer or dispose of our assets, enter into material contracts outside of the ordinary course of business, amend our organizational documents and incur indebtedness; these restrictions may not be in our best interests as an independent company and may disrupt or otherwise adversely affect our business and our relationships with our customers, prevent us from pursuing otherwise attractive business opportunities, limit our ability to respond effectively to competitive pressures, industry developments and future opportunities, and otherwise harm our business, financial results and operations;

 

 

we have incurred and expect to continue to incur expenses related to the Mergers, such as legal, financial advisory and accounting fees, and other expenses that are payable by us whether or not the proposed Mergers are completed;

 

 

we may be required to pay a termination fee of $300.0 million to Marvell if the Merger Agreement is terminated under certain circumstances, which would negatively affect our financial results and liquidity;

 

 

we may be required to pay an expense payment of up to $25.0 million to Marvell if our stockholders do not approve the Merger Agreement and either we or Marvell terminate the Merger Agreement, which would negatively affect our financial results and liquidity;

 

 

activities related to the Mergers and related uncertainties may lead to a loss of revenues and market position that we may not be able to regain if the proposed Mergers do not occur;

 

 

we may not be able to pursue alternative business opportunities, including strategic acquisitions, or make appropriate changes to our business because of certain covenants restricting our business in the Merger Agreement; and

 

 

the failure to, or delays in, consummating the Mergers may result in a negative impression of us with customers, potential customers or the investment community.

 

Since a portion of the consideration to our stockholders consists of HoldCo Common Stock, with HoldCo consisting of Marvell and Inphi following the Mergers, our stock price will be adversely affected by a decline in Marvell’s stock price and any adverse developments in Marvell’s business. Changes in Marvell’s stock price and business may result from a variety of factors, including changes in its business operations and changes in general market and economic conditions. In addition, our stock price may fluctuate significantly based on announcements by us, Marvell or other third parties regarding the proposed Mergers.

 

The occurrence of these or other events individually or in combination could have a material adverse effect on our business, results of operations, financial condition and stock price.

 

The Merger Agreement contains provisions that could discourage a potential competing acquiror.

 

The Merger Agreement contains “no solicitation” provisions that restrict our ability to solicit, initiate, or knowingly encourage, facilitate or induce third party proposals for the acquisition of our common stock or to pursue an unsolicited offer, subject to certain limited exceptions. In addition, Marvell has an opportunity to modify the terms of the Mergers in response to any competing acquisition proposals before our board of directors may withdraw or change its recommendation with respect to the Merger Agreement. Upon the termination of the Merger Agreement to pursue an alternative transaction, including in connection with a “superior proposal”, we will be required to pay $300.0 million as a termination fee. These provisions could discourage a potential third-party acquiror from considering or proposing an acquisition transaction, even if it were prepared to pay a higher per share price than what would be received in the Delaware Merger. These provisions might also result in a potential third-party acquiror proposing to pay a lower price per share to our stockholders than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable. If the Merger Agreement is terminated and we determine to seek another business combination, we may not be able to negotiate a transaction with another party on terms comparable to, or better than, the terms of the Delaware Merger.

 

 

 

35

 

Our executive officers and directors have interests in the Delaware Merger that may be different from, or in addition to, the interests of our stockholders generally.

 

Our executive officers and members of our board of directors may be deemed to have interests in the Delaware Merger that may be different from or in addition to those of our stockholders, generally. These interests may create potential conflicts of interest. Our board of directors was aware of these potentially differing interests and considered them, among other matters, in evaluating and negotiating the Merger Agreement and in reaching its decision to approve the Merger Agreement and the transactions thereunder. These interests relate to or arise from, among other things:

 

 

the consideration payable to certain of our executive officers pursuant to retention agreements entered into in connection with the proposed Delaware Merger;

 

 

the consideration to be received in respect of equity awards held by our executive officers and directors;

 

 

the acceleration of vesting of equity awards held by our executive officers and directors in connection with the completion of the Mergers;

 

 

the right to continued indemnification and insurance coverage for our executive officers and directors following the completion of the Delaware Merger; and

 

 

the proposed appointment of Ford Tamer, our Chief Executive Officer and member of our board of directors, to the board of directors of HoldCo upon consummation of the Delaware Merger.

 

We will incur significant costs in connection with the Mergers, whether or not they are consummated.

 

We will incur substantial expenses related to the Mergers, whether or not they are completed.  In addition, we will incur financial advisory fees that are payable upon consummation of the Mergers. Finally, we may also be required to pay $300.0 million to Marvell if we terminate the Merger Agreement in certain circumstances or up to $25.0 million in expenses to Marvell if our stockholders do not approve the Merger Agreement and either we or Marvell terminate the Merger Agreement. Payment of these expenses by us as a standalone entity would adversely affect our operating results and financial condition and would likely adversely affect our stock price.

 

The ongoing effects of the COVID-19 pandemic could disrupt our business or the business of our customers or suppliers, and as such, may adversely affect our financial condition.

 

Our business, the businesses of our customers, and the businesses of our suppliers could be materially and adversely affected by the effects of the COVID-19 pandemic and the related governmental, business and community responses to it. Additionally, the economies and financial markets of many countries have been impacted by the pandemic, and the longevity and significance of the resulting economic impact is currently unknown. A significant economic downturn could materially and adversely affect our end customers, and thus could negatively impact demand for our products and our operating results. While the long-term economic impact and the duration of the COVID-19 pandemic may be difficult to assess or predict, the widespread pandemic has resulted in, and may continue to result in, significant disruption of global financial markets, which could reduce our ability to access capital and could negatively affect our liquidity and the liquidity and stability of markets for our securities. In addition, a recession, further market correction or depression resulting from the spread of COVID-19 could materially affect our business and the value of our securities. 

 

Many state governments in the U.S. have issued “shelter in place” or “stay at home” orders that generally require residents to remain in their homes, subject to certain exceptions for essential services. For example, in California, where our corporate headquarters are, a “stay at home” order is currently in effect that requires a majority of our employees to work from home until further notice.  The continuing impact of these, and similar orders may adversely impact the efficiency and effectiveness of our organization, as well as the operations of our suppliers and customers. For example, we face additional risks and challenges related to having a portion of our workforce working from home, including added pressure on our IT systems and the security of our network, and new challenges as our team adjusts to online collaboration.  Additionally, our ability to participate in informal collaborative discussions with our customers, such as in-person attendance at industry trade shows, standards meetings, or during routine visits by our sales team, may be truncated or impossible in areas with stay at home orders in place.  We may experience delays in the qualification and testing of our products by our customers if our customers are unable to perform these processes remotely, which may, in turn, affect our revenues. 

 

The ongoing effects of the pandemic also may have a negative impact on the operations of our suppliers.  For example, our principal foundries are located in Taiwan, and our international headquarters, which purchases all wafer material and owns the material until the manufacturing process is complete and the product is shipped to a customer, are located in Singapore.  The business of our principal foundries in Taiwan, and the business of our international headquarters in Singapore could be significantly and negatively impacted if the pandemic worsens in Taiwan or in Singapore, or if additional and more restrictive governmental orders are imposed on companies operating there. 

 

The demand for our product is already difficult to ascertain and the additional pressures on our supply chain, as well as the operations of our customers, due to the impact of or response to the COVID-19 pandemic, could result in temporary or long-term disruption in our supply chain, delays in the delivery of our product, or  delays in the qualification and testing of our products in our customer’s systems.  If the impact of an outbreak continues for an extended period, it could adversely impact the growth of our revenues. 

 

We are leveraged financially, which could adversely affect our ability to adjust our business to respond to competitive pressures and to obtain sufficient funds to satisfy our future growth, business needs and development plans. 

 

We have substantial existing indebtedness. As of September 30, 2020, we had outstanding $617.7 million in aggregate principal of convertible senior notes. The degree to which we are leveraged could have negative consequences, including, but not limited to, the following:

 

 

we may be more vulnerable to economic downturns, less able to withstand competitive pressures and less flexible in responding to changing business and economic conditions;

 

 

our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate or other purposes may be limited;

 

 

a substantial portion of our cash flows from operations in the future may be required for the payment of the principal amount of our existing indebtedness when it becomes due; and

 

 

we may elect to make cash payments upon any conversion of the convertible notes, which would reduce our cash on hand.

 

Our ability to meet our payment obligations under our convertible notes depends on our ability to generate significant cash flow in the future. This, to some extent, is subject to general economic, financial, competitive, legislative, and regulatory factors as well as other factors that are beyond our control. There can be no assurance that our business will generate cash flow from operations, or that additional capital will be available to us, in an amount sufficient to enable us to meet our debt payment obligations and to fund other liquidity needs. If we are unable to generate sufficient cash flow to service our debt obligations, we may need to refinance or restructure our debt, sell assets, reduce or delay capital investments, or seek to raise additional capital. If we were unable to implement one or more of these alternatives, we may be unable to meet our debt payment obligations, which could have a material adverse effect on our business, results of operations, or financial condition.

 

 

 

 

36

 

Item 6. Exhibits

 

 

 

 

 

Exhibit

 

 

Number

 

Description

2.1*   Agreement and Plan of Merger and Reorganization dated as of October 29, 2020 by and among Marvell Technology Group Ltd., Maui HoldCo, Inc., Maui Acquisition Company Ltd., Indigo Acquisition Corp. and the Registrant (incorporated by reference to exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on October 30, 2020).
     

3(i)

 

Restated Certificate of Incorporation of the Registrant (incorporated by reference to exhibit 3(i) of the Registrant’s Annual Report on Form 10-K filed with the SEC on March 7, 2011).

     

3(ii)

 

Amended and Restated Bylaws of the Registrant (incorporated by reference to exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on April 20, 2020).

     

31.1

  

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

     

31.2

  

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

     

32.1(1)

  

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).

     

32.2(1)

  

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).

 

101.INS   Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
     

101.SCH

  Inline XBRL Taxonomy Extension Schema Document
     

101.CAL

  Inline XBRL Taxonomy Extension Calculation Linkbase Document
     

101.DEF

  Inline XBRL Taxonomy Extension Definition Linkbase Document
     

101.LAB

  Inline XBRL Taxonomy Extension Label Linkbase Document
     

101.PRE

  Inline XBRL Taxonomy Extension Presentation Linkbase Document
     
104   Cover Page Interactive Data File (formatted as Inline XBRL).

 


 

*  Certain schedules and exhibits to this agreement have been omitted pursuant to Item 601(b) of Regulation S-K. The registrant hereby undertakes to furnish supplementally a copy of any omitted schedule or exhibit to such agreement to the SEC upon request.

(1) The material contained in Exhibit 32.1 and Exhibit 32.2 is not deemed “filed” with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language contained in such filing, except to the extent that the registrant specifically incorporates it by reference.

 

37

 

SIGNATURES

 

 

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

 

 

INPHI CORPORATION,

(Registrant)

 

By: /s/ Ford Tamer

 

Ford Tamer        

President and Chief Executive Officer

(Principal Executive Officer)

 

By: /s/ John Edmunds

 

John Edmunds        

Chief Financial Officer and Chief Accounting Officer 

(Principal Financial Officer and Principal Accounting Officer)

 

 

November 5, 2020

 

 

 

38
ex_151940.htm

EXHIBIT 31.1

 

Certification of Chief Executive Officer Pursuant to
Exchange Act Rule 13a-14(a)/15d-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

I, Ford Tamer, certify that:

 

     1. I have reviewed this quarterly report on Form 10-Q of Inphi Corporation;

 

     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

     4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

 

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

 

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

 

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

     5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

     (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

     (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: November 5, 2020

 

 

/s/ Ford Tamer

Ford Tamer 

President and Chief Executive Officer
(Principal Executive Officer) 

 

 
ex_151941.htm

EXHIBIT 31.2

 

 

 

Certification of Chief Financial Officer Pursuant to
Exchange Act Rule 13a-14(a)/15d-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

I, John Edmunds, certify that:

 

     1. I have reviewed this quarterly report on Form 10-Q of Inphi Corporation;

 

     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

     4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

 

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

 

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

 

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

     5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

     (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

     (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: November 5, 2020

 

 

/s/ John Edmunds

John Edmunds 

Chief Financial Officer and Chief Accounting Officer
(Principal Financial Officer) 

 

 
ex_151942.htm

EXHIBIT 32.1

 

  

 

Certification of Chief Executive Officer Pursuant to
18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

I, Ford Tamer, the president and chief executive officer of Inphi Corporation (the "Company"), certify for the purposes of section 1350 of chapter 63 of title 18 of the United States Code that, to my knowledge:

 

1.

The Company's Quarterly Report on Form 10-Q for the three months ended September 30, 2020 (the “Quarterly Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, and

 

2.

The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: November 5, 2020

 

 

 

/s/ Ford Tamer

Ford Tamer

President and Chief Executive Officer

(Principal Executive Officer)

 

 
ex_151943.htm

EXHIBIT 32.2

 

  

Certification of Chief Financial Officer Pursuant to
18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

I, John Edmunds, the chief financial officer and chief accounting officer of Inphi Corporation (the "Company"), certify for the purposes of section 1350 of chapter 63 of title 18 of the United States Code that, to my knowledge:

 

1.

The Company's Quarterly Report on Form 10-Q for the three months ended September 30, 2020 (the “Quarterly Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, and

 

2.

