April 20, 2016

Mellanox Achieves Record Quarterly Revenue in the First Quarter 2016

 

Quarterly revenue growth of 34.2 percent, year-over-year to $196.8 million, sets new record

Quarterly Ethernet revenues grew 98 percent year-over-year, including EZchip

Closed acquisition of EZchip Semiconductor Ltd.

SUNNYVALE, Calif. & YOKNEAM, Israel--(BUSINESS WIRE)-- Mellanox® Technologies, Ltd. (NASDAQ: MLNX) today announced financial results for its first quarter ended March 31, 2016.

"We are pleased to report the fourth consecutive quarter of record revenue. Our profitability grew 37.2 percent year-over-year. During the quarter we closed the acquisition of EZchip Semiconductor Ltd. We see great promise in the combination of EZchip's intelligent processors, and Mellanox's leading interconnect technology. We believe the combined company can deliver compelling value to current and future customers," said Eyal Waldman, president and CEO of Mellanox Technologies. "We recorded strong growth in our Ethernet business, supported by adoption of our 40 Gigabit Ethernet adapters. We are seeing strong interest in the Spectrum product line and expect revenues to accelerate in the coming quarters. Tests demonstrate superior performance, costs, resiliency, and power of Spectrum compared to alternative products. We are pleased to see our InfiniBand business grow year-over-year. We see additional hyperscale entities deployed InfiniBand in their data centers."

First Quarter 2016 -Highlights

  • Revenues of $196.8 million increased 11.2 percent, compared to $176.9 million in the fourth quarter of 2015.
  • GAAP gross margins of 64.2 percent in the first quarter compared to 70.7 percent in the fourth quarter of 2015.
  • Non-GAAP gross margins of 71.4 percent in the first quarter compared to 72.2 percent in the fourth quarter of 2015.
  • GAAP operating loss was $3.9 million, compared to operating income of $19.9 million in the fourth quarter of 2015.
  • Non-GAAP operating income was $41.3 million, or 21.0 percent of revenue, compared to $36.6 million, or 20.7 percent of revenue in the fourth quarter of 2015.
  • GAAP net loss was $7.2 million, compared to net income of $43.2 million in the fourth quarter of 2015.
  • Non-GAAP net income was $39.3 million, compared to $37.5 million in the fourth quarter of 2015.
  • GAAP net loss per diluted share was $0.15 in the first quarter compared to net income per diluted share of $0.90 in the fourth quarter of 2015.
  • Non-GAAP net income per diluted share was $0.81 in the first quarter compared to $0.77 in the fourth quarter of 2015.
  • $48.6 million in cash was provided by operating activities, compared to $34.7 million in the fourth quarter of 2015.
  • Cash and investments totaled $261.8 million at March 31, 2016, compared to $510.5 million at December 31, 2015.

Second Quarter 2016 Guidance

We currently project:

  • Quarterly revenues of $210 million to $215 million
  • Non-GAAP gross margins of 71 percent to 72 percent
  • An increase in non-GAAP operating expenses of 8 percent to 10 percent
  • Share-based compensation expense of $13.4 million to $13.9 million
  • Non-GAAP diluted share count of 48.8 million to 49.3 million shares

Recent Mellanox Press Release Highlights

  April 4, 2016       Mellanox Announces New Line of InfiniBand Router Systems, Expanding Data Center Scalability and Enabling Infrastructure Flexibility
  Mar 22, 2016       Mellanox Announces First 200Gb/s Silicon Photonics Devices, Doubling The Performance in the QSFP Form Factor
 

Mar 22, 2016

      Mellanox and InnoLight Announce the Availability and Interoperability of 100Gb/s PSM4 Transceivers at 1310 and 1550nm Wavelengths
  Mar 8, 2016       Mellanox Showcases End to End 100Gb/s Ethernet Solutions for Content Distribution Networks
  Mar 7, 2016       Mellanox Adds Cumulus Linux Support for Ethernet Switches
  Mar 7, 2016       Mellanox Introduces World's First 25/50 Gb/s OCP Ethernet Adapters for Single and Multi-Host Technology
  Mar 7, 2016       Mellanox Introduces Open Composable Networks to Enable New Interconnect Speeds and Higher Efficiency for OCP Platforms
  Mar 2, 2016       Mellanox Joins RISC-V Foundation as a Platinum Founding Sponsor
  Mar 1, 2016       Mellanox Delivers Next Generation Network Processor to Key Telco Customers
  Feb 24, 2016       Mellanox Partners with Nutanix to Deliver Effortless Enterprise Infrastructure

