July 25, 2007

Mellanox Technologies Announces Financial Results for Q2 2007

Fourth Consecutive Quarter of Record Revenue

SANTA CLARA, CA. and YOKNEAM, ISRAEL – July 25, 2007 Mellanox™ Technologies, Ltd. (NASDAQ: MLNX; TASE: MLNX), a leading supplier of semiconductor-based, server and storage interconnect products, today announced record financial results for its fiscal second quarter of 2007, ended June 30, 2007.

In accordance with U.S. generally accepted accounting principles (GAAP), the company recorded revenue in the second quarter of $19.8 million, up 17 percent from the $16.9 million in the first quarter of 2007 and up 83 percent from $10.8 million in the second quarter a year ago.

Gross margins in the second quarter were 75.1 percent, compared with 74.7 percent in the first quarter of 2007 and 68.1 percent in the second quarter a year ago. GAAP net income in the second quarter was $5.6 million or $0.17 per diluted share, compared with $3.3 million or $0.15 per diluted share in the first quarter of 2007 and $649,000 or $0.02 per diluted share a year ago.

On a non-GAAP basis, the company recorded second quarter net income of $6.4 million compared with $3.9 million in the first quarter of 2007 and $712,000 a year ago. These non-GAAP net income results exclude share-based compensation expenses.

Total cash and investments were $137.7 million at June 30, 2007. The company generated $5.0 million of cash from operations during the quarter or $11.7 million for the first half of 2007.

“We are pleased with our second quarter results, which represented the fourth consecutive quarter of record revenues for Mellanox,” said Eyal Waldman, chairman, president and CEO. “We are continuing to expand our OEM customer base, and increasing the number of enterprise and commercial applications we are addressing with InfiniBand.

“We have already begun production shipments of our ConnectX IB InfiniBand adapters to Hewlett-Packard for its BladeSystem c-Class, and expect to ship to additional tier-one server companies later this year. We have also secured our first ConnectX EN 10 Gigabit Ethernet adapter design win.

“In addition to our NASDAQ listing, Mellanox is proud to have listed with the Tel Aviv Stock Exchange (TASE), and to be included in four TASE indexes: the TA-75, TA-100, Tel-Tech and Tel-Tech 15,” he said.
 
Recent Mellanox Press Release Highlights:

  • July 9 – Mellanox ConnectX IB InfiniBand Mezzanine Adapters Accelerate HP BladeSystem c-Class
  • July 6 – Mellanox Technologies Announces Retirement of S. Atiq Raza from Board of Directors
  • July 2 – Mellanox Technologies Shares to be Listed on Tel Aviv Stock Exchange in Addition to NASDAQ Listing
  • June 27 – Mellanox Powers World’s First PetaScale Computing Environment
  • June 27 – InfiniBand Continues Explosive Growth on June 2007 Top500 List
  • June 26 – Scali and Mellanox Announce The First Quad Core Benchmarks On TopCrunch
  • June 25 – Mellanox InfiniBand Adapters Achieve OpenFabrics and University of New Hampshire InterOperability Lab Logo
  • May 21 – Mellanox Surpasses 2 Million InfiniBand Ports Milestone
  • May 21 –  Mellanox Delivers Single-Chip 10 Gigabit Ethernet Adapter
  • April 16 – Mellanox Demonstrates 40Gb/s Connectivity with PCI Express 2.0
  • April 16 – Mellanox Promotes Marc Sultzbaugh to Vice President of Worldwide Sales

Conference Call
Mellanox will broadcast its second quarter 2007 financial results conference call today, Wednesday, July 25, 2007, at 2 p.m. Pacific time (5 p.m. Eastern time).

To listen to the call, please dial (913) 312-6695 approximately 10 minutes prior to the start time. A taped replay will be available approximately two hours after the conclusion of the call and will remain available for one week. To access the replay, dial
(719) 457-0820. The pass code is 7748587. 

Mellanox will also conduct a conference call on Thursday, July 26, 2007, at 9 a.m. Israel time to discuss the second quarter 2007 financial results in Hebrew. 