The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: November 5, 2020

 

 

 

/s/ John Edmunds

John Edmunds

Chief Financial Officer and Chief Accounting Officer

(Principal Financial Officer)

 

 
v3.20.2
Document And Entity Information - shares
9 Months Ended
Sep. 30, 2020
Nov. 03, 2020
Document Information [Line Items]    
Entity Central Index Key 0001160958  
Entity Registrant Name INPHI CORP  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Document Fiscal Period Focus Q3  
Document Fiscal Year Focus 2020  
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Sep. 30, 2020  
Document Transition Report false  
Entity File Number 001-34942  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 77-0557980  
Entity Address, Address Line One 110 Rio Robles  
Entity Address, City or Town San Jose  
Entity Address, State or Province CA  
Entity Address, Postal Zip Code 95134  
City Area Code 408  
Local Phone Number 217-7300  
Title of 12(b) Security Common Stock, $0.001 par value per share  
Trading Symbol IPHI  
Security Exchange Name NASDAQ  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   52,112,378
v3.20.2
Unaudited Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Current assets:    
Cash and cash equivalents $ 147,907 $ 282,723
Investments in marketable securities (amortized cost of $74,326 and $139,448 as of September 30, 2020 and December 31, 2019, respectively) 75,077 140,131
Accounts receivable, net 95,239 60,295
Inventories 108,565 55,013
Prepaid expenses and other current assets 16,046 17,463
Total current assets 442,834 555,625
Property and equipment, net 126,177 79,563
Goodwill 181,688 104,502
Intangible assets, net 256,170 168,290
Right of use assets, net 32,263 33,576
Other assets, net 31,549 34,450
Total assets 1,070,681 976,006
Current liabilities:    
Accounts payable 43,863 18,771
Deferred revenue 3,238 3,719
Accrued employee expenses 17,983 13,164
Other accrued expenses 16,134 5,125
Convertible debt 107,699 217,467
Other current liabilities 43,717 33,531
Total current liabilities 232,634 291,777
Convertible debt 400,426 258,711
Other long-term liabilities 64,940 78,917
Total liabilities 698,000 629,405
Commitments and contingencies (Note 17)
Stockholders’ equity:    
Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued 0 0
Common stock, $0.001 par value; 500,000,000 shares authorized; 52,062,081 and 45,909,466 issued and outstanding at September 30, 2020 and December 31, 2019, respectively 52 46
Additional paid-in capital 661,586 587,862
Accumulated deficit (290,524) (242,807)
Accumulated other comprehensive income 1,567 1,500
Total stockholders’ equity 372,681 346,601
Total liabilities and stockholders’ equity $ 1,070,681 $ 976,006
v3.20.2
Unaudited Condensed Consolidated Balance Sheets (Parentheticals) - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Amortized cost of investments in marketable securities $ 74,326 $ 139,448
Preferred stock, par value (in dollars per share) $ 0.001 $ 0.001
Preferred stock, authorized (in shares) 10,000,000 10,000,000
Preferred stock, issued (in shares) 0 0
Common stock, par value (in dollars per share) $ 0.001 $ 0.001
Common stock, authorized (in shares) 500,000,000 500,000,000
Common stock, issued (in shares) 52,062,081 45,909,466
Common stock, outstanding (in shares) 52,062,081 45,909,466
v3.20.2
Unaudited Condensed Consolidated Statements of Income (Loss) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Revenue $ 180,691 $ 94,231 $ 495,413 $ 262,739
Cost of revenue 79,151 39,749 227,244 111,517
Gross profit 101,540 54,482 268,169 151,222
Operating expenses:        
Research and development 66,832 44,895 198,701 133,999
Sales and marketing 15,341 12,311 45,274 35,344
General and administrative 13,125 8,165 38,508 22,478
Total operating expenses 95,298 65,371 282,483 191,821
Income (loss) from operations 6,242 (10,889) (14,314) (40,599)
Interest expense (8,266) (8,971) (27,325) (25,946)
Loss on early extinguishment of debt (149) 0 (13,446) 0
Other income (expense), net (19) 4,299 8,850 8,294
Loss before income taxes (2,192) (15,561) (46,235) (58,251)
Provision for income taxes 1,188 619 1,482 1,252
Net loss $ (3,380) $ (16,180) $ (47,717) $ (59,503)
Earnings per share:        
Basic (in dollars per share) $ (0.07) $ (0.36) $ (0.97) $ (1.32)
Diluted (in dollars per share) $ (0.07) $ (0.36) $ (0.97) $ (1.32)
Weighted-average shares used in computing earnings per share:        
Basic (in shares) 51,971,621 45,517,862 48,986,248 45,057,539
Diluted (in shares) 51,971,621 45,517,862 48,986,248 45,057,539
v3.20.2
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Net loss $ (3,380) $ (16,180) $ (47,717) $ (59,503)
Other comprehensive income (loss):        
Realized gain reclassified into earnings, net of tax 0 0 (296) 0
Change in unrealized gain or loss (207) 144 363 1,250
Comprehensive loss $ (3,587) $ (16,036) $ (47,650) $ (58,253)
v3.20.2
Unaudited Condensed Consolidated Statements of Stockholders' Equity - USD ($)
$ in Thousands
Common Stock [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
AOCI Attributable to Parent [Member]
Total
Balance (in shares) at Dec. 31, 2018 44,292,722        
Balance at Dec. 31, 2018 $ 44 $ 536,157 $ (169,896) $ 389 $ 366,694
Issuance of common stock from exercise of stock options (in shares) 78,205        
Issuance of common stock from exercise of stock options $ 0 646 0 0 646
Issuance of common stock from restricted stock unit grant, net of shares withheld for tax (in shares) 168,227        
Issuance of common stock from restricted stock unit grant, net of shares withheld for tax $ 1   0 0  
Issuance of common stock from restricted stock unit grant, net of shares withheld for taxes   (4,017)     (4,016)
Stock Issued During Period, Shares, Employee Stock Purchase Plans (in shares) 121,549        
Issuance of common stock from employee stock purchase plan purchases $ 0 3,477 0 0 3,477
Stock-based compensation expense 0 18,758 0 0 18,758
Net loss 0 0 (22,745) 0 (22,745)
Other comprehensive income (loss), net $ 0 0 0 540 540
Balance (in shares) at Mar. 31, 2019 44,660,703        
Balance at Mar. 31, 2019 $ 45 555,021 (192,641) 929 363,354
Balance (in shares) at Dec. 31, 2018 44,292,722        
Balance at Dec. 31, 2018 $ 44 536,157 (169,896) 389 $ 366,694
Stock Issued During Period, Shares, Employee Stock Purchase Plans (in shares)         208,721
Net loss         $ (59,503)
Balance (in shares) at Sep. 30, 2019 45,651,211        
Balance at Sep. 30, 2019 $ 46 575,456 (229,399) 1,639 347,742
Balance (in shares) at Mar. 31, 2019 44,660,703        
Balance at Mar. 31, 2019 $ 45 555,021 (192,641) 929 363,354
Issuance of common stock from exercise of stock options (in shares) 45,317        
Issuance of common stock from exercise of stock options $ 0 486 0 0 486
Issuance of common stock from restricted stock unit grant, net of shares withheld for tax (in shares) 695,379        
Issuance of common stock from restricted stock unit grant, net of shares withheld for tax $ 1   0 0  
Issuance of common stock from restricted stock unit grant, net of shares withheld for taxes   (18,386)     (18,385)
Stock-based compensation expense 0 17,961 0 0 17,961
Net loss 0 0 (20,578) 0 (20,578)
Other comprehensive income (loss), net $ 0 0 0 566 566
Balance (in shares) at Jun. 30, 2019 45,401,399        
Balance at Jun. 30, 2019 $ 46 555,082 (213,219) 1,495 343,404
Issuance of common stock from exercise of stock options (in shares) 65,923        
Issuance of common stock from exercise of stock options $ 0 775 0 0 775
Issuance of common stock from restricted stock unit grant, net of shares withheld for tax (in shares) 96,717        
Issuance of common stock from restricted stock unit grant, net of shares withheld for tax $ 0   0 0  
Issuance of common stock from restricted stock unit grant, net of shares withheld for taxes   (3,176)     (3,176)
Stock Issued During Period, Shares, Employee Stock Purchase Plans (in shares) 87,172        
Issuance of common stock from employee stock purchase plan purchases $ 0 2,897 0 0 2,897
Stock-based compensation expense 0 19,878 0 0 19,878
Net loss 0 0 (16,180) 0 (16,180)
Other comprehensive income (loss), net $ 0 0 0 144 144
Balance (in shares) at Sep. 30, 2019 45,651,211        
Balance at Sep. 30, 2019 $ 46 575,456 (229,399) 1,639 347,742
Balance (in shares) at Dec. 31, 2019 45,909,466        
Balance at Dec. 31, 2019 $ 46 587,862 (242,807) 1,500 346,601
Issuance of common stock from exercise of stock options (in shares) 103,318        
Issuance of common stock from exercise of stock options $ 0 995 0 0 995
Issuance of common stock from restricted stock unit grant, net of shares withheld for tax (in shares) 60,651        
Issuance of common stock from restricted stock unit grant, net of shares withheld for tax $ 0   0 0  
Issuance of common stock from restricted stock unit grant, net of shares withheld for taxes   (2,490)     (2,490)
Stock Issued During Period, Shares, Employee Stock Purchase Plans (in shares) 74,896        
Issuance of common stock from employee stock purchase plan purchases $ 0 4,112 0 0 4,112
Stock-based compensation expense 0 24,029 0 0 24,029
Net loss 0 0 (20,286) 0 (20,286)
Other comprehensive income (loss), net $ 0 0 0 (895) (895)
Balance (in shares) at Mar. 31, 2020 46,148,331        
Balance at Mar. 31, 2020 $ 46 614,508 (263,093) 605 352,066
Balance (in shares) at Dec. 31, 2019 45,909,466        
Balance at Dec. 31, 2019 $ 46 587,862 (242,807) 1,500 $ 346,601
Issuance of common stock from exercise of stock options (in shares)         207,424
Stock Issued During Period, Shares, Employee Stock Purchase Plans (in shares)         128,892
Net loss         $ (47,717)
Balance (in shares) at Sep. 30, 2020 52,062,081        
Balance at Sep. 30, 2020 $ 52 661,586 (290,524) 1,567 372,681
Balance (in shares) at Mar. 31, 2020 46,148,331        
Balance at Mar. 31, 2020 $ 46 614,508 (263,093) 605 352,066
Issuance of common stock from exercise of stock options (in shares) 77,051        
Issuance of common stock from exercise of stock options $ 0 904 0 0 904
Issuance of common stock from restricted stock unit grant, net of shares withheld for tax (in shares) 702,180        
Issuance of common stock from restricted stock unit grant, net of shares withheld for tax $ 1   0 0  
Issuance of common stock from restricted stock unit grant, net of shares withheld for taxes   (39,840)     (39,839)
Stock-based compensation expense 0 28,226 0 0 28,226
Net loss 0 0 (24,051) 0 (24,051)
Other comprehensive income (loss), net 0 0 0 1,169 1,169
Conversion feature of convertible debt, net of issuance costs 0 100,616 0 0 100,616
Purchase of capped calls $ 0 (55,660) 0 0 (55,660)
Convertible Debt Repurchases, Shares Outstanding Impact (in shares) 4,942,490        
Impact of convertible debt repurchases $ 5 (14,025) 0 0 (14,020)
Conversion of convertible debt to common stock (in shares) 24        
Conversion of convertible debt to common stock $ 0 0 0 0 0
Balance (in shares) at Jun. 30, 2020 51,870,076        
Balance at Jun. 30, 2020 $ 52 634,729 (287,144) 1,774 349,411
Issuance of common stock from exercise of stock options (in shares) 27,055        
Issuance of common stock from exercise of stock options $ 0 285 0 0 285
Issuance of common stock from restricted stock unit grant, net of shares withheld for tax (in shares) 90,309        
Issuance of common stock from restricted stock unit grant, net of shares withheld for tax $ 0   0 0  
Issuance of common stock from restricted stock unit grant, net of shares withheld for taxes   (6,234)     (6,234)
Stock Issued During Period, Shares, Employee Stock Purchase Plans (in shares) 53,996        
Issuance of common stock from employee stock purchase plan purchases $ 0 3,781 0 0 3,781
Stock-based compensation expense 0 29,046 0 0 29,046
Net loss 0 0 (3,380) 0 (3,380)
Other comprehensive income (loss), net 0 0 0 (207) (207)
Conversion feature of convertible debt, net of issuance costs $ 0 (21) 0 0 (21)
Conversion of convertible debt to common stock (in shares) 20,645        
Balance (in shares) at Sep. 30, 2020 52,062,081        
Balance at Sep. 30, 2020 $ 52 $ 661,586 $ (290,524) $ 1,567 $ 372,681
v3.20.2
Unaudited Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Cash flows from operating activities    
Net loss $ (47,717) $ (59,503)
Adjustments to reconcile net loss to net cash provided by operating activities:    
Depreciation and amortization 93,235 73,358
Stock-based compensation 81,301 56,597
Deferred income taxes 1,158 936
Accretion of convertible debt and amortization of debt issuance costs 22,584 21,015
Net unrealized gain on equity investments (1,943) (2,077)
Realized gain on an equity investment (4,999) 0
Amortization of premium (discount) on marketable securities 47 (856)
Loss on termination of software lease contracts 3,370 0
Loss on early extinguishment of debt 13,446 0
Other noncash items 126 323
Changes in assets and liabilities, net of acquisition:    
Accounts receivable (34,644) 4,942
Inventories (32,340) (23,663)
Prepaid expenses and other assets 21,191 785
Income tax payable/receivable (153) 215
Accounts payable 11,885 2,627
Accrued expenses (9,903) (11)
Deferred revenue (7,982) (1,042)
Other liabilities 2,281 1,343
Net cash provided by operating activities 110,943 74,989
Cash flows from investing activities    
Purchases of property and equipment (52,515) (17,227)
Purchases of marketable securities (41,909) (216,126)
Sales of marketable securities 65,588 21,920
Maturities of marketable securities 41,724 157,327
Purchases of intangible assets (628) (1,137)
Purchase of equity investments (5,999) (3,000)
Proceeds from eSilicon investment 14,999 0
Acquisitions of business, net of cash (223,731) 0
Net cash used in investing activities (202,471) (58,243)
Cash flows from financing activities    
Proceeds from exercise of stock options 2,177 1,907
Proceeds from employee stock purchase plan purchases 7,893 6,374
Proceeds from issuance of convertible debt, net of cost 492,743 0
Payment for convertible debt repurchases (410,002) 0
Payment of obligations related to equipment financing (278) (334)
Payment of obligations related to purchase of intangible assets (30,991) (19,895)
Purchase of capped call options (55,660) 0
Minimum tax withholding paid on behalf of employees for net share settlement (49,170) (25,698)
Net cash used in financing activities (43,288) (37,646)
Net decrease in cash and cash equivalents (134,816) (20,900)
Cash and cash equivalents at beginning of period 282,723 172,018
Cash and cash equivalents at end of period 147,907 151,118
Supplemental cash flow information:    
Interest paid 3,660 4,842
Income taxes paid 1,058 177
Supplemental disclosure of non-cash investing and financing activities:    
Software license intangible assets 1,509 15,350
Marketable equity investment acquired as settlement of receivable from customer 0 1,500
eSilicon [Member]    
Supplemental disclosure of non-cash investing and financing activities:    
Settlement of net receivable from eSilicon as part of purchase consideration $ 5,250 $ 0
v3.20.2
Note 1 - Organization and Basis of Presentation
9 Months Ended
Sep. 30, 2020
Notes to Financial Statements  
Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

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 cloud 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 cloud 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.

 

On January 10, 2020, the Company completed the acquisition of eSilicon Corporation (“eSilicon”) for $214,644. The revenue and expenses of eSilicon from January 10, 2020 onwards are included in the condensed consolidated statement of income (loss).

 

On May 18, 2020, the Company purchased  certain assets and rights of  Arrive Technologies, Inc. ("Arrive") for $20,141.  The revenue and expenses related to this purchase from May 18, 2020 onwards are included in the condensed consolidated statement of income (loss).

 

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, 2019, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 2, 2020.

 

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, 2020, its consolidated results of operations and stockholders’ equity for the three and nine months ended  September 30, 2020 and 2019, and cash flows for the nine months ended September 30, 2020 and 2019. The results of operations for the three and nine months ended  September 30, 2020 are not necessarily indicative of the results to be expected for future quarters or the full year.

 

Use of Estimates and Judgments

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and judgments that affect the amounts reported and disclosed in the condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. On an ongoing basis, the Company evaluates its estimates and judgments compared to historical experience and expected trends. In March 2020, the outbreak of COVID-19 was declared a pandemic by the World Health Organization. While the nature of the situation is dynamic, the Company has considered the impact when developing its estimates and assumptions. Actual results and outcomes may differ from management's estimates and assumptions.

 

Revisions

 

As previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2019, in connection with the preparation of the Company’s 2019 year-end consolidated financial statements, a classification error in the Company’s previously issued consolidated statements of cash flows was identified. Specifically, it was determined that payments made under the Company’s multiyear agreements for the purchase of internal use intangible assets should have been classified as use of cash for financing activities and not as use of cash for investing activities as originally presented. Such classification error had no impact on the Company’s consolidated balance sheets, statements of income (loss), statements of comprehensive income (loss) or statements of stockholders’ equity. Although the Company assessed the materiality of the error and concluded that the error was not material to the previously issued annual or interim financial statements, the Company did revise its previously issued 2018 and 2017 annual financial statements to correct for such classification error in connection with the filing of its 2019 Annual Report on Form 10-K, and disclosed that it would be revising its unaudited quarterly condensed consolidated statements of cash flows in connection with the filing of its Quarterly Reports on Form 10-Q in fiscal year 2020.  In connection with the filing of this Quarterly Report on Form 10-Q, the Company has revised the accompanying 2019 unaudited condensed consolidated statement of cash flows to correct for such classification error. The effect of the revisions on the unaudited condensed consolidated statement of cash flows for the nine months ended September 30, 2019 was as follows: (i) cash used in investing activities decreased by $19,895 from $78,138 to $58,243, and (ii) cash used in financing activities increased by $19,895 from $17,751 to $37,646.  