Conference Call

Mellanox will hold its first quarter 2016 financial results conference call today at 2 p.m. Pacific Time to discuss the company's financial results. To listen to the call, dial +1-877-876-9177, or for investors outside the U.S., +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. A 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 (loss) 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 in certain deferred tax assets 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 in deferred tax assets, 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 taxes 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 June 30, 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, our ability to protect our intellectual property rights, our ability to successfully acquire businesses and technologies and to successfully integrate and operate these acquired businesses, our success in realizing the anticipated benefits of mergers and acquisitions, and our ability to obtain debt at competitive rates or in sufficient amounts in order to fund our contractual commitments. 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 annual report on Form 10-K filed with the SEC on February 26, 2016. All forward-looking statements in this press release, including the guidance for the three months ended June 30, 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
              March 31,
              2016             2015
Total revenues             $ 196,810               $ 146,675  
Cost of revenues               70,481                 41,087  
Gross profit               126,329                 105,588  
Operating expenses:                                
Research and development               71,034                 58,118  
Sales and marketing               31,228                 22,558  
General and administrative               27,938                 9,701  
Total operating expenses               130,200                 90,377  
(Loss) income from operations               (3,871 )               15,211  
Interest expense               998                  
Other income (loss)               61                 (2,469 )
Other loss, net               (937 )               (2,469 )
(Loss) income before taxes               (4,808 )               12,742  
Provision for taxes on income               2,360                 2,246  
Net (loss) income             $ (7,168 )             $ 10,496  
Net (loss) income per share — basic             $ (0.15 )             $ 0.23  
Net (loss) income per share — diluted             $ (0.15 )             $ 0.22  
Shares used in computing net (loss) income per share:                                
Basic               47,358                 45,691  
Diluted               47,358                 47,034  
 
 
Mellanox Technologies, Ltd.
Reconciliation of Non-GAAP Adjustments
(in thousands, percentages, unaudited)
                       
            Three Months Ended
            March 31,
            2016         2015
Reconciliation of GAAP net income (loss) to non-GAAP:                      
GAAP (loss) net income           $ (7,168 )         $ 10,496  
Adjustments:                      
Share-based compensation expense:                      
Cost of revenues           475           547  
Research and development           9,152           6,768  
Sales and marketing           3,648           2,394  
General and administrative           4,991           2,009  
Total share-based compensation expense           18,266           11,718  
Amortization of acquired intangibles:                      
Cost of revenues           10,429           1,474  
Research and development           195           195  
Sales and marketing           1,023           584  
Total amortization of acquired intangibles           11,647           2,253  
Settlement costs:                      
General and administrative           5,106            

Total settlement costs

          5,106            
Acquisition related charges:                      
Cost of revenues           3,300            
Research and development           476           763  
Sales and marketing           56           225  
General and administrative           6,348            
Total acquisition related charges           10,180           988  
Impairment loss on equity investment in a private company                     3,189  
Deferred taxes on NOL in Israel           1,265            
Non-GAAP net income           $ 39,296           $ 28,644  
                       

Reconciliation of GAAP gross profit to non-GAAP:

                     
Revenues           $ 196,810           $ 146,675  
GAAP gross profit           126,329           105,588  
GAAP gross margin           64.2 %         72.0 %
Share-based compensation expense           475           547  
Amortization of acquired intangibles           10,429           1,474  
Acquisition related charges           3,300            
Non-GAAP gross profit           140,533           107,609  
Non-GAAP gross margin           71.4 %         73.4 %
                       

Reconciliation of GAAP operating expenses to non-GAAP:

                     
GAAP operating expenses           $ 130,200           $ 90,377  
Share-based compensation expense           (17,791 )         (11,171 )
Amortization of acquired intangibles           (1,218 )         (779 )
Settlement costs           (5,106 )          
Acquisition related charges           (6,880 )         (988 )
Non-GAAP operating expenses           $ 99,205           $ 77,439  
 
 
Mellanox Technologies, Ltd.
Reconciliation of Non-GAAP Adjustments
(in thousands, except per share data, unaudited)
                       
                       
            Three Months Ended
            March 31,
            2016         2015
                       

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

                     
GAAP (loss) income from operations           $ (3,871 )         $ 15,211  
Share-based compensation expense           18,266           11,718  
Settlement costs           5,106            
Amortization of acquired intangibles           11,647           2,253  
Acquisition related charges           10,180           988  
Non-GAAP income from operations           $ 41,328           $ 30,170  
                       
Shares used in computing GAAP diluted earnings per share           47,358           47,034  
Adjustments:                      
Effect of dilutive securities under GAAP*                     (1,343 )
Total options vested and exercisable           1,450           1,797  
Shares used in computing non-GAAP diluted earnings per share           48,808           47,488  
                       
