Record Quarterly Revenue of $268.5 Million, Up
7 Percent Sequentially and 27 Percent Year-Over-Year
Ethernet Revenue Up 81 Percent, and Ethernet
Switch Revenue Up 114 Percent Year-Over-Year
Maintains Best ISS QualityScore for Governance
for More Than a Year
Mellanox® Technologies, Ltd. (NASDAQ: MLNX), a leading supplier
of high-performance, end-to-end interconnect solutions for data
center servers and storage systems, today announced financial
results for its second quarter 2018 ended June 30, 2018.
“Mellanox has achieved another record financial performance in
the second quarter 2018. Our strong revenue growth reflects years
of investment in 25 gigabit per second and above Ethernet and
InfiniBand technologies. Our record profitability demonstrates the
leverage we are producing in the business by focusing our
investments in the right products,” said Eyal Waldman, President
and CEO of Mellanox Technologies. “We continue to see strong
traction with our 25 gigabit per second and above solutions as they
become the preferred solution of choice in hyperscale, cloud, high
performance computing, artificial intelligence, storage, financial
services and other markets across the globe. Our Ethernet revenue
grew 81 percent year-over-year driven by network adapter and switch
growth with hyperscale and OEM customers. We are proud to see our
InfiniBand solutions accelerate the world’s top three and four of
the top five supercomputers, as seen in the recently published
TOP500 supercomputers list. Our performance in the second quarter
further shows the benefit of our investment in diversifying our
revenue base and the operational focus that is driving our higher
profitability.”
Second Quarter 2018 - Highlights
- Revenue of $268.5 million, an increase
of 26.7 percent, compared to $212.0 million in the second quarter
of 2017.
- GAAP gross margins of 61.4 percent in
the second quarter, compared to 65.4 percent in the second quarter
of 2017.
- Non-GAAP gross margins of 69.1 percent
in the second quarter, compared to 70.6 percent in the second
quarter of 2017.
- GAAP operating income of $16.6 million,
compared to operating loss of $4.4 million in the second quarter of
2017.
- Non-GAAP operating income of $66.2
million, or 24.7 percent of revenue, compared to $26.5 million, or
12.5 percent of revenue in the second quarter of 2017.
- GAAP net income of $16.5 million,
compared to net loss of $8.0 million in the second quarter of
2017.
- Non-GAAP net income of $66.6 million,
compared to $22.4 million in the second quarter of 2017.
- GAAP net income per diluted share of
$0.30 in the second quarter, compared to net loss per diluted share
of $0.16 in the second quarter of 2017.
- Non-GAAP net income per diluted share
of $1.25 in the second quarter, compared to $0.44 in the second
quarter of 2017.
- $46.7 million in cash provided by
operating activities, compared to $6.4 million in the second
quarter of 2017.
- Cash and investments totaled $282.6
million at June 30, 2018, compared to $273.8 million at December
31, 2017.
First Half 2018 - Highlights
- Revenue of $519.5 million, an increase
of 29.7 percent, compared to $400.6 million in the first half of
2017.
- GAAP operating income of $28.5 million,
compared to operating loss of $17.0 million in the first half of
2017.
- Non-GAAP operating income of $118.4
million, or 22.8 percent of revenue, compared to $42.1 million, or
10.5 percent of revenue in first half of 2017.
- GAAP benefit from taxes on income of
$26.7 million, mainly due to a reversal of valuation allowance on
deferred tax assets.
- GAAP net income of $54.4 million,
compared to net loss of $20.2 million in the first half of
2017.
- Non-GAAP net income of $118.0 million,
compared to $37.0 million in the first half of 2017.
- GAAP net income per diluted share of
$1.00, compared to net loss per diluted share of $0.41 in the first
half of 2017.
- Non-GAAP net income per diluted share
of $2.23, compared to $0.73 in the first half of 2017.
- $102.1 million in cash provided by
operating activities, compared to $41.4 million in the first half
of 2017.
