January 27, 2016

Mellanox Achieves Record Quarterly and Annual Revenue

Annual revenue growth of 41.9 percent to $658 million

Annual Non-GAAP net income grew 2.4X to $138 million

Record annual revenues in InfiniBand and Ethernet products

SUNNYVALE, Calif. & YOKNEAM, Israel--(BUSINESS WIRE)-- Mellanox® Technologies, Ltd. (NASDAQ: MLNX) today announced financial results for its fourth quarter and fiscal year ended December 31, 2015.

"We are pleased to achieve record quarterly and annual revenues. Our profitability grew 2.4 times year-over-year with operating income representing 21.3% of revenues. We are proud to grow our annual net income to $138.5 million and generate $150.5 million in cash from operations in 2015 - while we continued to invest in our technology and businesses," said Eyal Waldman, president and CEO of Mellanox Technologies. "We saw strong growth in our Ethernet business in 2015, and expect it to accelerate in 2016 and beyond. We are pleased to see our InfiniBand business continue to grow across multiple markets and technology generations, with strong adoption of our EDR 100 Gigabit InfiniBand products. We look forward to closing the EZChip merger in the second half of February 2016. This merger is important to Mellanox and adds processing capabilities to our networking technologies. We believe the combination of these technologies will lead to a superior position in the data center interconnect market. We expect this transaction to be accretive from day one."

Fourth Quarter and 2015 Fiscal Year Highlights

  • Revenues were $176.9 million in the fourth quarter, and $658.1 million in fiscal year 2015.
  • GAAP gross margins were 70.7 percent in the fourth quarter, and 71.3 percent in fiscal year 2015.
  • Non-GAAP gross margins were 72.2 percent in the fourth quarter, and 72.8 percent in fiscal year 2015.
  • GAAP operating income was $19.9 million, or 11.3 percent of revenue, in the fourth quarter, and operating income was $75.1 million, or 11.4 percent of revenue, in fiscal year 2015.
  • Non-GAAP operating income was $36.6 million, or 20.7 percent of revenue, in the fourth quarter, and $139.9 million, or 21.3 percent of revenue, in fiscal year 2015.
  • GAAP net income was $43.2 million in the fourth quarter and $92.9 million in fiscal year 2015 which included an income tax benefit from the release of a valuation allowance of $22.4 million in the fourth quarter.
  • Non-GAAP net income was $37.5 million in the fourth quarter, and $138.5 million in fiscal year 2015.
  • GAAP net income per diluted share was $0.90 in the fourth quarter, and $1.94 in fiscal year 2015.
  • Non-GAAP net income per diluted share was $0.77 in the fourth quarter, and was $2.89 in fiscal year 2015.
  • $34.7 million in cash was provided by operating activities during the fourth quarter.
  • $150.5 million in cash was provided by operating activities during fiscal year 2015.
  • Cash and investments totaled $510.5 million at December 31, 2015.

First Quarter 2016 Guidance

We currently project:

  • Quarterly revenues of $180 million to $185 million
  • Non-GAAP gross margins of 71 percent to 72 percent
  • An increase in non-GAAP operating expenses of 2 percent to 4 percent
  • Share-based compensation expense of $12.4 million to $12.9 million
  • Non-GAAP diluted share count of 48.7 million to 49.2 million shares

Upon closing the EZchip transaction we will provide updated guidance for the combined entity.

Recent Mellanox Press Release Highlights

Dec 14, 2015

Mellanox 10/40 Gigabit Ethernet Switches Approved for Use in U.S. Department of Defense Networks
 

Nov 23, 2015

Mellanox and Oak Ridge National Laboratory Recognized by R&D 100 Awards
 

Nov 17, 2015

Mellanox Announces "HPC Centers of Excellence" to Drive Advancement Toward Exascale Computing
 

Nov 16, 2015

EDR 100Gb/s and FDR 56Gb/s InfiniBand Continues Growth and Interconnect Leadership on the TOP500
 

Nov 16, 2015

Mellanox Announces ConnectX-4 Lx Programmable Adapter with Onboard Xilinx FPGA Acceleration
 

Nov 16, 2015

TACC Selects Mellanox's End-to-End EDR 100Gb/s InfiniBand Solution to Further Cutting-Edge Medical and Science Research
 

Nov 16, 2015

Centre for High-Performance Computing South Africa Selects Mellanox InfiniBand Solutions to Accelerate New Petaflop-Capable System
 

Nov 12, 2015

Mellanox Introduces the Switch-IB 2, World's First 100Gb/s Smart Switch
 

Nov 4, 2015

IBM Teams with Mellanox to Help Maximize Performance of Power Systems LC Line Servers for Cloud and Cluster Deployments
 

Nov 2, 2015

Mellanox Open Ethernet Switches Accepted By Open Compute Project
 

Conference Call

Mellanox will hold its fourth quarter and fiscal year 2015 financial results conference call today at 2 p.m. Pacific Time to discuss the company's financial results. To listen to the call, dial +1-785-424-1666 approximately 10 minutes prior to the start time.