 

Summary of Significant Accounting Policies

 

Refer to the Company’s Annual Report on Form 10-K for a summary of significant accounting policies. On January 1, 2020, the Company adopted Accounting Standards Codification (“ASC”) Topic 326, Measurement of Credit Losses on Financial Instruments (“ASC 326”), and accordingly, modified its policy on accounting for allowance for doubtful accounts on trade accounts receivable and available-for-sale debt securities as stated below. As described under the “Recent Accounting Pronouncements” below, the impact of adopting ASC 326 for the Company was not material.

 

There have been no other significant changes to the Company’s significant accounting policies during the three and nine months ended September 30, 2020.

 

Accounts Receivable

 

The Company performs ongoing credit evaluations of its customers and assesses each customer’s credit worthiness. The Company monitors collections and payments from its customers and maintains an allowance for doubtful accounts based upon applying an expected credit loss rate to receivables based on the historical loss rate from similar high risk customers adjusted for current conditions, including any specific customer collection issues identified, and forecasts of economic conditions. Delinquent account balances are written off after management has determined that the likelihood of collection is remote. The allowance for credit losses as of September 30, 2020 was $1,202.  The allowance for doubtful accounts as of December 31, 2019 was $1,152. The activities in this account, including the current-period provision for expected credit losses for the three and nine months ended September 30, 2020, were not material.

 

Debt Securities

 

The Company performs an evaluation of its available-for-sale debt securities in unrealized loss position.  The Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis.  If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through the statement of income (loss).  For available-for-sale debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors.  In making this assessment, the Company considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors.  If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security.  If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis.  Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense.  Losses are charged against the allowance when the Company believes the uncollectibility of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met.  There was no allowance for credit loss as of September 30, 2020.  Accrued interest receivable on available-for-sale debt securities as of September 30, 2020 was $454 and excluded from the estimate of credit losses. Accrued interest receivable on available-for-sale debt securities is reported within Prepaid expenses and other current assets on the condensed consolidated balance sheets. Any interest accrued that is past due by more than 90 days is written off through reversal of interest income.

 

v3.20.2
Note 2 - Recent Accounting Pronouncements
9 Months Ended
Sep. 30, 2020
Notes to Financial Statements  
Accounting Standards Update and Change in Accounting Principle [Text Block]

2. Recent Accounting Pronouncements

 

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASC 326, to replace the incurred loss methodology with an expected credit loss model that requires consideration of a broader range of information to estimate credit losses over the lifetime of the asset, including current conditions and reasonable and supportable forecasts in addition to historical loss information, to determine expected credit losses. Pooling of assets with similar risk characteristics and the use of a loss model are also required. Also, in April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, to clarify the inclusion of recoveries of trade receivables previously written off when estimating an allowance for credit losses. The guidance is effective for the Company beginning with fiscal year 2020, including interim periods. The adoption of this guidance 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 of significant unobservable inputs used to develop Level 3 fair value measurements. The guidance will be effective for fiscal years beginning after December 15, 2019. The Company adopted this guidance on January 1, 2020. 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 requiring a customer in a cloud computing arrangement under a service contract to follow the internal use software guidance in 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 adopted this guidance on January 1, 2020. The adoption of this standard did not have a material impact on the Company’s consolidated 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.  The Company adopted this guidance on January 1, 2020. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

 

In December 2019, the FASB issued guidance that simplifies the accounting for income taxes as part of FASB's overall initiative to reduce complexity in accounting standards. Amendments include removal of certain exceptions to the general principles of ASC 740, Income Taxes, and simplification in general other areas such as accounting for a franchise tax (or similar tax) that is partially based on income. The guidance will be effective for fiscal years beginning after December 15, 2020, though early adoption is permitted. The Company is currently evaluating the impact that this new guidance will have on its consolidated financial statements.

 

In August 2020, the FASB issued guidance that simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity.   The guidance will reduce the number of accounting models for convertible debt instruments and convertible preferred stock.  This will result in fewer embedded conversion features being separately recognized from the host contract compared with current GAAP. More convertible debt instruments will be reported as a single liability instrument, and more convertible preferred stock will be reported as a single equity instrument with no separate accounting for embedded conversion features.  FASB also made changes to the disclosures for convertible instruments and earnings-per-share guidance.  The guidance will be effective for fiscal years beginning after December 15, 2021, though early adoption is permitted. The Company is currently evaluating the impact that this new guidance will have on its consolidated financial statements.

 

v3.20.2
Note 3 - Acquisitions
9 Months Ended
Sep. 30, 2020
Notes to Financial Statements  
Business Combination Disclosure [Text Block]

3.  Acquisitions

 

eSilicon 

 

On January 10, 2020, the Company completed the acquisition of eSilicon for approximately $214,644. The Company acquired eSilicon to accelerate the Company’s roadmap in developing electro-optics solutions for cloud and telecommunications customers. An amount of $10,000 was placed in an escrow fund for 12 months (up to 36 months in certain circumstances) following the closing for the satisfaction of certain potential indemnification claims. The condensed consolidated financial statements include the results of operations of eSilicon from the acquisition date.

 

The acquisition has been accounted for using the purchase method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The Company allocated the purchase price to tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The fair value of identifiable intangible assets acquired was based on estimates and assumptions made by management at the time of acquisition. As additional information becomes available, such as finalization of the estimated fair value of tax related items, the Company may revise the preliminary purchase price allocation during the measurement period (which will not exceed 12 months from the acquisition date). Any such revisions or changes may be material as the Company finalizes the fair values of the tangible and intangible assets acquired and liabilities assumed.

 

The following table summarizes the preliminary purchase price allocation as of the acquisition date:
 

Cash

 $704 

Restricted cash

  2,100 

Accounts receivable

  5,750 

Inventories

  21,086 

Prepaid expenses and other current assets

  21,012 

Property and equipment

  7,106 

Intangible assets

  148,720 

Right of use asset

  1,022 

Other noncurrent assets

  252 

Accounts payable

  (9,105)

Accrued expenses

  (25,060)

Deferred revenue

  (7,501)

Other current liabilities

  (13,886)

Other liabilities

  (3,567)

Total identifiable net assets

 $148,633 

Goodwill

  66,011 

Net assets acquired

 $214,644 

 

As of the acquisition date, the fair value of receivables, other assets, accounts payable, accrued expenses and other liabilities approximated the book value acquired.

 

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) 

Contract manufacturing rights

 $105,160   5.0 

Developed technology

  33,630   8.0 

Software

  9,930   0.5 to 2.0 
  $148,720     

 

Developed technology was valued using the multi-period excess earnings method under the income approach. This method involves discounting the direct cash flows expected to be generated by the technologies over their remaining lives, net of returns on contributory assets. The estimated useful life was determined based on the technology cycle related to product family and its expected contribution to forecasted revenue. Contract manufacturing rights were valued using a multi-period excess earnings method, which involved discounting the direct cash flow expected to be generated by these rights over their remaining economic lives, net of returns on contributory assets. The estimated useful life was determined to be five years based on the estimated life of the product, assuming that the existing customers will remain with the Company until the product becomes obsolete.  The cash flows for the two intangible assets were distinctly separate and bifurcated for the purposes of the valuation of each asset.

 

Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and is attributable to the workforce of eSilicon, the Company’s going concern value with the opportunity to leverage its workforce 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 Company incurred acquisition costs of $1,550, of which $1,015 was incurred in the year ended  December 31, 2019 and $535 was included in general and administrative expense in the condensed consolidated statement of income (loss) for the nine months ended September 30, 2020.

 

eSilicon contributed revenue of $31,455 and pre-tax income of $1,108 to the Company for the three months ended September 30, 2020.  eSilicon contributed revenue of $91,306 and pre-tax loss of $13,884 for the period from January 10, 2020 to September 30, 2020.  

 

Prior to the acquisition, the Company owned a minority equity interest in eSilicon.  The fair value of the equity interest immediately before the acquisition date was $14,999, which resulted in a gain of $4,999 and was included in Other income, net in the condensed consolidated statement of income (loss) for the nine  months ended September 30, 2020.  The fair value was determined based on the proceeds received as a holder of eSilicon's preferred stock.

 

Arrive 

 

On May 18, 2020, the Company purchased  certain assets and rights of Arrive for $20,141. The Company acquired Arrive for the purpose of expanding its presence into strategic geographic regions for talent acquisition.  An amount of $3,000 was withheld by the Company for 12 months  following the closing for the satisfaction of certain potential indemnification claims. The condensed consolidated financial statements include the results of operations of Arrive from the acquisition date.

 

The acquisition has been accounted for using the purchase method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The Company allocated the purchase price to tangible and intangible assets acquired based on their estimated fair values. The fair value of the identifiable intangible asset acquired was based on estimates and assumptions made by management at the time of acquisition. As additional information becomes available, such as finalization of the estimated fair value of tax related items, the Company may revise the preliminary purchase price allocation during the measurement period (which will not exceed 12 months from the acquisition date). Any such revisions or changes may be material as the Company finalizes the fair values of the tangible and intangible assets acquired.
 
The following table summarizes the preliminary purchase price allocation as of the acquisition date:
 

Inventories

 $126 

Intangible asset

  8,840 

Total identifiable net assets

  8,966 

Goodwill

  11,175 

Net assets acquired

 $20,141 

     

The estimated fair value of developed technology was $8,840 with an estimated useful life of five years.  The developed technology was valued using the multi-period excess earnings method under the income approach. This method involves discounting the direct cash flows expected to be generated by the technologies over their remaining lives, net of returns on contributory assets. The estimated useful life was determined to be five years based on the estimated life of the product, assuming that the existing customers will remain with the Company until the product becomes obsolete.  

 

Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and is attributable to the workforce of Arrive, the Company’s going concern value with the opportunity to leverage its workforce to develop new technologies and the ability of the Company to grow the business faster and more profitable than was possible by Arrive as a stand-alone company. Since this is an asset purchase agreement, the goodwill is amortized and is deductible for tax purposes.

 

The Company incurred acquisition costs of $180 included in general and administrative expense in the condensed consolidated statement of income (loss) for the nine months ended September 30, 2020.

 

Arrive contributed revenue of $975 and pre-tax loss of $1,087 to the Company for the three months ended September 30, 2020.  Arrive contributed revenue of $1,546 and pre-tax loss of $1,207 to the Company for the period from May 18, 2020 to September 30, 2020.  

 

Pro Forma Information

 

The following unaudited pro forma financial information presents a summary of the Company’s condensed consolidated results of operations for the three and nine months ended September 30, 2020 and 2019, assuming the eSilicon and Arrive acquisitions have been completed as of January 1, 2019. The pro forma information includes adjustments to revenue, amortization and depreciation for intangible assets and property and equipment acquired, amortization of the purchase accounting effect on inventory acquired from eSilicon and interest income for reduction in short-term investments to fund the acquisition.

 

  

Pro Forma Three Months Ended

  

Pro Forma Nine Months Ended

 
  

September 30, 2020

  

September 30, 2019

  

September 30, 2020

  

September 30, 2019

 
  

(unaudited)

 

(unaudited)

 

Revenue

 $180,691  $121,206  $502,892  $344,433 

Net loss

 $(2,447) $(25,497) $(50,328) $(110,400)

 

The unaudited pro forma financial information was prepared using the acquisition method of accounting and are based on the historical financial information of the Company, eSilicon and Arrive, reflecting the results of operations for the three and nine months ended September 30, 2020 and 2019. The unaudited pro forma financial information is not necessarily indicative of what the Company’s consolidated results of operations actually would have been had the Company completed the acquisitions as of the beginning of the period presented. In addition, the unaudited pro forma financial information does not purport to project the future results of operations of the combined company nor do they reflect the expected realization of any cost savings associated with the acquisitions.

 

v3.20.2
Note 4 - Investments
9 Months Ended
Sep. 30, 2020
Notes to Financial Statements  
Investment [Text Block]

4. Investments

 

The following table summarizes the investments in marketable securities by investment category: 

 

   

September 30, 2020

   

December 31, 2019

 
   

Cost

   

Fair Value

   

Cost

   

Fair Value

 

Available-for-sale securities:

                               

U.S. Treasury securities

  $     $     $ 3,752     $ 3,759  

Municipal bonds

    18,963       19,093       6,062       6,119  

Corporate notes/bonds

    49,325       49,925       118,859       119,449  

Asset backed securities

    2,500       2,520       4,239       4,268  

Commercial paper

    3,538       3,539       6,464       6,464  

Certificate of deposit

                72       72  

Total investments

  $ 74,326     $ 75,077     $ 139,448     $ 140,131  

 

As of September 30, 2020, there were no investments that had an unrealized loss position. 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 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, 2020 are presented in the following table:

 

   

Cost

   

Fair Value

 

Due in one year or less

  $ 58,928     $ 59,357  

Due between one and five years

    15,398       15,720  
    $ 74,326     $ 75,077  

 

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, 2020 was $1,804 and $190, respectively.  The fair value of the investment and unrealized loss as of December 31, 2019 was $1,662 and $332, respectively.  This investment is included in Other assets, net in 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 in the condensed consolidated statement of income (loss).  As of September 30, 2020, non-marketable equity investments had a carrying value of approximately $23,593, of which $11,093 was remeasured to fair value based on an observable transaction during the nine months ended September 30, 2020.  These investments are included in Other assets, net in the condensed consolidated balance sheets.  An unrealized gain of $1,801 was recorded in Other income and included as an adjustment to the carrying value of non-marketable equity investments for the nine months ended September 30, 2020.

v3.20.2
Note 5 - Inventories
9 Months Ended
Sep. 30, 2020
Notes to Financial Statements  
Inventory Disclosure [Text Block]

5. Inventories

 

Inventories consist of the following:

 

    September 30, 2020     December 31, 2019  

Raw materials

  $ 49,900     $ 18,593  
Work in process     36,178       19,081  
Finished goods     22,487       17,339  
    $ 108,565     $ 55,013  

 

v3.20.2
Note 6 - Property and Equipment, Net
9 Months Ended
Sep. 30, 2020
Notes to Financial Statements  
Property, Plant and Equipment Disclosure [Text Block]

6. Property and Equipment, net

 

Property and equipment consist of the following:

 

  September 30, 2020  December 31, 2019 

Laboratory and production equipment

 $183,647  $144,866 

Office, software and computer equipment

  46,261   37,241 

Furniture and fixtures

  1,869   1,617 

Leasehold improvements

  20,351   8,282 
   252,128   192,006 

Less accumulated depreciation and amortization

  (125,951)  (112,443)
  $126,177  $79,563 

 

Depreciation and amortization expense of property and equipment for the three and nine months ended  September 30, 2020 was $6,540 and $19,805, respectively.  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.

  

As of September 30, 2020 and December 31, 2019, computer software costs included in property and equipment were $8,222 and $7,339, respectively. Amortization expense of capitalized computer software costs was $254 and $757 for the three and nine months ended  September 30, 2020, respectively.  Amortization expense of capitalized computer software costs was $94 and $280 for the three and nine months ended  September 30, 2019, respectively. 

 

Property and equipment not yet paid in cash as of September 30, 2020 and December 31, 2019 was $11,010 and $4,728, respectively.