Eyal Waldman continued, “In the first half of 2018 our revenue
growth has proven the value of our investments and we look forward
to continuing our momentum into the second half of the year. We
grew our revenue almost 30% in the first half and more than doubled
our non-GAAP operating income year over year. We expect our margin
expansion to continue with further revenue growth and operational
efficiency. We are confident that our strategy, investments and
innovation will continue to produce market-leading products that
drive growth for Mellanox for the rest of 2018 and beyond.”
Third Quarter 2018 Outlook
We currently project:
- Quarterly revenue of $270 million to
$280 million
- Non-GAAP gross margins of 68.5 percent
to 69.5 percent
- Non-GAAP operating expenses of $122
million to $124 million
- Share-based compensation expense of
$19.0 million to $19.5 million
- Non-GAAP diluted share count of 53.5
million to 54.0 million
Full Year 2018 Outlook
We currently project:
- Revenue of $1,065 million to $1,085
million
- Non-GAAP gross margins of 68.5 percent
to 69.5 percent
- Non-GAAP operating margin of 23.0
percent to 24.0 percent
Recent Mellanox Press Release Highlights
• June 25, 2018 InfiniBand Accelerates the
World-Fastest HPC and Artificial Intelligence Supercomputer at Oak
Ridge National Laboratory • June 25, 2018 InfiniBand Accelerates
New Large Scale Supercomputer at Forschungszentrum Jülich • June
25, 2018 InfiniBand Accelerates the Top Three Supercomputers on
TOP500 Supercomputer List • June 19, 2018 InfiniBand to Connect
World’s Top Arm-Based Supercomputer at Sandia National Laboratory •
June 19, 2018 Mellanox Announces Agreement with Starboard • May 29,
2018 Mellanox Launches Ground-Breaking Open Hyper-Scalable
Enterprise Framework • May 24, 2018 Mellanox Shareholders
Overwhelmingly Support Company’s Best-in-Class Governance Proposals
• May 17, 2018 Mellanox Technologies Increases Second Quarter and
Full Year 2018 Outlook • May 8, 2018 Mellanox and Red Hat Deliver
Enhanced Performance and Simplicity for NFV Infrastructure and
Agile Cloud Data Centers • May 7, 2018 Mellanox Sends Letter to
Shareholders • April 23, 2018 Eyal Waldman, CEO and President of
Mellanox Technologies Receives the 2018 Global Industry Leader
Award
Conference Call
Mellanox will hold its second quarter 2018 financial results
conference call today, at 2:00 p.m. Pacific Time (5:00 p.m. Eastern
Time), to discuss the company’s financial results. To listen to the
call, dial +1-877-876-9176, or for investors outside the U.S.,
+1-785-424-1667, 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. A replay of the webcast will
also be available on the Mellanox website after the call.
About Mellanox
Mellanox Technologies (NASDAQ: MLNX) is a leading supplier of
end-to-end Ethernet and InfiniBand smart 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. Mellanox offers a choice of fast
interconnect products: adapters, switches, software 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.
Mellanox has achieved and maintained the highest ISS Quality
Score possible beginning in May of 2017 and through the date of
this release, July 17, 2018.
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, settlement costs, acquisition and other charges,
restructuring charges, and income tax effects and adjustments.
Settlement costs represent the charges related to the settlement of
a contingent royalty obligation. Acquisition and other charges
include expenses related to acquisitions of other companies and
expenses related to the proxy contest. Restructuring charges
include costs that are the result of restructuring, consisting of
employee termination and severance costs, facilities related costs,
contract cancellation charges, and impairment of long-lived assets.
The purpose of income tax effects and adjustments is to exclude tax
consequences associated with the above excluded expenses items, as
well as the non-cash impact on the tax provision pertaining to
changes in deferred tax assets associated with carryforward losses
of group entities subject to tax holiday in Israel. 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, settlement costs, acquisition and other charges,
restructuring charges, and income tax effects and adjustments
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, changes
related to recognition of deferred taxes and the net impact on the
company's tax provision for non-GAAP adjustments 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.