The Mellanox financial results conference call will be available via live webcast on the investor relations section of the Mellanox website at http://ir.mellanox.com. Access the webcast 15 minutes prior to the start of the call to download and install any necessary audio software. Replay of the webcast will also be available on the Mellanox website.

About Mellanox

Mellanox Technologies is a leading supplier of end-to-end InfiniBand and Ethernet interconnect solutions and services for servers and storage. Mellanox interconnect solutions increase data center efficiency by providing the highest throughput and lowest latency, delivering data faster to applications and unlocking system performance capability. Mellanox offers a choice of fast interconnect products: adapters, switches, software, cables and silicon that accelerate application runtime and maximize business results for a wide range of markets including high-performance computing, enterprise data centers, Web 2.0, cloud, storage and financial services. More information is available 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 expense, amortization expense of acquired intangible assets, acquisition related expense, settlement costs, changes related to recognition of deferred tax valuation allowance and gains (impairment losses) on equity investments. 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 expense, amortization expense of acquired intangible assets, acquisition related expense, settlement costs, changes related to recognition of deferred tax valuation allowance, and gains (impairment losses) on equity investments because it enhances investors' ability to understand our business from the same perspective as management, which believes that such items are not directly attributable to nor reflect the underlying performance of the company's business operations. Further, management believes certain non-cash charges such as share-based compensation, amortization of acquired intangible assets and changes related to recognition of deferred tax valuation allowance 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 "Investor Relations" section on 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, including the guidance for the three months ended March 31, 2016, statements related to our expectations for achievement of continued revenue growth and record revenue for the fiscal year 2016, statements related to trends in the market for our solutions and services, opportunities for our company in 2016 and beyond, and future product capabilities. 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 "projects," "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 continued expansion of our product line, customer base and the total available market of our products, the continued growth in demand for our products, the continued, increased demand for industry standards-based technology, 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 OEM partners, our ability to effectively compete in our industry, fluctuations in demand, sales cycles and prices for our products and services, our success converting design wins to revenue-generating product shipments, the continued launch and volume ramp of large customer sales opportunities, and our ability to protect our intellectual property rights. Furthermore, the majority of our quarterly revenues are derived from customer orders received and fulfilled in the same quarterly period. We have limited visibility into actual end-user demand as such demand impacts us and our OEM customer inventory balances in any given quarter. Consequently, this introduces risk and uncertainty into our revenue and production forecasts and business planning and could negatively impact our financial results. In addition, current uncertainty in the global economic environment poses a risk to the overall economy as businesses may defer purchases in response to tighter credit conditions, changing overall demand for our products, and negative financial news. Consequently, our results could differ materially from our prior results due to these general economic and market conditions, political 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-Q filed with the SEC on October 30, 2015, and our annual report on Form 10-K filed with the SEC on March 2, 2015. All forward-looking statements in this press release, including the guidance for the three months ended March 31, 2016, are based on information available to us as of the date hereof, and we assume no obligation to update these forward-looking statements.

Mellanox is a registered trademark of Mellanox Technologies, Ltd. All other trademarks are property of their respective owners.

 
Mellanox Technologies, Ltd.
Condensed Consolidated Statements of Operations
(in thousands, except per share data, unaudited)
       
Three Months Ended
December 31,
Twelve Months Ended
December 31,
2015 2014 2015 2014
Total revenues $ 176,940 $ 141,116 $ 658,140 $ 463,649
Cost of revenues   51,815     41,131     189,209     148,672  
Gross profit 125,125 99,985 468,931 314,977
Operating expenses:
Research and development 65,620 56,814 252,175 208,877
Sales and marketing 26,698 19,995 97,438 76,860
General and administrative   12,897     9,570     44,212     36,431  
Total operating expenses 105,215 86,379 393,825 322,168
Income (loss) from operations 19,910 13,606 75,106 (7,191 )
Other income (loss), net   592     497     (524 )   1,449  
Income (loss) before taxes 20,502 14,103 74,582 (5,742 )
Benefit from (provision for) taxes on income   22,696     (18,856 )   18,312     (18,267 )
Net income (loss) $ 43,198   $ (4,753 ) $ 92,894   $ (24,009 )
Net income (loss) per share — basic $ 0.92   $ (0.10 ) $ 2.00   $ (0.54 )
Net income (loss) per share — diluted $ 0.90   $ (0.10 ) $ 1.94   $ (0.54 )
Shares used in per share calculation:
Basic 46,978 45,380 46,365 44,831
Diluted 48,221 45,380 47,778 44,831
 