 

v3.20.2
Note 7 - Intangible Assets
9 Months Ended
Sep. 30, 2020
Notes to Financial Statements  
Goodwill and Intangible Assets Disclosure [Text Block]

7. Intangible Assets

 

The following table presents details of intangible assets:

 

  

September 30, 2020

  

December 31, 2019

 
  

Gross

  Accumulated Amortization  

Net

  

Gross

  Accumulated Amortization  

Net

 

Developed technology

 $229,270  $144,368  $84,902  $186,800  $123,365  $63,435 

Customer relationships

  70,540   38,704   31,836   70,540   31,409   39,131 
Contract manufacturing rights  102,388   14,795   87,593          

Trade name

  2,310   1,974   336   2,310   1,766   544 

Patents

  1,579   1,086   493   1,579   1,010   569 

Software

  79,075   28,065   51,010   74,022   9,411   64,611 
  $485,162  $228,992  $256,170  $335,251  $166,961  $168,290 

 

The following table presents amortization of intangible assets for the three and nine months ended  September 30, 2020 and 2019:

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2020

  

2019

  

2020

  

2019

 

Cost of goods sold

 $12,380  $9,724  $35,938  $29,172 

Research and development

  7,083   5,806   20,667   16,722 

Sales and marketing

  2,432   2,432   7,296   7,296 

General and administrative

  93   147   285   445 
  $21,988  $18,109  $64,186  $53,635 

 

Based on the amount of intangible assets subject to amortization at September 30, 2020, the expected amortization expense for each of the next five fiscal years and thereafter is as follows:

 

2020 (remaining)

 $21,942 

2021

  80,982 

2022

  69,614 

2023

  42,365 

2024

  27,122 

Thereafter

  14,145 
  $256,170 

 

The weighted-average amortization periods remaining by intangible asset category were as follows (in years):

 

Developed technology

  4.4 

Customer relationship

  3.3 
Contract manufacturing rights  4.3 

Trade name

  1.2 

Patents

  7.2 

Software

  2.0 

 

v3.20.2
Note 8 - Leases
9 Months Ended
Sep. 30, 2020
Notes to Financial Statements  
Lessee, Operating Leases [Text Block]

8. Leases

 

The Company has operating leases for office facilities. The leases have remaining lease terms of one year to ten years and some may include options to extend the lease for up to five years.

 

Information related to operating leases are as follows:

 

  Three Months Ended September 30,  Nine Months Ended September 30, 
  

2020

  

2019

  

2020

  

2019

 

Operating lease cost

 $2,394  $1,170  $6,920  $3,268 

Cash paid for leases

  1,820   1,028   5,147   3,219 

Right of use assets obtained in exchange for lease obligations

  418   2,927   4,161   3,151 

 

Weighted average remaining lease term and weighted average discount are as follows:

 

  

September 30, 2020

  

December 31, 2019

 

Weighted average remaining lease term (years)

  7.88   8.52 

Weighted average discount rate

  3.8%  3.9%

 

Future minimum lease payments under non-cancellable leases as of September 30, 2020 are as follows:

 

2020 (remaining)

 $1,785 

2021

  6,878 

2022

  7,087 

2023

  7,050 

2024

  6,734 

Thereafter

  23,984 

Total future minimum lease payments

  53,518 

Less: Imputed interest

  7,896 
Lease incentive recognized as offset to lease liability  3,139 

Present value of lease obligations

 $42,483 

 

v3.20.2
Note 9 - Product Warranty Obligation
9 Months Ended
Sep. 30, 2020
Notes to Financial Statements  
Product Warranty Disclosure [Text Block]

9. Product Warranty Obligation

 

As of  September 30, 2020 and December 31, 2019, the product warranty liability was $110. There was no change in product warranty liability during the three and nine months ended  September 30, 2020 and 2019.

 

v3.20.2
Note 10 - Convertible Debt
9 Months Ended
Sep. 30, 2020
Convertible Debt [Member]  
Notes to Financial Statements  
Debt Disclosure [Text Block]

10. Convertible Debt 

 

The carrying amount of the Company’s long-term debt consists of the following:

 

  September 30, 2020  December 31, 2019 

Principal

 $617,737  $517,500 

Less:

        

Unamortized debt discount

  (99,360)  (38,105)

Unamortized debt issuance costs

  (10,252)  (3,217)

Net carrying amount of long-term debt

  508,125   476,178 

Less current portion of long-term debt

  107,699   217,467 

Long-term debt, non-current portion

 $400,426  $258,711 

 

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.   

 

Interest expense for the Convertible Notes 2015 are as follows:

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2020

  

2019

  

2020

  

2019

 

Contractual interest expense

 $139  $650  $1,152  $1,936 

Amortization of debt discount

  686   2,960   5,426   8,627 

Amortization of debt issuance costs

  62   267   489   777 

Total interest expense

 $887  $3,877  $7,067  $11,340 

 

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 approximately equal to the conversion price of the Convertible Notes 2015 and with a cap price equal to $52.06 per share. 

 

In September 2016, the Company issued $287,500 of 0.75% convertible senior notes due 2021 (the “Convertible Notes 2016”). 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.  

 

Interest expense for the Convertible Notes 2016 are as follows:

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2020

  

2019

  

2020

  

2019

 

Contractual interest expense

 $110  $541  $1,044  $1,608 

Amortization of debt discount

  855   3,682   7,504   10,732 

Amortization of debt issuance costs

  70   302   615   879 

Total interest expense

 $1,035  $4,525  $9,163  $13,219 

 

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.  

 

In April 2020, the Company issued $506,000 of 0.75% convertible senior notes due 2025 (“Convertible Notes 2020” and, together with the Convertible Notes 2015 and Convertible Notes 2016, the “Convertible Notes”). The Convertible Notes 2020 will mature April 15, 2025, unless earlier converted or repurchased. Interest on the Convertible Notes 2020 is payable on April 15 and October 15 of each year, beginning on October 15, 2020. The initial conversion rate is 8.0059 shares of common stock per $1 principal amount of Convertible Notes 2020, which represents an initial conversion price of approximately $124.91 per share.  The Convertible Notes 2020 will be subject to repurchase at the option of the holders following certain fundamental corporate changes, at a fundamental change in repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. The conversion rate will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. Certain corporate events that occur prior to the stated maturity date can cause the Company to increase the conversion rate for a holder.

 

Prior to the close of business on the business day immediately preceding October 15, 2024, holders may convert all or any portion of their Convertible Notes 2020 only under the following circumstances: (i) during any calendar quarter commencing after the calendar quarter ending on June 30, 2020 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock, for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price for the Convertible Notes 2020 on each applicable trading day; (ii) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price (as defined in the Indenture 2020 (as defined below)) per $1 principal amount of Convertible Notes 2020 for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the common stock and the conversion rate on each such trading day; (iii) if the Company calls any or all of the Convertible Notes 2020 for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or (iv) upon the occurrence of specified corporate events. On or after October 15, 2024 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their Convertible Notes 2020 at any time, regardless of the foregoing circumstances. Upon conversion of a Convertible Notes 2020, the Company will pay or deliver, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock, at the Company’s election. The Company's current intent is to settle the principal amount of the Convertible Notes 2020 in cash upon conversion. If the conversion value exceeds the principal amount, the Company would deliver shares of its common stock in respect to the remainder of its conversion obligation in excess of the aggregate principal amount.

 

The Company may not redeem the Convertible Notes 2020 prior to April 20, 2023. The Company may redeem for cash all or any portion of the Convertible Notes 2020, at its option, on or after April 20, 2023 if the last reported sale price of the common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the Convertible Notes 2020 to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

 

Upon the occurrence of certain fundamental changes, the holders of the Convertible Notes 2020 may require the Company to repurchase all or a portion of the Convertible Notes 2020 for cash at a price equal to 100% of the principal amount of the Convertible Notes 2020, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.  

 

The Convertible Notes 2020 are governed by an Indenture dated April 24, 2020 (the “Indenture 2020”) between the Company and U.S. Bank National Association, as trustee (the “Trustee”). The Indenture 2020 does not contain any financial or operating covenants, or restrictions on the payments of dividends, the incurrence of indebtedness or the issuance or repurchase of securities by the Company or any of its subsidiaries.  The Indenture 2020 contains customary terms and covenants, including that upon certain events of default occurring and continuing, either the Trustee or the holders of not less than 25% in aggregate principal amount of the Convertible Notes 2020 then outstanding may declare 100% of the principal of and accrued and unpaid interest, if any, on all the Convertible Notes 2020, to be due and payable. Upon events of default involving specified bankruptcy events involving the Company, 100% of the principal of and accrued and unpaid interest, if any, on all of the Convertible Notes 2020 will be due and payable immediately.  Notwithstanding the foregoing, the Indenture 2020 provides that, to the extent the Company elects, the sole remedy for an event of default relating to certain failures by the Company to comply with certain reporting covenants in the Indenture 2020 consists exclusively of the right to receive additional interest on the Convertible Notes 2020.  As of September 30, 2020, none of the conditions allowing holders of the Convertible Notes 2020 to convert had been met.

 

In accounting for the issuance of the Convertible Notes 2020, the Company separated the Convertible Notes 2020 into liability and equity components. The carrying amount of the liability component was calculated by measuring the estimated fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the face value of the Convertible Notes 2020 as a whole. The excess of the face amount of the liability component over its carrying amount is amortized to interest expense over the term of the Convertible Notes 2020 using the effective interest method. The gross proceeds of $506,000 were accordingly allocated between long-term debt of $402,624 and stockholders' equity of $103,376.  Issuance costs of $13,507 were allocated between long-term debt of $10,747 and equity of $2,760. 

 

Interest expense for the Convertible Notes 2020 for the three and nine months ended September 30, 2020 are as follows:

 

  

Three Months Ended September 30, 2020

  

Nine Months Ended September 30, 2020

 

Contractual interest expense

 $1,042  $1,801 

Amortization of debt discount

  4,511   7,745 

Amortization of debt issuance costs

  469   805 

Total interest expense

 $6,022  $10,351 

 

In connection with the issuance of the Convertible Notes 2020, the Company entered into capped call transactions (“Capped Call 2020”) in private transactions. Under the Capped Call 2020, 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 2020, with a strike price approximately equal to the conversion price of the Convertible Notes 2020 and with a cap price equal to $188.54 per share. The Capped Call 2020 were purchased for $55,660 and recorded as a reduction to additional paid-in-capital in accordance with ASC 815-40, Contracts in Entity’s Own Equity.

 

The purchased Capped Call 2020 allows the Company to receive shares of its common stock and/or cash from counterparties equal to the amounts of common stock and/or cash related to the excess of the market price per share of the common stock, as measured under the terms of the Capped Call 2020 over the strike price of the Capped Call 2020 during the relevant valuation period. The purchased Capped Call 2020 is intended to reduce the potential dilution to common stock upon future conversion of the Convertible Notes 2020 by effectively increasing the initial conversion price to $188.54 as well as to offset potential cash payments the Company is required to make in excess of the principal amount of the Convertible Notes 2020 in applicable events.

 

The Capped Call 2020 is a separate transaction entered into by the Company with the option counterparties, is not part of the terms of the Convertible Notes 2020 and will not change the holders' rights under the Convertible Notes 2020.

 

During the three months ended June 30, 2020, the Company repurchased $180,454 and $223,090 aggregate principal amount of the Convertible Notes 2015 and Convertible Notes 2016, respectively.  During the three months ended September 30, 2020, the Company repurchased $2,219 aggregate principal amount of the Convertible Notes 2016.  The repurchase was accounted for as debt extinguishment.  The Company paid a total of $410,002 cash (excluding payment for accrued interest) and issued a total of 4,963,135 shares of common stock.  The total repurchase consideration was allocated to the liability and equity components of respective Convertible Notes.  The total repurchase consideration allocated to the liability component was based on the fair value of the liability component using discount rates based on the Company's estimated rate for a similar liability with the same maturity, but without the conversion option.  The repurchase consideration allocated to the equity component was calculated by deducting the fair value of the liability component from the aggregate repurchase consideration.  The loss on extinguishment was determined by comparing the allocated purchase consideration with the carrying value of the liability component, which includes the proportionate amounts of unamortized debt discount and the remaining unamortized debt issuance costs.  

 

The net carrying amount of the liability component of the convertible debt immediately prior to the repurchase was as follows:

 

  

Convertible Notes 2015

  

Convertible Notes 2016

 

Principal

 $180,454  $225,309 

Unamortized debt discount

  (5,596)  (15,850)

Unamortized debt issuance costs

  (504)  (1,299)

Total

 $174,354  $208,160 

 

The loss on early extinguishment of debt is calculated as follows:

 

  

Convertible Notes 2015

  

Convertible Notes 2016

 

Repurchase consideration allocated to the liability component

 $177,622  $218,338 

Net carrying value of debt

  (174,354)  (208,160)

Loss on early extinguishment

 $3,268  $10,178 

 

The repurchase consideration allocated to the equity component of $299,458 and $272,348 for the Convertible Notes 2015 and Convertible Notes 2016, respectively, was recorded as a reduction to additional paid-in capital in the Company's balance sheet.  The total value of common stock issued in relation to the repurchases was $295,660 and $262,105 for the Convertible Notes 2015 and Convertible Notes 2016, respectively.

 

The conversion condition for the Convertible Notes 2015 and Convertible Notes 2016 was met during the three months ended September 30, 2020.  During the three months ended September 30, 2020, the Company received conversion requests on the aggregate principal amount for the Convertible Notes 2016 of $1,674, which remain unsettled as of  September 30, 2020.  

 

v3.20.2
Note 11 - Other Liabilities
9 Months Ended
Sep. 30, 2020
Notes to Financial Statements  
Other Liabilities Disclosure [Text Block]

11. Other Liabilities

 

Other current liabilities consist of the following:

 

  September 30, 2020  December 31, 2019 

Software license agreements liability

 $25,292  $25,810 

Operating lease liability

  2,321   2,545 

Others

  16,104   5,176 
  $43,717  $33,531 

 

Other long-term liabilities consist of the following:

 

  September 30, 2020  December 31, 2019 

Income tax payable

 $1,035  $692 

Software license agreements liability

  20,793   36,144 

Operating lease liability

  40,162   41,074 

Others

  2,950   1,007 
  $64,940  $78,917 

 

v3.20.2
Note 12 - Income Taxes
9 Months Ended
Sep. 30, 2020
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

12. 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, 2020 and 2019 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, 2020 and 2019 interim tax provision.

 

The Company recorded an income tax provision of $1,188 and $1,482 in the three and nine months ended  September 30, 2020, respectively. The effective tax rates were (54.2%) and (3.2%) in the three and nine months ended  September 30, 2020, 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, windfall tax benefits from stock-based compensation and global intangible low-taxed income ("GILTI") inclusion. The income tax expense for the nine months ended September 30, 2020 included a reversal of certain unrecognized tax benefit as a result of the Internal Revenue Service exam conclusion with a no change report.  The reversal of the unrecognized tax benefit had no impact on the Company’s income tax provision as a result of the full federal valuation allowance.  The income tax expense for the nine months ended September 30, 2020 included an accrual for unrecognized tax benefit for foreign taxes and an income tax benefit for the remeasurement of certain net foreign deferred tax liability based on the renewed tax holiday period in Singapore.

 

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.