The company has not reconciled its non-GAAP gross margins or
non-GAAP operating expenses to GAAP gross margins or GAAP operating
expenses, respectively, in the outlook section of this press
release, because it does not provide an outlook for GAAP gross
margins or GAAP operating expenses due to uncertainty and
variability of acquired intangibles, acquisition and other charges,
and restructuring charges, which are reconciling items between
non-GAAP gross margins and non-GAAP operating expenses, and GAAP
gross margins and GAAP operating expenses, respectively. The
company has not reconciled its non-GAAP diluted share count to GAAP
diluted share count in this press release because it does not
provide an outlook for GAAP diluted share count due to the
uncertainty in its GAAP net income (loss) due to variability of
GAAP gross margins and operating expenses described above. Because
such items cannot be reasonably predicted and could have a
significant impact on the calculation of GAAP gross margins, GAAP
operating expenses and GAAP diluted share count, a reconciliation
of our outlook of these non-GAAP financial measures to the
corresponding GAAP measures is not available without unreasonable
effort.
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 outlook for the
three months ending September 30, 2018 and full fiscal
2018, statements related to trends in the market for our solutions
and services, opportunities for our company in 2018 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 16,
2018. All forward-looking statements in this press release,
including the outlook for the three months ending
September 30, 2018 and full fiscal 2018, 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 June 30,
Six Months Ended June 30,
2018 2017 2018 2017
Total revenues $ 268,462 $ 211,962 $ 519,462 $ 400,613 Cost
of revenues 103,668 73,427 192,666 137,877
Gross profit 164,794 138,535 326,796
262,736 Operating expenses: Research and development 87,152
92,348 173,578 180,839 Sales and marketing 35,673 38,110 75,167
73,867 General and administrative 23,635 12,476 40,151 24,995
Restructuring charges 1,774 — 9,361 —
Total operating expenses 148,234 142,934 298,257
279,701 Income (loss) from operations 16,560 (4,399 )
28,539 (16,965 ) Interest expense (871 ) (1,996 ) (2,042 ) (3,989 )
Other income, net 533 827 1,171 1,510
Interest and other, net (338 ) (1,169 ) (871 ) (2,479 ) Income
(loss) before taxes on income 16,222 (5,568 ) 27,668 (19,444 )
Provision for (benefit from) taxes on income (304 ) 2,423
(26,701 ) 791 Net income (loss) $ 16,526 $ (7,991 ) $
54,369 $ (20,235 ) Net income (loss) per share — basic $
0.31 $ (0.16 ) $ 1.04 $ (0.41 ) Net income (loss) per
share — diluted $ 0.30 $ (0.16 ) $ 1.00 $ (0.41 )
Shares used in computing net income (loss) per share: Basic 52,615
50,056 52,219 49,698 Diluted 54,466 50,056 54,149 49,698
Mellanox Technologies, Ltd. Reconciliation of Non-GAAP
Adjustments (in thousands, percentages, unaudited)
Three Months Ended June 30,
Six Months Ended June 30,
2018 2017 2018 2017
Reconciliation of
GAAP net income (loss) to non-GAAP:
GAAP net income (loss) $ 16,526 $ (7,991 ) $ 54,369 $ (20,235 )
Adjustments: Share-based compensation expense: Cost of revenues 415
575 826 1,056 Research and development 8,340 10,297 16,514 18,988
Sales and marketing 3,646 4,010 7,245 7,348 General and
administrative 2,515 2,783 5,305 5,041
Total share-based compensation expense 14,916 17,665 29,890 32,433
Amortization of acquired intangibles: Cost of revenues 11,106
10,614 21,988 21,200 Research and development 194 194 386 386 Sales
and marketing 2,033 2,230 4,263 4,460
Total amortization of acquired
intangibles
13,333 13,038 26,637 26,046 Settlement costs: Cost of revenues