To listen to the call, dial +972-3-9180609 approximately 10 minutes prior to the start of the call. A taped replay will be made available approximately two hours after the conclusion of the call, and will remain available for twenty four hours. To access the replay, dial + 972-3-9255940.

About Mellanox

Mellanox Technologies is a leading supplier of semiconductor-based, high-performance, InfiniBand and Ethernet connectivity products that facilitate data transmission between servers, communications infrastructure equipment, and storage systems. The company’s products are an integral part of a total solution focused on computing, storage and communication applications used in enterprise data centers, high-performance computing and embedded systems.
Founded in 1999, Mellanox Technologies has its headquarters in Santa Clara, California and Yokneam, Israel. For more information, visit Mellanox at www.mellanox.com

GAAP to Non-GAAP Reconciliation

To supplement our consolidated financial statements presented in accordance with generally accepted accounting principles (GAAP), Mellanox uses non-GAAP measures of net income which are adjusted from results based on GAAP to exclude share-based compensation expenses. The company believes the non-GAAP results provide useful information to both management and investors, as these non-GAAP results exclude expenses that are not indicative of our core operating results. Management believes it is useful to exclude share-based compensation expenses because it enhances investors' ability to review our business from the same perspective as management, which believes that share-based compensation expenses are not directly attributable to the underlying performance of the company's business operations. Further, management uses non-GAAP information as certain non-cash charges such as share-based compensation do not reflect the cash operating results of the business. These measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results. These non-GAAP measures may be different than the non-GAAP measures used by other companies. A reconciliation of GAAP to non-GAAP condensed consolidated statements of operations is also presented in the financial statements portion of this release and is posted under the “Investors” section at our website.

###
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995:
All statements included or incorporated by reference in this release, other than statements or characterizations of historical fact, are forward-looking statements.  These forward-looking statements are based on our current expectations, estimates and projections about our industry and business, management's beliefs, and certain assumptions made by us, all of which are subject to change.  Forward-looking statements can often be identified by words such as "anticipates," "expects," "intends," "plans," "predicts," "believes," "seeks," "estimates," "may," "will," "should," "would," "could," "potential," "continue," "ongoing," similar expressions, and variations or negatives of these words.  These forward-looking statements are not guarantees of future results and are subject to risks, uncertainties and assumptions that could cause our actual results to differ materially and adversely from those expressed in any forward-looking statement.  The risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward-looking statements include the rate at which our OEM customer base expands; whether the number of enterprise and commercial applications for our products will continue to increase; whether, and if, we can ship to additional tier-one server companies later this year; our ability to react to trends and challenges in our business and the markets in which we operate; our ability to anticipate market needs or develop new or enhanced products to meet those needs; the adoption rate of our products; our ability to establish and maintain successful relationships with our distribution partners; our ability to compete in our industry; fluctuations in demand, sales cycles and prices for our products and services; our ability to protect our intellectual property rights; general political, economic and market conditions and events; and other risks and uncertainties described more fully in our documents filed with or furnished to the Securities and Exchange Commission.  More information about the risks, uncertainties and assumptions that may impact our business is set forth in our Form 10-K and in our Form 10-Q filed with the SEC on March 26th and on May 8th, 2007, respectively.  All forward-looking statements in this press release are based on information available to us as of the date hereof, and we assume no obligation to update these forward-looking statements.

Mellanox, ConnectX, InfiniBlast, InfiniBridge, InfiniHost, InfiniRISC, InfiniScale, and InfiniPCI are registered trademarks of Mellanox Technologies. All other trademarks are property of their respective owners.