 

 During the three and nine months ended  September 30, 2020, the gross amount of the Company’s unrecognized tax benefits decreased approximately $1,203 and $4,856,  respectively.  The decrease for the three months ended September 30, 2020 was primarily a result of the remeasurement of certain foreign unrecognized tax benefits, partially offset by the results of tax positions taken during the current year.  The decrease for the nine months ended September 30, 2020 was primarily a result of the Internal Revenue Service exam conclusion and the remeasurement of certain foreign unrecognized tax benefits, partially offset by the results of tax positions taken during the current year.  Substantially all of the unrecognized tax benefits as of September 30, 2020, 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.

 

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was signed into law.  The CARES Act includes measures concerning income tax, employer payroll taxes, and loan programs.  The effect of the CARES Act is not expected to have a material impact on the Company’s consolidated financial statements and related disclosures.

 

v3.20.2
Note 13 - Earnings Per Share
9 Months Ended
Sep. 30, 2020
Notes to Financial Statements  
Earnings Per Share [Text Block]

13. 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 September 30,

   

Nine Months Ended September 30,

 
   

2020

   

2019

   

2020

   

2019

 

Common stock options

    711,969       999,357       777,721       1,061,221  

Unvested restricted stock units and market value stock units

    2,758,458       2,781,820       2,872,917       2,787,656  

Convertible debt

    6,402,006       10,830,038       9,091,074       10,830,038  
      9,872,433       14,611,215       12,741,712       14,678,915  

 

v3.20.2
Note 14 - Stock-based Compensation
9 Months Ended
Sep. 30, 2020
Notes to Financial Statements  
Share-based Payment Arrangement [Text Block]

14. Stock–Based Compensation

 

In June 2010, the Company's Board of Directors (the “Board”) adopted the Company’s 2010 Stock Incentive Plan, which was amended and restated in July 2017 (the “2010 Plan”). 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, 2020, 5,695,657  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, 2020 and 2019.

 

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, 2019

  905,141  $13.68   1.81  $54,616 

Exercised

  (207,424) $10.53         
Outstanding at September 30, 2020  697,717  $14.62   1.29  $68,120 

Vested and Exercisable at September 30, 2020

  697,717  $14.62   1.29  $68,120 

 

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, 2020 and 2019 was $17,326 and $7,953, 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 $2,177 and $1,907 for the nine months ended September 30, 2020 and 2019, 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, and RSUs granted to non-employee directors after the initial grant vest on the first anniversary of the date of grant or immediately prior to the Company's next annual meeting of stockholders, if earlier. 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, 2019

  3,822,325  $41.38 

Granted

  1,426,180  $87.74 

Vested

  (1,350,279) $43.86 

Canceled

  (72,790) $55.49 

Outstanding at September 30, 2020

  3,825,436  $57.51 

Expected to vest at September 30, 2020

  3,786,642     

 

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.  As of September 30, 2020, the total performance-based units outstanding was 39,338.

 

Market Value Stock Units

 

In February 2020, the compensation committee of the Board approved long-term market value stock unit (“MVSU”) awards to certain executive officers and employees, subject to certain market and service conditions, in the maximum total amount of 346,201 units. Recipients may earn between 0% to 225% of the target number of shares based on the Company’s achievement of total shareholder return (“TSR”) in comparison to the TSR of companies in the S&P 500 Index over a period of approximately two years and three years in length.  The two-year and three-year MVSU grants will end on February 9, 2022 and 2023, respectively. If the Company’s absolute TSR is negative for the performance period, then the maximum number of shares that may be earned is the target number of shares.  The fair value of the MVSU awards was estimated using a Monte Carlo simulation model and compensation is being recognized ratably over the service period. The expected volatility of the Company’s common stock was estimated based on the historical average volatility rate over the two- and three-year periods. The dividend yield assumption was based on historical and anticipated dividend payouts. The risk-free interest rate assumption was based on observed interest rates consistent with two- and three-year measurement periods. The total amount of compensation to recognize over the service period, and the assumptions used to value the grants are as follows:

 

  

Two-Year Term

  

Three-Year Term

 

Total target shares

  53,448   101,775 

Fair value per share

 $119.90  $125.30 

Total amount to be recognized over the service period

 $6,408  $12,752 

Risk free interest rate

  1.41%  1.38%

Expected volatility

  41.37%  43.79%

Dividend yield

      

 

Employee Stock Purchase Plan

 

In December 2011, the Board adopted the Company's Employee Stock Purchase Plan, which was amended and restated in April 2015, and further amended and restated in April 2018 (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, 2020 and 2019 was 128,892 and 208,721, respectively.

 

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 September 30,

  

Nine Months Ended September 30,

 
  

2020

  

2019

  

2020

  

2019

 

Risk-free interest rate

  0.12%  1.93%  0.88%  2.26%

Expected life (in years)

  0.50   0.50   0.49   0.49 

Dividend yield

            

Expected volatility

  62%  39%  50%  43%

Estimated fair value

 $38.02  $16.50  $29.17  $13.35 

 

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 September 30,

  

Nine Months Ended September 30,

 
  

2020

  

2019

  

2020

  

2019

 

Cost of goods sold

 $2,136  $1,953  $6,033  $4,432 

Research and development

  16,484   10,297   45,995   30,954 

Sales and marketing

  5,858   4,312   16,320   11,729 

General and administrative

  4,568   3,316   12,953   9,482 
  $29,046  $19,878  $81,301  $56,597 

 

Total unrecognized compensation cost related to unvested restricted stock units at September 30, 2020, prior to the consideration of expected forfeitures, is approximately $185,745 and is expected to be recognized over a weighted-average period of 2.64 years.

 

v3.20.2
Note 15 - Fair Value Measurements
9 Months Ended
Sep. 30, 2020
Notes to Financial Statements  
Fair Value Disclosures [Text Block]

15. 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, 2020 and December 31, 2019, 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 outstanding Convertible Notes as of  September 30, 2020 and  December 31, 2019 was $873,967 and $845,296, respectively.

  

The following table presents information about assets and liabilities required to be carried at fair value on a recurring basis:

 

September 30, 2020 

Total

  

Level 1

  

Level 2

 

Assets

            

Cash equivalents:

            

Money market funds

 $10,640  $10,004  $636 

Commercial paper

  17,028      17,028 

Investment in marketable debt securities:

            
Municipal bonds  19,093      19,093 

Corporate notes/bonds

  49,925      49,925 

Asset backed securities

  2,520      2,520 

Commercial paper

  3,539      3,539 
  $102,745  $10,004  $92,741 

 

December 31, 2019

 

Total

  

Level 1

  

Level 2

 

Assets

            

Cash equivalents:

            

Money market funds

 $190,598  $67,494  $123,104 

Commercial paper

  9,465      9,465 

Municipal bonds

  1,250      1,250 

Investments in marketable securities:

            

U.S. Treasury securities

  3,759   3,759    
Municipal bonds  6,119      6,119 

Corporate notes/bonds

  119,449      119,449 

Asset-backed securities

  4,268      4,268 

Commercial paper

  6,464      6,464 

Certificate of deposit

  72   72    
  $341,444  $71,325  $270,119 

 

As discussed in note 4, the Company has a marketable equity investment. The marketable equity investment is classified as Level 1 in the fair value hierarchy. As discussed in note 4, 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. 

 

v3.20.2
Note 16 - Segment and Geographic Information
9 Months Ended
Sep. 30, 2020
Notes to Financial Statements  
Segment Reporting Disclosure [Text Block]

16. 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 September 30,

  

Nine Months Ended September 30,

 
  

2020

  

2019

  

2020

  

2019

 

China

 $102,391  $34,503  $272,251  $110,769 

United States

  37,446   32,936   112,527   73,902 

Thailand

  21,286   14,816   54,017   41,661 

Other

  19,568   11,976   56,618   36,407 
  $180,691  $94,231  $495,413  $262,739 

 

As of September 30, 2020, $65,765 of long-lived tangible assets are located outside the United States, of which $55,910 are located in Taiwan. As of December 31, 2019, $33,826 of long-lived tangible assets are located outside the United States, of which $27,750 are located in Taiwan.

 

v3.20.2
Note 17 - Commitments and Contingencies
9 Months Ended
Sep. 30, 2020
Notes to Financial Statements  
Commitments and Contingencies Disclosure [Text Block]

17. 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, 2020, future minimum payments under the noncancelable agreements are as follows:

 

2020 (remaining)

 $243 

2021

  720 

2022

  69 

2023

  4 

2024

  2 

Total

 $1,038 

 

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, 2020, the total value of open purchase orders for wafers was approximately $39,308.  

 

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 Court of Appeals for the Federal Circuit decided the appeals of various parties, and affirmed the decision of the Patent Trial and Appeal Board on June 15, 2020 with respect to the reexamination proceeding for U.S. Patent No. 7,619,912.  The Patent Office is expected to proceed in a manner that is consistent with the decision of the Court of Appeals for the Federal Circuit.

 

While the Company intends to defend the lawsuit vigorously, in view of the USPTO and Federal Circuit proceedings, whether or not determined in the Company’s favor or settled, the lawsuit 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 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.

 

Claims Against eSilicon

 

In connection with the Company's acquisition of eSilicon, eSilicon and the Company have received written communications from certain former stockholders of eSilicon demanding to inspect eSilicon’s books and records and indicating that such stockholders will be seeking appraisal of shares they held in eSilicon. Certain of these former eSilicon stockholders also have stated that they may assert claims against eSilicon’s directors and senior officers for alleged breaches of fiduciary duty and other violations in connection with the merger between eSilicon and a subsidiary of the Company. The Company is unaware of any petition for appraisal and/or lawsuit being filed by any former eSilicon stockholder. The Company believes that the claims in such written communications are without merit, and plan to vigorously defend against lawsuits arising out of or relating to the merger agreement and/or the merger that may be filed in the future.

 

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, 2020 and December 31, 2019.

v3.20.2
Note 18 - Subsequent Events
9 Months Ended
Sep. 30, 2020
Notes to Financial Statements  
Subsequent Events [Text Block]

18. Subsequent Events

 

Pending Merger with Marvell Technology

 

On October 29, 2020, the Company entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with Marvell Technology Group Ltd., a Bermuda exempted company (“Marvell”), Maui HoldCo, Inc., a Delaware corporation and a wholly-owned subsidiary of Marvell (“HoldCo”), Maui Acquisition Company Ltd, a Bermuda exempted company and a wholly-owned subsidiary of HoldCo (“Bermuda Merger Sub”), and Indigo Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of HoldCo (“Delaware Merger Sub”), pursuant to which, subject to the terms and conditions of the Merger Agreement, Bermuda Merger Sub will merge with and into Marvell, with Marvell surviving the merger as a wholly-owned subsidiary of HoldCo (the “Bermuda Merger”), followed immediately by the merger of Delaware Merger Sub with and into the Company, with the Company surviving the merger as a wholly-owned subsidiary of HoldCo (the “Delaware Merger” and, together with the Bermuda Merger, the “Mergers”).  The Mergers will result in a combined company domiciled in the United States, with Marvell shareholders owning approximately 83% of the combined company, and the Company’s stockholders owning approximately 17% of the combined company.

 

Pursuant to the Merger Agreement, and upon the terms and subject to the conditions described therein, (i) at the effective time of the Bermuda Merger, all issued and outstanding common shares of Marvell (other than shares held by Marvell in Marvell’s treasury or held by HoldCo, Bermuda Merger Sub or any other subsidiary of Marvell) will be automatically converted into the right to receive one share of common stock of HoldCo (“HoldCo Common Stock”) and (ii) at the effective time of the Delaware Merger, all outstanding shares of common stock of the Company (other than (x) shares held by the Company (or held in the Company’s treasury) or held by Marvell, Delaware Merger Sub or any other subsidiary of Marvell or held, directly or indirectly, by any subsidiary of the Company or (y) shares with respect to which appraisal rights are properly exercised and not withdrawn under Delaware law) will be automatically converted into the right to receive 2.323 shares of HoldCo Common Stock and $66.0 in cash per share, without interest, plus cash in lieu of any fractional shares of HoldCo Common Stock.

 

If the Merger Agreement is terminated under certain circumstances, an alternative acquisition proposal had previously been made with respect to the Company, and within 12 months of the termination of the Merger Agreement, the Company enters into a definitive agreement for certain extraordinary corporate transactions or completes any such transaction, the Company would be obligated to pay Marvell a fee equal to $300,000. The Company would also be obligated to pay this fee if the Merger Agreement is terminated because of certain triggering events by the Company, including the Board changing or withdrawing its recommendation regarding the Mergers, or failing to reaffirm its’ support for the Mergers in certain circumstances. Additionally, the Company would be obligated to pay this fee if it elects to terminate the Merger Agreement to enter into certain superior acquisition transactions.

 

If the Merger Agreement is terminated because of certain triggering events by Marvell, including Marvell’s board of directors changing or withdrawing its recommendation regarding the Mergers, or failing to reaffirm its support for the Mergers in certain circumstances, Marvell would be obligated to pay the Company a fee equal to $400,000. Marvell would also be obligated to pay this fee if it elects to terminate the Merger Agreement to enter into certain superior acquisition transactions. Additionally, if the Merger Agreement is terminated due to failure to receive certain regulatory approvals or because of the existence of certain government orders or litigations, Marvell would be obligated to pay the Company a fee equal to $460,000.

 

If the Merger Agreement is terminated due to the failure to obtain the Company’s stockholder approval or Marvell’s shareholder approval, the party whose stockholders did not approve the transaction will be obligated to reimburse the other party for its fees, costs and other expenses related to the Merger Agreement (including legal fees, financial advisory fees, and consultant fees), up to a maximum of $25,000.