Mellanox Technologies, Ltd.
Reconciliation of Non-GAAP Adjustments
(in thousands, percentages, unaudited)
       
Three Months Ended
December 31,
Twelve Months Ended
December 31,
2015 2014 2015 2014

Reconciliation of GAAP net income (loss) to non-GAAP:

GAAP net income (loss) $ 43,198 $ (4,753 ) $ 92,894 $ (24,009 )
Adjustments:
Share-based compensation expense:
Cost of revenues 617 576 2,366 2,162
Research and development 7,317 6,792 28,821 26,979
Sales and marketing 2,544 2,370 10,309 9,755
General and administrative 2,452   2,063   9,268   8,339  
Total share-based compensation expense 12,930 11,801 50,764 47,235
Amortization of acquired intangibles:
Cost of revenues 2,073 1,474 7,694 7,173
Research and development 195 195 779 781
Sales and marketing 196   1,039   1,173   4,156  
Total amortization of acquired intangibles 2,464 2,708 9,646 12,110
Settlement costs:
Cost of revenues       1,250  
Total settlement costs 1,250
Acquisition related charges:
Cost of revenues 849
Research and development 225 744 2,118 2,693
Sales and marketing 226 450 863
General and administrative 1,078     1,820    
Total acquisition related charges 1,303   970   4,388   4,405  
Other (income) loss, net:
Impairment loss on equity investment in a private company     3,189    
    3,189    
(Benefit from) provision for income taxes - valuation allowance adjustment (22,410 ) 17,231   (22,410 ) 17,231  
Non-GAAP net income $ 37,485   $ 27,957   $ 138,471   $ 58,222  
 

Reconciliation of GAAP gross profit to non-GAAP:

Revenues $ 176,940

 

$ 141,116

 

$ 658,140

 

$ 463,649
GAAP gross profit 125,125 99,985 468,931 314,977
GAAP gross margin 70.7 % 70.9 % 71.3 % 67.9 %
Share-based compensation expense 617 576 2,366 2,162
Amortization of acquired intangibles 2,073 1,474 7,694 7,173
Settlement costs 1,250
Acquisition related charges  

 

 

 

 

 

849  
Non-GAAP gross profit $ 127,815   $ 102,035   $ 478,991   $ 326,411  
Non-GAAP gross margin 72.2 % 72.3 % 72.8 % 70.4 %

 

Reconciliation of GAAP operating expenses to non-GAAP:

GAAP operating expenses $ 105,215 $ 86,379 $ 393,825 $ 322,168
Share-based compensation expense (12,313 ) (11,225 ) (48,398 ) (45,073 )
Amortization of acquired intangibles (391 ) (1,234 ) (1,952 ) (4,937 )
Acquisition related charges (1,303 ) (970 ) (4,388 ) (3,556 )
Non-GAAP operating expenses $ 91,208   $ 72,950   $ 339,087   $ 268,602  
 
Mellanox Technologies, Ltd.
Reconciliation of Non-GAAP Adjustments
(in thousands, except per share data, unaudited)
       
Three Months Ended
December 31,
Twelve Months Ended
December 31,
2015 2014 2015 2014
 

Reconciliation of GAAP income (loss) from operations to non-GAAP:

GAAP income (loss) from operations 19,910 13,606 75,106 (7,191 )
Share-based compensation expense 12,930 11,801 50,764 47,235
Settlement costs 1,250
Amortization of acquired intangibles 2,464 2,708 9,646 12,110
Acquisition related charges 1,303   970   4,388   4,405  
Non-GAAP income from operations 36,607   29,085   139,904   57,809  
 
Shares used in computing GAAP diluted earnings per share 48,221 45,380 47,778 44,831
 
Adjustments:
Effect of dilutive securities under GAAP* (1,242 ) (1,413 )
Total options vested and exercisable 1,546   1,837   1,546   1,837  
Shares used in computing non-GAAP diluted earnings per share 48,525   47,217   47,911   46,668  
 
GAAP diluted net income (loss) per share $ 0.90 $ (0.10 ) $ 1.94 $ (0.54 )
Adjustments:
Share-based compensation expense 0.27 0.26 1.06 1.05
Amortization of acquired intangibles 0.04 0.06 0.20 0.27
Settlement costs 0.03
Acquisition related charges 0.02 0.02 0.09 0.10
Impairment loss on equity investment in a private company 0.07
(Benefit from) provision for income taxes - valuation allowance adjustment (0.46 ) 0.38 (0.47 ) 0.38
Effect of dilutive securities under GAAP* 0.02 0.09
Total options vested and exercisable (0.02 ) (0.03 ) (0.09 ) (0.04 )
Non-GAAP diluted income per share $ 0.77   $ 0.59   $ 2.89   $ 1.25  

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

   

Mellanox Technologies, Ltd.