GAAP diluted net (loss) income per share           $ (0.15 )         $ 0.22  
Adjustments:                      
Share-based compensation expense           0.38           0.25  
Amortization of acquired intangibles           0.25           0.04  
Settlement costs           0.11            
Acquisition related charges           0.21           0.02  
Deferred taxes in NOL in Israel           0.03            
Impairment loss on equity investment in a private company                     0.07  
Effect of dilutive securities under GAAP*                     0.02  
Total options vested and exercisable           (0.02 )         (0.02 )
Non-GAAP diluted net income per share           $ 0.81           $ 0.60  

 

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)

                             
              March 31,             December 31,
              2016             2015
ASSETS                            
Current assets:                            
Cash and cash equivalents             $ 117,912               $ 263,199  
Short-term investments             143,926               247,314  
Accounts receivable, net             105,114               84,273  
Inventories             72,271               62,473  
Other current assets             22,907               19,979  
Total current assets             462,130               677,238  
Property and equipment, net             103,157               100,018  
Severance assets             15,787               9,514  
Intangible assets, net             308,721               32,154  
Goodwill             476,037               200,743  
Deferred taxes and other long-term assets             32,627               33,715  
Total assets             $ 1,398,459               $ 1,053,382  
                             
LIABILITIES AND SHAREHOLDERS' EQUITY                            
Current liabilities:                            
Accounts payable             $ 47,632               $ 44,600  
Accrued liabilities             106,684               74,296  
Deferred revenue             18,948               17,743  
Capital lease liabilities, current             217               491  
Current portion of term debt             25,905                
Total current liabilities             199,386               137,130  
Accrued severance             19,630               12,464  
Deferred revenue             12,197               12,439  
Term debt             248,926                
Other long-term liabilities             26,498               24,668  
Total liabilities             506,637               186,701  
Shareholders' equity:                            
Ordinary shares             202               200  
Additional paid-in capital             713,039               684,824  
Accumulated other comprehensive income (loss)             2,423               (1,669 )
Retained earnings             176,158               183,326  
Total shareholders' equity             891,822               866,681  
Total liabilities and shareholders' equity             $ 1,398,459               $ 1,053,382  
             
             

Mellanox Technologies, Ltd.

Condensed Consolidated Statement of Cash Flows

(in thousands, unaudited)

             
            Three months ended March 31,
            2016         2015
Cash flows from operating activities:                      
Net (loss) income           $ (7,168 )         $ 10,496  

Adjustments to reconcile net (loss) income to

net cash provided by operating activities, net

of effects from acquired company:

                     
Depreciation and amortization           20,614           9,546  
Deferred income taxes           1,265           104  
Share-based compensation expense           18,266           11,718  
Loss (gain) on investments           112           (309 )
Impairment of equity investment in a private company                     3,189  
Changes in assets and liabilities:                      
Accounts receivable, net           (4,677 )         9,005  
Inventory           4,361           (8,689 )
Prepaid expenses and other assets           2,305           3,895  
Accounts payable           3,340           (2,122 )
Accrued liabilities and other payables           10,177           8,962  
Net cash provided by operating activities           48,595           45,795  
                       
Cash flows from investing activities:                      
Purchase of severance-related insurance policies           (226 )         (186 )
Purchase of short term investments           (64,908 )         (87,793 )
Proceeds from sale of short term investments           199,932           37,326  
Proceeds from maturities of short term investments           77,715           17,798  
Purchase of property and equipment           (8,283 )         (9,521 )
Purchase of equity investment in a private company           (107 )          
Acquisition, net of cash acquired $87.5 million           (681,189 )          
Net cash used in investing activities           (477,066 )         (42,376 )
                       
Cash flows from financing activities:                      
Proceeds from term debt           280,000            
Term debt issuance costs           (5,521 )          
Principal payments on capital lease obligations           (274 )         (281 )
Proceeds from exercise of share awards           8,979           7,192  
Net cash provided by financing activities           283,184           6,911  
                       
Net (decrease) increase in cash and cash equivalents           (145,287 )         10,330  
Cash and cash equivalents at beginning of period           263,199           51,326  
Cash and cash equivalents at end of period           $ 117,912           $ 61,656  
                               
                               

 

Mellanox Technologies, Ltd.
Press/Media Contact
McGrath/Power Public Relations and Communications
Allyson Scott, +1 408-727-0351
allysonscott@mcgrathpower.com
or
Investor Contact
Jeffrey Schreiner, +1 408-916-0012
jschreiner@mellanox.com
or
Israel PR Contact
Gelbart Kahana Investor Relations
Sharon Levin, +972-3-6070567
sharonl@gk-biz.com

 

Source: Mellanox Technologies, Ltd.

 

 

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