 

v3.20.2
Note 3 - Acquisitions (Tables)
9 Months Ended
Sep. 30, 2020
Notes Tables  
Schedule of Recognized Identified Assets Acquired and Liabilities Assumed [Table Text Block]

Cash

 $704 

Restricted cash

  2,100 

Accounts receivable

  5,750 

Inventories

  21,086 

Prepaid expenses and other current assets

  21,012 

Property and equipment

  7,106 

Intangible assets

  148,720 

Right of use asset

  1,022 

Other noncurrent assets

  252 

Accounts payable

  (9,105)

Accrued expenses

  (25,060)

Deferred revenue

  (7,501)

Other current liabilities

  (13,886)

Other liabilities

  (3,567)

Total identifiable net assets

 $148,633 

Goodwill

  66,011 

Net assets acquired

 $214,644 

Inventories

 $126 

Intangible asset

  8,840 

Total identifiable net assets

  8,966 

Goodwill

  11,175 

Net assets acquired

 $20,141 
Schedule of Finite-Lived Intangible Assets Acquired as Part of Business Combination [Table Text Block]
  Estimated Fair Value  Estimated Useful Life (Years) 

Contract manufacturing rights

 $105,160   5.0 

Developed technology

  33,630   8.0 

Software

  9,930   0.5 to 2.0 
  $148,720     
Business Acquisition, Pro Forma Information [Table Text Block]
  

Pro Forma Three Months Ended

  

Pro Forma Nine Months Ended

 
  

September 30, 2020

  

September 30, 2019

  

September 30, 2020

  

September 30, 2019

 
  

(unaudited)

 

(unaudited)

 

Revenue

 $180,691  $121,206  $502,892  $344,433 

Net loss

 $(2,447) $(25,497) $(50,328) $(110,400)
v3.20.2
Note 4 - Investments (Tables)
9 Months Ended
Sep. 30, 2020
Notes Tables  
Available-for-sale Securities [Table Text Block]
   

September 30, 2020

   

December 31, 2019

 
   

Cost

   

Fair Value

   

Cost

   

Fair Value

 

Available-for-sale securities:

                               

U.S. Treasury securities

  $     $     $ 3,752     $ 3,759  

Municipal bonds

    18,963       19,093       6,062       6,119  

Corporate notes/bonds

    49,325       49,925       118,859       119,449  

Asset backed securities

    2,500       2,520       4,239       4,268  

Commercial paper

    3,538       3,539       6,464       6,464  

Certificate of deposit

                72       72  

Total investments

  $ 74,326     $ 75,077     $ 139,448     $ 140,131  
Investments Classified by Contractual Maturity Date [Table Text Block]
   

Cost

   

Fair Value

 

Due in one year or less

  $ 58,928     $ 59,357  

Due between one and five years

    15,398       15,720  
    $ 74,326     $ 75,077  
v3.20.2
Note 5 - Inventories (Tables)
9 Months Ended
Sep. 30, 2020
Notes Tables  
Schedule of Inventory, Current [Table Text Block]
    September 30, 2020     December 31, 2019  

Raw materials

  $ 49,900     $ 18,593  
Work in process     36,178       19,081  
Finished goods     22,487       17,339  
    $ 108,565     $ 55,013  
v3.20.2
Note 6 - Property and Equipment, Net (Tables)
9 Months Ended
Sep. 30, 2020
Notes Tables  
Property, Plant and Equipment [Table Text Block]
  September 30, 2020  December 31, 2019 

Laboratory and production equipment

 $183,647  $144,866 

Office, software and computer equipment

  46,261   37,241 

Furniture and fixtures

  1,869   1,617 

Leasehold improvements

  20,351   8,282 
   252,128   192,006 

Less accumulated depreciation and amortization

  (125,951)  (112,443)
  $126,177  $79,563 
v3.20.2
Note 7 - Intangible Assets (Tables)
9 Months Ended
Sep. 30, 2020
Notes Tables  
Schedule of Finite-Lived Intangible Assets [Table Text Block]
  

September 30, 2020

  

December 31, 2019

 
  

Gross

  Accumulated Amortization  

Net

  

Gross

  Accumulated Amortization  

Net

 

Developed technology

 $229,270  $144,368  $84,902  $186,800  $123,365  $63,435 

Customer relationships

  70,540   38,704   31,836   70,540   31,409   39,131 
Contract manufacturing rights  102,388   14,795   87,593          

Trade name

  2,310   1,974   336   2,310   1,766   544 

Patents

  1,579   1,086   493   1,579   1,010   569 

Software

  79,075   28,065   51,010   74,022   9,411   64,611 
  $485,162  $228,992  $256,170  $335,251  $166,961  $168,290 
Finite-lived Intangible Assets Amortization Expense [Table Text Block]
  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2020

  

2019

  

2020

  

2019

 

Cost of goods sold

 $12,380  $9,724  $35,938  $29,172 

Research and development

  7,083   5,806   20,667   16,722 

Sales and marketing

  2,432   2,432   7,296   7,296 

General and administrative

  93   147   285   445 
  $21,988  $18,109  $64,186  $53,635 
Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]

2020 (remaining)

 $21,942 

2021

  80,982 

2022

  69,614 

2023

  42,365 

2024

  27,122 

Thereafter

  14,145 
  $256,170 
Finite Lived Intangible Assets Remaining Amortization Period [Table Text Block]

Developed technology

  4.4 

Customer relationship

  3.3 
Contract manufacturing rights  4.3 

Trade name

  1.2 

Patents

  7.2 

Software

  2.0 
v3.20.2
Note 8 - Leases (Tables)
9 Months Ended
Sep. 30, 2020
Notes Tables  
Lease, Cost [Table Text Block]
  Three Months Ended September 30,  Nine Months Ended September 30, 
  

2020

  

2019

  

2020

  

2019

 

Operating lease cost

 $2,394  $1,170  $6,920  $3,268 

Cash paid for leases

  1,820   1,028   5,147   3,219 

Right of use assets obtained in exchange for lease obligations

  418   2,927   4,161   3,151 
  

September 30, 2020

  

December 31, 2019

 

Weighted average remaining lease term (years)

  7.88   8.52 

Weighted average discount rate

  3.8%  3.9%
Lessee, Operating Lease, Liability, Maturity [Table Text Block]

2020 (remaining)

 $1,785 

2021

  6,878 

2022

  7,087 

2023

  7,050 

2024

  6,734 

Thereafter

  23,984 

Total future minimum lease payments

  53,518 

Less: Imputed interest

  7,896 
Lease incentive recognized as offset to lease liability  3,139 

Present value of lease obligations

 $42,483 
v3.20.2
Note 10 - Convertible Debt (Tables)
9 Months Ended
Sep. 30, 2020
Notes Tables  
Schedule of Long-term Debt Instruments [Table Text Block]
  September 30, 2020  December 31, 2019 

Principal

 $617,737  $517,500 

Less:

        

Unamortized debt discount

  (99,360)  (38,105)

Unamortized debt issuance costs

  (10,252)  (3,217)

Net carrying amount of long-term debt

  508,125   476,178 

Less current portion of long-term debt

  107,699   217,467 

Long-term debt, non-current portion

 $400,426  $258,711 
Interest Income and Interest Expense Disclosure [Table Text Block]
  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2020

  

2019

  

2020

  

2019

 

Contractual interest expense

 $139  $650  $1,152  $1,936 

Amortization of debt discount

  686   2,960   5,426   8,627 

Amortization of debt issuance costs

  62   267   489   777 

Total interest expense

 $887  $3,877  $7,067  $11,340 
  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2020

  

2019

  

2020

  

2019

 

Contractual interest expense

 $110  $541  $1,044  $1,608 

Amortization of debt discount

  855   3,682   7,504   10,732 

Amortization of debt issuance costs

  70   302   615   879 

Total interest expense

 $1,035  $4,525  $9,163  $13,219 
  

Three Months Ended September 30, 2020

  

Nine Months Ended September 30, 2020

 

Contractual interest expense

 $1,042  $1,801 

Amortization of debt discount

  4,511   7,745 

Amortization of debt issuance costs

  469   805 

Total interest expense

 $6,022  $10,351 
Schedule of Extinguishment of Debt [Table Text Block]
  

Convertible Notes 2015

  

Convertible Notes 2016

 

Principal

 $180,454  $225,309 

Unamortized debt discount

  (5,596)  (15,850)

Unamortized debt issuance costs

  (504)  (1,299)

Total

 $174,354  $208,160 
  

Convertible Notes 2015

  

Convertible Notes 2016

 

Repurchase consideration allocated to the liability component

 $177,622  $218,338 

Net carrying value of debt

  (174,354)  (208,160)

Loss on early extinguishment

 $3,268  $10,178 
v3.20.2
Note 11 - Other Liabilities (Tables)
9 Months Ended
Sep. 30, 2020
Notes Tables  
Other Current Liabilities [Table Text Block]
  September 30, 2020  December 31, 2019 

Software license agreements liability

 $25,292  $25,810 

Operating lease liability

  2,321   2,545 

Others

  16,104   5,176 
  $43,717  $33,531 
Other Noncurrent Liabilities [Table Text Block]
  September 30, 2020  December 31, 2019 

Income tax payable

 $1,035  $692 

Software license agreements liability

  20,793   36,144 

Operating lease liability

  40,162   41,074 

Others

  2,950   1,007 
  $64,940  $78,917 
v3.20.2
Note 13 - Earnings Per Share (Tables)
9 Months Ended
Sep. 30, 2020
Notes Tables  
Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share [Table Text Block]
   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2020

   

2019

   

2020

   

2019

 

Common stock options

    711,969       999,357       777,721       1,061,221  

Unvested restricted stock units and market value stock units

    2,758,458       2,781,820       2,872,917       2,787,656  

Convertible debt

    6,402,006       10,830,038       9,091,074       10,830,038  
      9,872,433       14,611,215       12,741,712       14,678,915  
v3.20.2
Note 14 - Stock-based Compensation (Tables)
9 Months Ended
Sep. 30, 2020
Notes Tables  
Share-based Payment Arrangement, Option, Activity [Table Text Block]
  Number of Shares  Weighted Average Exercise Price  Weighted Average Remaining Contractual Life (Years)  Aggregate Intrinsic Value 

Outstanding at December 31, 2019

  905,141  $13.68   1.81  $54,616 

Exercised

  (207,424) $10.53         
Outstanding at September 30, 2020  697,717  $14.62   1.29  $68,120 

Vested and Exercisable at September 30, 2020

  697,717  $14.62   1.29  $68,120 
Share-based Payment Arrangement, Restricted Stock Unit, Activity [Table Text Block]
  Number of Shares  Weighted Average Grant Date Fair Value Per Share 

Outstanding at December 31, 2019

  3,822,325  $41.38 

Granted

  1,426,180  $87.74 

Vested

  (1,350,279) $43.86 

Canceled

  (72,790) $55.49 

Outstanding at September 30, 2020

  3,825,436  $57.51 

Expected to vest at September 30, 2020

  3,786,642     
Schedule of Share-based Payment Award, Equity Instruments Other than Option, Valuation Assumptions [Table Text Block]
  

Two-Year Term

  

Three-Year Term

 

Total target shares

  53,448   101,775 

Fair value per share

 $119.90  $125.30 

Total amount to be recognized over the service period

 $6,408  $12,752 

Risk free interest rate

  1.41%  1.38%

Expected volatility

  41.37%  43.79%

Dividend yield

      
Schedule of Share-based Payment Award, Employee Stock Purchase Plan, Valuation Assumptions [Table Text Block]
  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2020

  

2019

  

2020

  

2019

 

Risk-free interest rate

  0.12%  1.93%  0.88%  2.26%

Expected life (in years)

  0.50   0.50   0.49   0.49 

Dividend yield

            

Expected volatility

  62%  39%  50%  43%

Estimated fair value

 $38.02  $16.50  $29.17  $13.35 
Share-based Payment Arrangement, Expensed and Capitalized, Amount [Table Text Block]
  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2020

  

2019

  

2020

  

2019

 

Cost of goods sold

 $2,136  $1,953  $6,033  $4,432 

Research and development

  16,484   10,297   45,995   30,954 

Sales and marketing

  5,858   4,312   16,320   11,729 

General and administrative

  4,568   3,316   12,953   9,482 
  $29,046  $19,878  $81,301  $56,597 
v3.20.2
Note 15 - Fair Value Measurements (Tables)
9 Months Ended
Sep. 30, 2020
Notes Tables  
Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block]
September 30, 2020 

Total

  

Level 1

  

Level 2

 

Assets

            

Cash equivalents:

            

Money market funds

 $10,640  $10,004  $636 

Commercial paper

  17,028      17,028 

Investment in marketable debt securities:

            
Municipal bonds  19,093      19,093 

Corporate notes/bonds

  49,925      49,925 

Asset backed securities

  2,520      2,520 

Commercial paper

  3,539      3,539 
  $102,745  $10,004  $92,741 

December 31, 2019

 

Total

  

Level 1

  

Level 2

 

Assets

            

Cash equivalents:

            

Money market funds

 $190,598  $67,494  $123,104 

Commercial paper

  9,465      9,465 

Municipal bonds

  1,250      1,250 

Investments in marketable securities:

            

U.S. Treasury securities

  3,759   3,759    
Municipal bonds  6,119      6,119 

Corporate notes/bonds

  119,449      119,449 

Asset-backed securities

  4,268      4,268 

Commercial paper

  6,464      6,464 

Certificate of deposit

  72   72    
  $341,444  $71,325  $270,119 
v3.20.2
Note 16 - Segment and Geographic Information (Tables)
9 Months Ended
Sep. 30, 2020
Notes Tables  
Revenue from External Customers by Geographic Areas [Table Text Block]
  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2020

  

2019

  

2020

  

2019

 

China

 $102,391  $34,503  $272,251  $110,769 

United States

  37,446   32,936   112,527   73,902 

Thailand

  21,286   14,816   54,017   41,661 

Other

  19,568   11,976   56,618   36,407 
  $180,691  $94,231  $495,413  $262,739 
v3.20.2
Note 17 - Commitments and Contingencies (Tables)
9 Months Ended
Sep. 30, 2020
Notes Tables  
Unrecorded Unconditional Purchase Obligations Disclosure [Table Text Block]

2020 (remaining)