Mellanox Technologies, Ltd.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Six months ended

 

 

 

 

 

 

 

June 30,

 

June 30,

 

 

 

 

 

 

 

2007

 

2006

 

2007

 

2006

 

 

 

 

 

 

 

(unaudited)

 

(unaudited)

 

(unaudited)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

$19,779

 

$10,813

 

$36,634

 

$19,319

Cost of revenues

(4,926)

 

(3,444)

 

(9,196)

 

(5,950)

Gross profit

 

14,853

 

7,369

 

27,438

 

13,369

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

5,592

 

3,683

 

11,536

 

7,243

 

Sales and marketing

3,004

 

2,173

 

5,795

 

3,958

 

General and administrative

1,503

 

792

 

2,860

 

1,618

 

 

 

Total operating expenses

10,099

 

6,648

 

20,191

 

12,819

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from operations

4,754

 

721

 

7,247

 

550

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (loss), net

1,780

 

(3)

 

2,737

 

131

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before taxes

6,534

 

718

 

9,984

 

681

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for taxes on income

(929)

 

(69)

 

(1,093)

 

(123)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

$5,605

 

$649

 

$8,891

 

$558

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accretion of mandatorily redeemable convertible

 

 

 

 

 

 

 

 

 

preferred shares

-

 

(44)

 

-

 

(88)

 

Income allocable to preferred shareholders

-

 

(470)

 

-

 

(470)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to ordinary shareholders

$5,605

 

$135

 

$8,891

 

$0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share attributable to ordinary

 

 

 

 

 

 

 

 

shareholders

 

 

 

 

 

 

 

 

Basic

 

 

 

$0.19

 

$0.02

 

$0.35

 

$0.00

 

Diluted

 

 

$0.17

 

$0.02

 

$0.32

 

$0.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares used in computing income per share attributable

 

 

 

 

 

 

 

 

 to ordinary shareholders

 

 

 

 

 

 

 

 

Basic

 

 

 

29,850

 

7,668

 

25,107

 

7,674

 

Diluted

 

 

32,419

 

9,598

 

27,572

 

9,558

Mellanox Technologies, Ltd.

Reconciliation of GAAP to Non-GAAP Operating Results

(in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Six months ended

 

 

 

 

 

 

 

June 30,

 

June 30,

 

 

 

 

 

 

 

2007

 

2006

 

2007

 

2006

 

 

 

 

 

 

 

(unaudited)

 

(unaudited)

 

(unaudited)

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP NET INCOME 

$5,605

 

$649

 

$8,891

 

$558

Adjustments:

 

 

 

 

 

 

 

 

 

Share-based compensation expense

827

 

63

 

1,425

 

110

NON-GAAP NET INCOME 

$6,432

 

$712

 

$10,316

 

$668

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP SHARES - BASIC

29,850

 

7,668

 

25,107

 

7,674

Adjustments:

 

 

 

 

 

 

 

 

 

Impact from weighted outstanding shares*

10

 

0

 

4,753

 

0

NON-GAAP SHARES - BASIC

29,860

 

7,668

 

29,860

 

7,674

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP SHARES - DILUTED

32,419

 

9,598

 

27,572

 

9,558

Adjustments:

 

 

 

 

 

 

 

 

 

Impact from weighted outstanding shares*

10

 

0

 

4,753

 

0

 

Effect of dilutive securities under GAAP**

(2,569)

 

(1,930)

 

(2,465)

 

(1,884)

 

Total options vested and exercisable

3,859

 

3,400

 

3,859

 

3,400

NON-GAAP SHARES - DILUTED

33,719

 

11,068

 

33,719

 

11,074

* Under GAAP, shares used in computing income per share attributable to ordinary shareholders are adjusted for the amount of time they are outstanding during the period.  Because the shares issued pursuant to our initial public offering were issued, and all of our then outstanding preferred shares converted into ordinary shares, on February 13 2007, those shares were adjusted for the amount of time they were outstanding during the period as part of the GAAP SHARES- BASIC calculation.   The GAAP SHARES-BASIC have been adjusted to a non-GAAP measure as if those ordinary shares were outstanding during the entire period to provide a comparable share number in future quarters.

** This adjustment adds back the GAAP effect of additional ordinary shares that would have been outstanding if the dilutive potential common shares from stock options had been issued under the treasury method. 

Mellanox Technologies, Ltd.