Condensed Consolidated Balance Sheets

(in thousands, unaudited)

 
December 31,
2015
December 31,
2014 (*)
ASSETS
Current assets:
Cash and cash equivalents $ 263,199 $ 51,326
Short-term investments 247,314 334,038
Restricted cash 3,604
Accounts receivable, net 84,273 64,922
Inventories 62,473 44,470
Other current assets 19,979   15,876  
Total current assets 677,238 514,236
Property and equipment, net 100,018 78,827
Severance assets 9,514 9,474
Intangible assets, net 32,154 42,067
Goodwill 200,743 200,743
Deferred taxes and other long-term assets 33,715   17,871  
Total assets $ 1,053,382   $ 863,218  
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 44,600 $ 39,811
Accrued liabilities 74,296 61,974
Deferred revenue 17,743 14,758
Capital lease liabilities, current 491   1,102  
Total current liabilities 137,130 117,645
Accrued severance 12,464 11,850
Deferred revenue 12,439 8,942
Capital lease liabilities 494
Other long-term liabilities 24,668   22,535  
Total liabilities 186,701 161,466
Shareholders' equity:
Ordinary shares 200 192
Additional paid-in capital 684,824 615,148
Accumulated other comprehensive loss (1,669 ) (4,020 )
Retained earnings 183,326   90,432  
Total shareholders' equity 866,681   701,752  
Total liabilities and shareholders' equity $ 1,053,382   $ 863,218  

(*) Certain prior year amounts have been reclassified to conform to 2015 presentation.

 

Mellanox Technologies, Ltd.

Condensed Consolidated Statement of Cash Flows

(in thousands, unaudited)

 
Year ended December 31,
2015   2014
Cash flows from operating activities:
Net income (loss) $ 92,894 $ (24,009 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization 41,372 38,671
Deferred income taxes (22,607 ) 13,832
Share-based compensation expense 50,764 47,235
(Gain) loss on investments (3,000 ) 425
Excess tax benefit from share-based compensation (53 ) (342 )
Impairment of equity investment in a private company 3,189
Changes in assets and liabilities:
Accounts receivable, net (19,351 ) 5,421
Inventory (24,735 ) (9,624 )
Prepaid expenses and other assets (2,619 ) (7,687 )
Accounts payable 3,750 9,659
Accrued liabilities and other payables 30,884   6,549  
Net cash provided by operating activities 150,488   80,130  
 
Cash flows from investing activities:
Acquisitions, net of cash acquired of $2,464 (2,253 )
Purchase of severance-related insurance policies (743 ) (777 )
Purchase of short term investments (219,459 ) (307,924 )
Proceeds from sale of short term investments 179,700 158,054
Proceeds from maturities of short term investments 129,279 78,567
Purchase of property and equipment (48,601 ) (29,924 )
Restricted cash 3,604
Purchase of intangible finite-lived assets (210 )
Purchase of equity investment in a private company   (3,455 )
Net cash provided by (used in) investing activities 43,570   (107,712 )
 
Cash flows from financing activities:
Principal payments on capital lease obligations (1,105 ) (1,381 )
Proceeds from exercise of share awards 18,867 16,783
Excess tax benefit from share-based compensation 53   342  
Net cash provided by financing activities 17,815   15,744  
 
Net increase (decrease) in cash and cash equivalents 211,873 (11,838 )
Cash and cash equivalents at beginning of period 51,326   63,164  
Cash and cash equivalents at end of period $ 263,199   $ 51,326  

Mellanox Technologies, Ltd.
Press/Media Contact
McGrath/Power Public Relations and Communications
Allyson Scott, +1-408-727-0351
allysonscott@mcgrathpower.com
or
Investor Contact
Mellanox Technologies
+1-408-916-0012
ir@mellanox.com
or
Israel PR Contact
Gelbart Kahana Investor Relations
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sharonl@gk-biz.com

Source: Mellanox Technologies, Ltd.

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