 $243 

2021

  720 

2022

  69 

2023

  4 

2024

  2 

Total

 $1,038 
v3.20.2
Note 1 - Organization and Basis of Presentation (Details Textual) - USD ($)
$ in Thousands
9 Months Ended
May 18, 2020
Jan. 10, 2020
Sep. 30, 2020
Sep. 30, 2019
Dec. 31, 2019
Net Cash Provided by (Used in) Investing Activities, Total     $ (202,471) $ (58,243)  
Net Cash Provided by (Used in) Financing Activities, Total     (43,288) (37,646)  
Accounts Receivable, Allowance for Credit Loss, Ending Balance     1,202   $ 1,152
Debt Securities, Available-for-sale, Allowance for Credit Loss, Ending Balance     0    
Debt Securities, Available-for-Sale, Accrued Interest, after Allowance for Credit Loss, Total     $ 454    
Revision [Member]          
Net Cash Provided by (Used in) Investing Activities, Total       19,895  
Net Cash Provided by (Used in) Financing Activities, Total       19,895  
Previously Reported [Member]          
Net Cash Provided by (Used in) Investing Activities, Total       78,138  
Net Cash Provided by (Used in) Financing Activities, Total       $ 17,751  
eSilicon [Member]          
Payments to Acquire Businesses, Gross   $ 214,644      
Arrive [Member]          
Payments to Acquire Businesses, Gross $ 20,141        
v3.20.2
Note 3 - Acquisitions (Details Textual) - USD ($)
$ in Thousands
3 Months Ended 4 Months Ended 9 Months Ended 12 Months Ended 21 Months Ended
May 18, 2020
Jan. 10, 2020
Sep. 30, 2020
Sep. 30, 2020
Sep. 30, 2020
Sep. 30, 2020
Sep. 30, 2020
Dec. 31, 2019
Sep. 30, 2020
eSilicon [Member]                  
Payments to Acquire Businesses, Gross   $ 214,644              
Purchase Consideration in Escrow   10,000              
Business Combination, Acquisition Related Costs               $ 1,015 $ 1,550
Business Combination, Pro Forma Information, Revenue of Acquiree since Acquisition Date, Actual     $ 31,455     $ 91,306      
Business Combination, Pro Forma Information, Earnings or Loss of Acquiree since Acquisition Date, Actual     1,108     $ (13,884)      
Business Combination, Step Acquisition, Equity Interest in Acquiree, Fair Value             $ 14,999    
Business Combination, Step Acquisition, Equity Interest in Acquiree, Remeasurement Gain (Loss), Net, Total             $ 4,999    
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Finite-Lived Intangibles   $ 148,720              
eSilicon [Member] | General and Administrative Expense [Member]                  
Business Combination, Acquisition Related Costs         $ 535        
eSilicon [Member] | Contractual Rights [Member]                  
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life (Year)   5 years              
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Finite-Lived Intangibles   $ 105,160              
eSilicon [Member] | Developed Technology Rights [Member]                  
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life (Year)   8 years              
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Finite-Lived Intangibles   $ 33,630              
Arrive [Member]                  
Payments to Acquire Businesses, Gross $ 20,141                
Business Combination, Pro Forma Information, Revenue of Acquiree since Acquisition Date, Actual     975 $ 1,546          
Business Combination, Pro Forma Information, Earnings or Loss of Acquiree since Acquisition Date, Actual     $ (1,087) $ (1,207)          
Holdback Payments to Acquire Business 3,000                
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Finite-Lived Intangibles 8,840                
Arrive [Member] | General and Administrative Expense [Member]                  
Business Combination, Acquisition Related Costs         $ 180        
Arrive [Member] | Developed Technology Rights [Member]                  
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Finite-Lived Intangibles $ 8,840                
Finite-Lived Intangible Asset, Useful Life (Year) 5 years                
v3.20.2
Note 3 - Acquisitions - Purchase Price Allocation (Details) - USD ($)
$ in Thousands
Sep. 30, 2020
May 18, 2020
Jan. 10, 2020
Dec. 31, 2019
Goodwill $ 181,688     $ 104,502
eSilicon [Member]        
Cash     $ 704  
Restricted cash     2,100  
Accounts receivable     5,750  
Inventories     21,086  
Prepaid expenses and other current assets     21,012  
Property and equipment     7,106  
Intangible assets     148,720  
Right of use asset     1,022  
Other noncurrent assets     252  
Accounts payable     (9,105)  
Accrued expenses     (25,060)  
Deferred revenue     (7,501)  
Other current liabilities     (13,886)  
Other liabilities     (3,567)  
Total identifiable net assets     148,633  
Goodwill     66,011  
Net assets acquired     214,644  
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Finite-Lived Intangibles     $ 148,720  
Arrive [Member]        
Inventories   $ 126    
Total identifiable net assets   8,966    
Goodwill   11,175    
Net assets acquired   20,141    
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Finite-Lived Intangibles   $ 8,840    
v3.20.2
Note 3 - Acquisitions - Intangible Assets Acquired (Details) - eSilicon [Member]
$ in Thousands
Jan. 10, 2020
USD ($)
Estimated Fair Value $ 148,720
Contractual Rights [Member]  
Estimated Fair Value $ 105,160
Estimated Useful Life (Year) 5 years
Developed Technology Rights [Member]  
Estimated Fair Value $ 33,630
Estimated Useful Life (Year) 8 years
Computer Software, Intangible Asset [Member]  
Estimated Fair Value $ 9,930
Computer Software, Intangible Asset [Member] | Minimum [Member]  
Estimated Useful Life (Year) 6 months
Computer Software, Intangible Asset [Member] | Maximum [Member]  
Estimated Useful Life (Year) 2 years
v3.20.2
Note 3 - Acquisitions - Pro Forma Information (Details) - ESilicon and Arrive [Member] - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Revenue $ 180,691 $ 121,206 $ 502,892 $ 344,433
Net loss $ (2,447) $ (25,497) $ (50,328) $ (110,400)
v3.20.2
Note 4 - Investments (Details Textual)
Pure in Thousands, $ in Thousands
9 Months Ended 12 Months Ended
Sep. 30, 2020
USD ($)
Dec. 31, 2019
USD ($)
Debt Securities, Available-for-sale, Unrealized Loss Position, Number of Positions 0  
Equity Securities, Fair Value Based on Observable Transaction [Member] | Other Income [Member]    
Equity Securities without Readily Determinable Fair Value, Upward Price Adjustment, Annual Amount $ 1,801  
Other Noncurrent Assets [Member] | Equity Securities, Fair Value Based on Observable Transaction [Member]    
Equity Securities without Readily Determinable Fair Value, Amount 23,593  
Equity Securities without Readily Determinable Fair Value, Amount Remeasured to Fair Value 11,093  
TAIWAN, PROVINCE OF CHINA    
Equity Securities, FV-NI 1,804 $ 1,662
Equity Securities, FV-NI, Unrealized Loss $ 190 $ 332
v3.20.2
Note 4 - Investments - Summary of Investments by Investment Category (Details) - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Available-for-sale securities, amortized cost $ 74,326 $ 139,448
Available-for-sale securities, fair value 75,077 140,131
US Treasury Securities [Member]    
Available-for-sale securities, amortized cost 0 3,752
Available-for-sale securities, fair value 0 3,759
US States and Political Subdivisions Debt Securities [Member]    
Available-for-sale securities, amortized cost 18,963 6,062
Available-for-sale securities, fair value 19,093 6,119
Corporate Debt Securities [Member]    
Available-for-sale securities, amortized cost 49,325 118,859
Available-for-sale securities, fair value 49,925 119,449
Asset-backed Securities [Member]    
Available-for-sale securities, amortized cost 2,500 4,239
Available-for-sale securities, fair value 2,520 4,268
Commercial Paper [Member]    
Available-for-sale securities, amortized cost 3,538 6,464
Available-for-sale securities, fair value 3,539 6,464
Certificates of Deposit [Member]    
Available-for-sale securities, amortized cost 0 72
Available-for-sale securities, fair value $ 0 $ 72
v3.20.2
Note 4 - Investments - Contractual Maturities of Available-for-sale Securities (Details) - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Due in one year or less, cost $ 58,928  
Due in one year or less, fair value 59,357  
Due between one and five years, cost 15,398  
Due between one and five years, fair value 15,720  
Available-for-sale securities, cost 74,326 $ 139,448
Available-for-sale securities, fair value $ 75,077 $ 140,131
v3.20.2
Note 5 - Inventories - Schedule of Inventory (Details) - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Raw materials $ 49,900 $ 18,593
Work in process 36,178 19,081
Finished goods 22,487 17,339
Inventory, Net, Total $ 108,565 $ 55,013
v3.20.2
Note 6 - Property and Equipment, Net (Details Textual) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended 12 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Dec. 31, 2019
Depreciation, Total $ 6,540 $ 5,668 $ 19,805 $ 16,726  
Capitalized Computer Software, Gross 8,222   8,222   $ 7,339
Capitalized Computer Software, Amortization $ 254 $ 94 757 $ 280  
Capital Expenditures Incurred but Not yet Paid     $ 11,010   $ 4,728
v3.20.2
Note 6 - Property and Equipment, Net - Property and Equipment Components (Details) - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Property and equipment, gross $ 252,128 $ 192,006
Less accumulated depreciation and amortization (125,951) (112,443)
Property and equipment, gross 126,177 79,563
Equipment [Member]    
Property and equipment, gross 183,647 144,866
Office, Software, and Computer Equipment [Member]    
Property and equipment, gross 46,261 37,241
Furniture and Fixtures [Member]    
Property and equipment, gross 1,869 1,617
Leasehold Improvements [Member]    
Property and equipment, gross $ 20,351 $ 8,282
v3.20.2
Note 7 - Intangible Assets - Identifiable Intangible Assets (Details) - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Intangible assets, gross $ 485,162 $ 335,251
Intangible assets, accumulated amortization 228,992 166,961
Intangible assets, net 256,170 168,290
Developed Technology Rights [Member]    
Intangible assets, gross 229,270 186,800
Intangible assets, accumulated amortization 144,368 123,365
Intangible assets, net 84,902 63,435
Customer Relationships [Member]    
Intangible assets, gross 70,540 70,540
Intangible assets, accumulated amortization 38,704 31,409
Intangible assets, net 31,836 39,131
Contractual Rights [Member]    
Intangible assets, gross 102,388 0
Intangible assets, accumulated amortization 14,795 0
Intangible assets, net 87,593 0
Trade Names [Member]    
Intangible assets, gross 2,310 2,310
Intangible assets, accumulated amortization 1,974 1,766
Intangible assets, net 336 544
Patents [Member]    
Intangible assets, gross 1,579 1,579
Intangible assets, accumulated amortization 1,086 1,010
Intangible assets, net 493 569
Computer Software, Intangible Asset [Member]    
Intangible assets, gross 79,075 74,022
Intangible assets, accumulated amortization 28,065 9,411
Intangible assets, net $ 51,010 $ 64,611
v3.20.2
Note 7 - Intangible Assets - Amortization (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Amortization of intangible assets $ 21,988 $ 18,109 $ 64,186 $ 53,635
Cost of Sales [Member]        
Amortization of intangible assets 12,380 9,724 35,938 29,172
Research and Development Expense [Member]        
Amortization of intangible assets 7,083 5,806 20,667 16,722
Selling and Marketing Expense [Member]        
Amortization of intangible assets 2,432 2,432 7,296 7,296
General and Administrative Expense [Member]        
Amortization of intangible assets $ 93 $ 147 $ 285 $ 445
v3.20.2
Note 7 - Intangible Assets - Expected Amortization Expense (Details) - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
2020 (remaining) $ 21,942  
2021 80,982  
2022 69,614  
2023 42,365  
2024 27,122  
Thereafter 14,145  
Finite-Lived Intangible Assets, Net, Ending Balance $ 256,170 $ 168,290
v3.20.2
Note 7 - Intangible Assets - Weighted-average Amortization Periods Remaining (Details)
9 Months Ended
Sep. 30, 2020
Developed Technology Rights [Member]  
Finite-lived intangible assets, remaining amortization period (Year) 4 years 4 months 24 days
Customer Relationships [Member]  
Finite-lived intangible assets, remaining amortization period (Year) 3 years 3 months 18 days
Contractual Rights [Member]  
Finite-lived intangible assets, remaining amortization period (Year) 4 years 3 months 18 days
Trade Names [Member]  
Finite-lived intangible assets, remaining amortization period (Year) 1 year 2 months 12 days
Patents [Member]  
Finite-lived intangible assets, remaining amortization period (Year) 7 years 2 months 12 days
Computer Software, Intangible Asset [Member]  
Finite-lived intangible assets, remaining amortization period (Year) 2 years
v3.20.2
Note 8 - Leases (Details Textual)
Sep. 30, 2020
Lessee, Operating Lease, Renewal Term (Year) 5 years
Minimum [Member]  
Lessee, Operating Lease, Remaining Lease Term (Year) 1 year
Maximum [Member]  
Lessee, Operating Lease, Remaining Lease Term (Year) 10 years
v3.20.2
Note 8 - Leases - Lease Cost (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Dec. 31, 2019
Operating lease cost $ 2,394 $ 1,170 $ 6,920 $ 3,268  
Cash paid for leases 1,820 1,028 5,147 3,219  
Right of use assets obtained in exchange for lease obligations $ 418 $ 2,927 $ 4,161 $ 3,151  
Weighted average remaining lease term (years) (Year) 7 years 10 months 17 days   7 years 10 months 17 days   8 years 6 months 7 days
Weighted average discount rate 3.80%   3.80%   3.90%
v3.20.2
Note 8 - Leases - Future Minimum Lease Payments Under Non-cancelable Operating Leases (Details)
$ in Thousands
Sep. 30, 2020
USD ($)
2020 (remaining) $ 1,785
2021 6,878
2022 7,087
2023 7,050
2024 6,734
Thereafter 23,984
Total future minimum lease payments 53,518
Less: Imputed interest 7,896
Lease incentive recognized as offset to lease liability 3,139
Liabilities [Member]  
Present value of lease obligations $ 42,483
v3.20.2
Note 9 - Product Warranty Obligation (Details Textual) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Dec. 31, 2019
Standard and Extended Product Warranty Accrual, Ending Balance $ 110   $ 110   $ 110
Standard and Extended Product Warranty Accrual, Period Increase (Decrease), Total $ 0 $ 0 $ 0 $ 0  
v3.20.2
Note 10 - Convertible Debt (Details Textual)
$ / shares in Units, $ in Thousands
1 Months Ended 3 Months Ended 9 Months Ended 12 Months Ended
Apr. 24, 2020
USD ($)
$ / shares
$ / item
shares
Sep. 30, 2016
USD ($)
$ / shares
$ / item
Sep. 30, 2020
USD ($)
Jun. 30, 2020
USD ($)
Sep. 30, 2020
USD ($)
Sep. 30, 2019
USD ($)
Dec. 31, 2015
USD ($)
$ / shares
$ / item
Proceeds from Convertible Debt         $ 492,743 $ 0  
Payments for Call Options         55,660 (0)  
Repayments of Convertible Debt         410,002 $ (0)  
Exchange for Convertible Notes 2015 [Member]              
Extinguishment of Debt, Amount       $ 180,454      
Exchange for Convertible Notes 2016 [Member]              
Extinguishment of Debt, Amount     $ 2,219 $ 223,090      
Convertible Debt [Member]              
Repayments of Convertible Debt $ 410,002            
Convertible Debt Repurchases, Shares Outstanding Impact (in shares) | shares 4,963,135            
Convertible Debt [Member] | Convertible Notes 2015 [Member]              
Debt Instrument, Face Amount             $ 230,000
Debt Instrument, Interest Rate, Stated Percentage             1.125%
Debt Instrument, Convertible, Conversion Ratio             24.8988
Debt Instrument, Convertible, Conversion Price (in dollars per share) | $ / shares             $ 40.16
Convertible Debt in Default, Percent Holders to Declare Due and Payable             100.00%
Derivative, Cap Price (in USD per Per Share) | $ / item             52.06
Extinguishment of Debt, Amount $ 180,454            
Adjustments to Additional Paid in Capital Equity Component of Convertible Debt Retired (299,458)            
Common Stock Issued in Relation to Repurchases of Convertible Debt, Value 295,660            
Convertible Debt [Member] | Convertible Notes 2016 [Member]              
Debt Instrument, Face Amount   $ 287,500          
Debt Instrument, Interest Rate, Stated Percentage   0.75%          
Debt Instrument, Convertible, Conversion Ratio   17.7508          
Debt Instrument, Convertible, Conversion Price (in dollars per share) | $ / shares   $ 56.34          
Convertible Debt in Default, Percent Holders to Declare Due and Payable   100.00%          
Derivative, Cap Price (in USD per Per Share) | $ / item   73.03          
Extinguishment of Debt, Amount 225,309            
Convertible Debt [Member] | Convertible Notes 2020 [Member]              
Debt Instrument, Face Amount $ 506,000            
Debt Instrument, Interest Rate, Stated Percentage 0.75%            
Debt Instrument, Convertible, Conversion Ratio 8.0059            
Debt Instrument, Convertible, Conversion Price (in dollars per share) | $ / shares $ 124.91            
Convertible Debt in Default, Percent Holders to Declare Due and Payable 100.00%            
Derivative, Cap Price (in USD per Per Share) | $ / item 188.54            
Debt Instrument, Convertible, Threshold Trading Days 20            
Debt Instrument, Convertible, Threshold Consecutive Trading Days 30            
Debt Instrument, Convertible, Threshold Percentage of Stock Price Trigger 130.00%            