Condensed Consolidated Balance Sheets

(in thousands)

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

 

 

 

 

 

2007

 

2006

 

 

 

 

 

 

 

(unaudited)

 

(audited)

ASSETS

 

 

 

 

 

 

Current assets

 

 

 

 

Cash and cash equivalents

$78,333

 

$20,570

 

Restricted cash

630

 

678

 

Marketable securities

58,694

 

-

 

Accounts receivables, net

10,167

 

10,141

 

Inventories

5,200

 

4,079

 

Prepaid expenses and other

788

 

2,470

 

 

Total current assets

153,812

 

37,938

Property and equipment, net

6,188

 

2,588

Severance assets

2,530

 

2,284

Intangible assets, net

132

 

167

Other long-term assets

109

 

124

 

 

Total assets

$162,771

 

$43,101

 

 

 

 

 

 

 

 

 

 

LIABILITIES, CONVERTIBLE PREFERRED SHARES,

 

 

 

 AND SHAREHOLDERS' DEFICIT

 

 

 

Current liabilities

 

 

 

 

Accounts payable

$4,667

 

$4,490

 

Other accrued liabilities

7,129

 

6,426

 

Capital lease obligations, current

2,426

 

420

 

Other liabilities, current

-

 

1,156

 

 

Total current liabilities

14,222

 

12,492

 

Accrued severance

3,427

 

2,940

 

Capital lease obligations, net of current portion

1,468

 

541

 

Other long-term obligations

85

 

96

 

 

Total liabilities

19,202

 

16,069

Mandatorily redeemable convertible preferred shares

-

 

55,759

Convertible preferred shares

-

 

36,338

Shareholders' equity (deficit)

 

 

 

 

Ordinary shares

124

 

32

 

Additional paid-in capital

203,808

 

4,174

 

Accumulated other comprehensive income

17

 

-

 

Accumulated deficit

(60,380)

 

(69,271)

 

 

Total shareholders' equity (deficit)

143,569

 

(65,065)

 

 

Total liabilities and shareholders' equity (deficit)

$162,771

 

$43,101

Mellanox Technologies, Ltd.

Condensed Consolidated Statement of Cash Flows

(in thousands)

 

 

 

 

Six months ended

 

 

 

 

June 30,

 

 

 

 

2007

 

2006

 

 

 

 

(unaudited)

 

(unaudited)

Cash flows from operating activities:

 

 

 

Net income

$8,891

 

$558

Adjustments to reconcile net income to net cash

 

 

 

provided by (used in) operating activities:

 

 

 

 

Depreciation and amortization

              796

 

            899

 

Share-based compensation expense

           1,425

 

            110

 

Accrued interest

            (211)

 

            (28)

 

Changes in assets and liabilities

 

 

 

 

 

Accounts receivable

              (26)

 

            (71)

 

 

Inventory

         (1,121)

 

            599

 

 

Prepaid expenses and other assets

           1,697

 

            (14)

 

 

Accounts payable

              177

 

          (993)

 

 

Accrued liabilities and other payables

                63

 

            118

Net cash provided by operating activities

         11,691

 

         1,178

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

Purchases of severance related insurance policies

            (246)

 

          (326)

 

Purchases of marketable securities

       (60,927)

 

               -  

 

Maturities and sale of marketable securities

           2,438

 

               -  

 

Return of restricted cash deposit

                71

 

               -  

 

Purchases of property and equipment

         (1,172)

 

          (281)

Net cash used in investing activities

       (59,836)

 

          (607)

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

Proceeds from initial public offering,

       105,953

 

               -  

 

 

net of issuance costs

 

 

 

 

Principal payments on capital lease obligations

            (291)

 

            (96)

 

Proceeds from exercise of stock options

              246

 

            138

Net cash provided by financing activities

       105,908

 

              42

 

 

 

 

 

 

 

Increase in cash and cash equivalents

         57,763

 

            613

Cash and cash equivalents at beginning of period

         20,570

 

       12,350

Cash and cash equivalents at end of period

$78,333

 

$12,963


For more information:
Mellanox Technologies
Brian Sparks
408-970-3400
media@mellanox.com


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