Convertible Debt in Bankruptcy, Insolvency, and Reorganization, Percent due and Payable 100.00%            
Convertible Debt Holders in Default, Percent of Principal Amount 25.00%            
Proceeds from Convertible Debt $ 506,000            
Proceeds from Convertible Debt, Portion Allocated to Long-term Debt 402,624            
Proceeds from Convertible Debt, Allocated to Stockholders' Equity 103,376            
Debt Issuance Costs, Gross 13,507            
Convertible Debt Issuance Costs, Gross, Long-term Debt Component 10,747            
Convertible Debt Issuance Costs, Gross, Equity Component $ 2,760            
Capped Call Options, Percentage of Common Shares Underlying the Convertible Debt 100.00%            
Payments for Call Options $ 55,660            
Convertible Debt [Member] | Convertible Notes 2020 [Member] | Conversion Circumstance 1 [Member]              
Debt Instrument, Convertible, Threshold Trading Days 20            
Debt Instrument, Convertible, Threshold Consecutive Trading Days 30            
Convertible Debt [Member] | Convertible Notes 2016, Issuance Costs [Member]              
Adjustments to Additional Paid in Capital Equity Component of Convertible Debt Retired $ (272,348)            
Common Stock Issued in Relation to Repurchases of Convertible Debt, Value $ 262,105            
Convertible Debt, Conversion Request Received, Aggregate Principal Amount     $ 1,674   $ 1,674    
v3.20.2
Note 10 - Convertible Debt - Carrying Amount of Long-term Debt (Details) - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Principal $ 617,737 $ 517,500
Unamortized debt discount (99,360) (38,105)
Unamortized debt issuance costs (10,252) (3,217)
Net carrying amount of long-term debt 508,125 476,178
Less current portion of long-term debt 107,699 217,467
Long-term debt, non-current portion $ 400,426 $ 258,711
v3.20.2
Note 10 - Convertible Debt - Schedule of Interest Expense for Convertible Debt (Details) - Convertible Debt [Member] - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Convertible Notes 2020 [Member]        
Contractual interest expense $ 1,042   $ 1,801  
Amortization of debt discount 4,511   7,745  
Amortization of debt issuance costs 469   805  
Total interest expense 6,022   10,351  
Convertible Notes 2015 [Member]        
Contractual interest expense 139 $ 650 1,152 $ 1,936
Amortization of debt discount 686 2,960 5,426 8,627
Amortization of debt issuance costs 62 267 489 777
Total interest expense 887 3,877 7,067 11,340
Convertible Notes 2016 [Member]        
Contractual interest expense 110 541 1,044 1,608
Amortization of debt discount 855 3,682 7,504 10,732
Amortization of debt issuance costs 70 302 615 879
Total interest expense $ 1,035 $ 4,525 $ 9,163 $ 13,219
v3.20.2
Note 10 - Convertible Debt - Retired Long-term Debt (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Apr. 24, 2020
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Loss on early extinguishment   $ 149 $ 0 $ 13,446 $ 0
Convertible Notes 2015 [Member] | Convertible Debt [Member]          
Principal $ 180,454        
Unamortized debt discount (5,596)        
Unamortized debt issuance costs (504)        
Total 174,354        
Repurchase consideration allocated to the liability component 177,622        
Net carrying value of debt (174,354)        
Loss on early extinguishment 3,268        
Convertible Notes 2016 [Member] | Convertible Debt [Member]          
Principal 225,309        
Unamortized debt discount (15,850)        
Unamortized debt issuance costs (1,299)        
Total 208,160        
Repurchase consideration allocated to the liability component 218,338        
Net carrying value of debt (208,160)        
Loss on early extinguishment $ 10,178        
v3.20.2
Note 11 - Other Liabilities - Other Current Liabilities (Details) - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Other Liabilities, Current, Total $ 43,717 $ 33,531
Other Current Liabilities [Member]    
Software license agreements liability 25,292 25,810
Operating lease liability 2,321 2,545
Others $ 16,104 $ 5,176
v3.20.2
Note 11 - Other Liabilities - Other Long-term Liabilities (Details) - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Other Liabilities, Noncurrent, Total $ 64,940 $ 78,917
Other Noncurrent Liabilities [Member]    
Income tax payable 1,035 692
Software license agreements liability 20,793 36,144
Operating lease liability 40,162 41,074
Others $ 2,950 $ 1,007
v3.20.2
Note 12 - Income Taxes (Details Textual) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Income Tax Expense (Benefit), Total $ 1,188 $ 619 $ 1,482 $ 1,252
Effective Income Tax Rate Reconciliation, Percent, Total (54.20%) (4.00%) (3.20%) (2.10%)
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent 21.00% 21.00% 21.00% 21.00%
Unrecognized Tax Benefits, Period Increase (Decrease), Total $ 1,203   $ 4,856  
v3.20.2
Note 13 - Earnings Per Share - Securities Not Included in Computation of Earnings Per Share (Details) - shares
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Anti-dilutive securities (in shares) 9,872,433 14,611,215 12,741,712 14,678,915
Share-based Payment Arrangement, Option [Member]        
Anti-dilutive securities (in shares) 711,969 999,357 777,721 1,061,221
Restricted Stock and Market Value Stock Units [Member]        
Anti-dilutive securities (in shares) 2,758,458 2,781,820 2,872,917 2,787,656
Convertible Debt Securities [Member]        
Anti-dilutive securities (in shares) 6,402,006 10,830,038 9,091,074 10,830,038
v3.20.2
Note 14 - Stock-based Compensation (Details Textual) - USD ($)
$ in Thousands
1 Months Ended 3 Months Ended 9 Months Ended
Feb. 28, 2020
Dec. 31, 2011
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Dec. 31, 2019
Common Stock, Capital Shares Reserved for Future Issuance (in shares)     5,695,657   5,695,657    
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross (in shares)     0 0 0 0  
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period, Intrinsic Value         $ 17,326 $ 7,953  
Proceeds from Stock Options Exercised         $ 2,177 $ 1,907  
Stock Issued During Period, Shares, Employee Stock Purchase Plans (in shares)         128,892 208,721  
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total     $ 185,745   $ 185,745    
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition (Year)         2 years 7 months 20 days    
Employee Stock Purchase Plan [Member]              
Maximum Percentage of Aggregate Cash Compensation for Purchase of Stock Using Payroll Deduction   15.00%          
Purchase Price PerShare as Percentage of Market Value   85.00%          
Percentage of Combined Voting Power or Value of All Classes of Stock Not Eligible to Participate   5.00%          
Fair Value of Common Stock in Calendar Year per Employee Not Eligible to Participate   $ 25          
Maximum Aggregate Number of Shares of Common Stock Available for Purchase under Employee Stock Purchase Plan (in shares)         2,750,000    
Restricted Stock Units (RSUs) [Member]              
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period (Year)         4 years    
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number, Ending Balance (in shares)     3,825,436   3,825,436   3,822,325
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period (in shares)         1,426,180    
Performance Shares [Member]              
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period (Year)         4 years    
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number, Ending Balance (in shares)     39,338   39,338    
Market Value Stock Units [Member]              
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period (in shares) 346,201            
Market Value Stock Units [Member] | Minimum [Member]              
Percentage of Target Number of Shares 0.00%            
Market Value Stock Units, Performance Period (Year) 2 years            
Market Value Stock Units [Member] | Maximum [Member]              
Percentage of Target Number of Shares 225.00%            
Market Value Stock Units, Performance Period (Year) 3 years            
v3.20.2
Note 14 - Stock-based Compensation - Options Outstanding (Details)
$ / shares in Units, $ in Thousands
9 Months Ended 12 Months Ended
Sep. 30, 2020
USD ($)
$ / shares
shares
Dec. 31, 2019
USD ($)
$ / shares
shares
Number of shares outstanding (in shares) | shares 905,141  
Number of shares outstanding, weighted-average exercise price (in dollars per share) | $ / shares $ 13.68  
Number of shares outstanding, weighted-average remaining contractual life (Year) 1 year 3 months 14 days 1 year 9 months 21 days
Number of shares outstanding, aggregate intrinsic value | $ $ 68,120 $ 54,616
Number of shares exercised (in shares) | shares (207,424)  
Number of shares exercised, weighted-average exercise price (in dollars per share) | $ / shares $ 10.53  
Number of shares outstanding (in shares) | shares 697,717 905,141
Number of shares outstanding, weighted-average exercise price (in dollars per share) | $ / shares $ 14.62 $ 13.68
Vested and expected to vest in the future (in shares) | shares 697,717  
Number of shares vested and expected to vest in the future, weighted-average exercise price (in dollars per share) | $ / shares $ 14.62  
Number of shares vested and expected to vest in the future, weighted-average remaining contractual life (Year) 1 year 3 months 14 days  
Number of shares vested and expected to vest in the future, aggregate intrinsic value | $ $ 68,120  
v3.20.2
Note 14 - Stock-based Compensation - Outstanding Restricted Stock Units (Details) - Restricted Stock Units (RSUs) [Member]
9 Months Ended
Sep. 30, 2020
$ / shares
shares
Outstanding (in shares) 3,822,325
Outstanding, weighted-average grant date fair value (in dollars per share) | $ / shares $ 41.38
Granted (in shares) 1,426,180
Granted, weighted-average grant date fair value (in dollars per share) | $ / shares $ 87.74
Vested (in shares) (1,350,279)
Vested, weighted-average grant date fair value (in dollars per share) | $ / shares $ 43.86
Canceled (in shares) (72,790)
Canceled, weighted-average grant date fair value (in dollars per share) | $ / shares $ 55.49
Outstanding (in shares) 3,825,436
Outstanding, weighted-average grant date fair value (in dollars per share) | $ / shares $ 57.51
Expected to vest (in shares) 3,786,642
v3.20.2
Note 14 - Stock-based Compensation - Assumptions Valuation for Market Value Stock Units (Details)
$ / shares in Units, $ in Thousands
9 Months Ended
Sep. 30, 2020
USD ($)
$ / shares
shares
Two Year Term Market Value Stock Units [Member]  
Total target shares (in shares) | shares 53,448
Fair value per share (in dollars per share) | $ / shares $ 119.90
Total amount to be recognized over the service period | $ $ 6,408
Risk free interest rate 1.41%
Expected volatility 41.37%
Dividend yield 0.00%
Three Year Term Market Value Stock Units [Member]  
Total target shares (in shares) | shares 101,775
Fair value per share (in dollars per share) | $ / shares $ 125.30
Total amount to be recognized over the service period | $ $ 12,752
Risk free interest rate 1.38%
Expected volatility 43.79%
Dividend yield 0.00%
v3.20.2
Note 14 - Stock-based Compensation - Fair Value of Employee Stock Purchase Plan (Details) - Employee Stock Purchase Plan [Member] - $ / shares
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Risk-free interest rate 0.12% 1.93% 0.88% 2.26%
Expected life (Year) 6 months 6 months 5 months 26 days 5 months 26 days
Dividend yield 0.00% 0.00% 0.00% 0.00%
Expected volatility 62.00% 39.00% 50.00% 43.00%
Estimated fair value (in dollars per share) $ 38.02 $ 16.50 $ 29.17 $ 13.35
v3.20.2
Note 14 - Stock-based Compensation - Stock-based Compensation Expense (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Stock-based compensation expense $ 29,046 $ 19,878 $ 81,301 $ 56,597
Cost of Sales [Member]        
Stock-based compensation expense 2,136 1,953 6,033 4,432
Research and Development Expense [Member]        
Stock-based compensation expense 16,484 10,297 45,995 30,954
Selling and Marketing Expense [Member]        
Stock-based compensation expense 5,858 4,312 16,320 11,729
General and Administrative Expense [Member]        
Stock-based compensation expense $ 4,568 $ 3,316 $ 12,953 $ 9,482
v3.20.2
Note 15 - Fair Value Measurements (Details Textual) - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Convertible Debt, Fair Value Disclosures $ 873,967 $ 845,296
v3.20.2
Note 15 - Fair Value Measurements - Assets and Liabilities Carried at Fair Value on Recurring Basis (Details) - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Total fair value of assets $ 102,745 $ 341,444
Fair Value, Inputs, Level 1 [Member]    
Total fair value of assets 10,004 71,325
Fair Value, Inputs, Level 2 [Member]    
Total fair value of assets 92,741 270,119
Money Market Funds [Member]    
Cash equivalents 10,640 190,598
Money Market Funds [Member] | Fair Value, Inputs, Level 1 [Member]    
Cash equivalents 10,004 67,494
Money Market Funds [Member] | Fair Value, Inputs, Level 2 [Member]    
Cash equivalents 636 123,104
Commercial Paper [Member]    
Cash equivalents 17,028 9,465
Investment in marketable securities 3,539 6,464
Commercial Paper [Member] | Fair Value, Inputs, Level 1 [Member]    
Cash equivalents 0 0
Investment in marketable securities 0 0
Commercial Paper [Member] | Fair Value, Inputs, Level 2 [Member]    
Cash equivalents 17,028 9,465
Investment in marketable securities 3,539 6,464
Municipal Bonds [Member]    
Cash equivalents   1,250
Investment in marketable securities 19,093 6,119
Municipal Bonds [Member] | Fair Value, Inputs, Level 1 [Member]    
Cash equivalents   0
Investment in marketable securities 0 0
Municipal Bonds [Member] | Fair Value, Inputs, Level 2 [Member]    
Cash equivalents   1,250
Investment in marketable securities 19,093 6,119
Corporate Debt Securities [Member]    
Investment in marketable securities 49,925 119,449
Corporate Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member]    
Investment in marketable securities 0 0
Corporate Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]    
Investment in marketable securities 49,925 119,449
US Treasury Securities [Member]    
Investment in marketable securities   3,759
US Treasury Securities [Member] | Fair Value, Inputs, Level 1 [Member]    
Investment in marketable securities   3,759
US Treasury Securities [Member] | Fair Value, Inputs, Level 2 [Member]    
Investment in marketable securities   0
Asset-backed Securities [Member]    
Investment in marketable securities 2,520 4,268
Asset-backed Securities [Member] | Fair Value, Inputs, Level 1 [Member]    
Investment in marketable securities 0 0
Asset-backed Securities [Member] | Fair Value, Inputs, Level 2 [Member]    
Investment in marketable securities $ 2,520 4,268
Certificates of Deposit [Member]    
Investment in marketable securities   72
Certificates of Deposit [Member] | Fair Value, Inputs, Level 1 [Member]    
Investment in marketable securities   72
Certificates of Deposit [Member] | Fair Value, Inputs, Level 2 [Member]    
Investment in marketable securities   $ 0
v3.20.2
Note 16 - Segment and Geographic Information (Details Textual)
$ in Thousands
9 Months Ended
Sep. 30, 2020
USD ($)
Dec. 31, 2019
USD ($)
Number of Operating Segments 1  
Non-US [Member]    
Long-Lived Assets $ 65,765 $ 33,826
TAIWAN, PROVINCE OF CHINA    
Long-Lived Assets $ 55,910 $ 27,750
v3.20.2
Note 16 - Segment and Geographic Information - Revenue by Geographic Region (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Revenue $ 180,691 $ 94,231 $ 495,413 $ 262,739
CHINA        
Revenue 102,391 34,503 272,251 110,769
UNITED STATES        
Revenue 37,446 32,936 112,527 73,902
THAILAND        
Revenue 21,286 14,816 54,017 41,661
Other Country [Member]        
Revenue $ 19,568 $ 11,976 $ 56,618 $ 36,407
v3.20.2
Note 17 - Commitments and Contingencies (Details Textual) - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Value of Open Purchase Orders $ 39,308  
Indemnification Agreement [Member]    
Loss Contingency Accrual, Ending Balance $ 0 $ 0
v3.20.2
Note 17 - Commitments and Contingencies - Future Minimum Payments Under Non-cancelable Service Agreements (Details)
$ in Thousands
Sep. 30, 2020
USD ($)
2020 (remaining) $ 243
2021 720
2022 69
2023 4
2024 2
Total $ 1,038
v3.20.2
Note 18 - Subsequent Events (Details Textual) - Subsequent Event [Member]
$ / shares in Units, $ in Millions
Oct. 29, 2020
USD ($)
$ / shares
shares
Merger Agreement, Ownership Percentage of Combined Company 17.00%
Merger Agreement, Conversion of Common Stock into Parent Company Stock (in shares) | shares 2.323
Merger Agreement, Cash Paid Per Share of Common Stock (in dollars per share) | $ / shares $ 66.0
Marvell Technology Group Ltd [Member]  
Merger Agreement, Termination Fee $ 300
Merger Agreement, Maximum Termination Fee if Not Approved by Shareholders $ 25
Marvell Technology Group Ltd [Member]  
Merger Agreement, Ownership Percentage of Combined Company 83.00%
Merger Agreement, Conversion of Common Stock into Parent Company Stock (in shares) | shares 1
Merger Agreement, Termination Fee $ 400
Merger Agreement, Termination Fee Dur to Failure to Receive Regulatory Approval 460
Merger Agreement, Maximum Termination Fee if Not Approved by Shareholders $ 25