9,161 — 9,161 — Total settlement costs
9,161 — 9,161 — Acquisition and other charges (1): Research and
development 88 153 375 436 Sales and marketing 48 — 208 60 General
and administrative 10,366 — 14,197 134
Total acquisition and other charges 10,502 153 14,780 630
Restructuring charges 1,774 — 9,361 — Tax effects and adjustments
366 (492 ) (26,237 ) (1,843 ) Non-GAAP net income $ 66,578
$ 22,373 $ 117,961 $ 37,031
Reconciliation of
GAAP gross profit to non-GAAP:
Revenues $ 268,462 $ 211,962 $ 519,462 $ 400,613 GAAP gross profit
164,794 138,535 326,796 262,736 GAAP gross margin
61.4
%
65.4
%
62.9
%
65.6
%
Share-based compensation expense 415 575 826 1,056 Amortization of
acquired intangibles 11,106 10,614 21,988 21,200 Settlement costs
9,161 — 9,161 — Non-GAAP gross profit $
185,476 $ 149,724 $ 358,771 $ 284,992
Non-GAAP gross margin 69.1 % 70.6 % 69.1 % 71.1 %
Reconciliation of
GAAP operating expenses to non-GAAP:
GAAP operating expenses $ 148,234 $ 142,934 $ 298,257 $ 279,701
Share-based compensation expense (14,501 ) (17,090 ) (29,064 )
(31,377 ) Amortization of acquired intangibles (2,227 ) (2,424 )
(4,649 ) (4,846 ) Acquisition and other charges (1) (10,502 ) (153
) (14,780 ) (630 ) Restructuring charges (1,774 ) — (9,361 )
— Non-GAAP operating expenses $ 119,230 $ 123,267
$ 240,403 $ 242,848
Mellanox
Technologies, Ltd. Reconciliation of Non-GAAP
Adjustments (in thousands, except per share data,
unaudited)
Three Months Ended June 30,
Six Months Ended June 30,
2018 2017 2018 2017
Reconciliation of
GAAP income (loss) from operations to non-GAAP:
GAAP income (loss) from operations $ 16,560 $ (4,399 ) $ 28,539 $
(16,965 ) Share-based compensation expense 14,916 17,665 29,890
32,433 Settlement costs 9,161 — 9,161 — Amortization of acquired
intangibles 13,333 13,038 26,637 26,046 Acquisition and other
charges (1) 10,502 153 14,780 630 Restructuring charges 1,774
— 9,361 — Non-GAAP income from
operations $ 66,246 $ 26,457 $ 118,368 $
42,144 Shares used in computing GAAP diluted earnings
per share 54,466 50,056 54,149 49,698 Adjustments: Effect of
dilutive securities under GAAP (1,851 ) — (1,930 ) — Total options
vested and exercisable 600 1,069 600 1,069
Shares used in computing non-GAAP diluted earnings per share
53,215 51,125 52,819 50,767 GAAP
diluted net income (loss) per share $ 0.30 $ (0.16 ) $ 1.00 $ (0.41
) Adjustments: Share-based compensation expense 0.28 0.36 0.55 0.66
Amortization of acquired intangibles 0.24 0.26 0.49 0.53 Settlement
costs 0.17 — 0.17 — Acquisition and other charges (1) 0.19 — 0.27
0.01 Restructuring charges 0.03 — 0.17 — Tax effects and
adjustments 0.01 (0.01 ) (0.48 ) (0.04 ) Effect of dilutive
securities under GAAP 0.04 — 0.08 — Total options vested and
exercisable (0.01 ) (0.01 ) (0.02 ) (0.02 ) Non-GAAP diluted net
income per share $ 1.25 $ 0.44 $ 2.23 $ 0.73
(1) Acquisition and other charges include $10.1
million and $13.5 million of expenses related to the proxy contest
for the three and six months ended June 30, 2018, respectively.
Mellanox Technologies, Ltd. Condensed Consolidated
Balance Sheets (in thousands, unaudited)
June 30, December 31, 2018 2017
ASSETS Current assets: Cash and cash equivalents $ 63,422 $
62,473 Short-term investments 219,225 211,281 Accounts receivable,
net 155,664 154,213 Inventories 94,484 64,657 Other current assets
12,007 14,295 Total current assets 544,802 506,919 Property
and equipment, net 106,746 109,919 Severance assets 17,111 18,302
Intangible assets, net 208,450 228,195 Goodwill 473,916 472,437
Deferred taxes and other long-term assets 98,744 66,162
Total assets $ 1,449,769 $ 1,401,934
LIABILITIES AND
SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $
71,137 $ 59,090 Accrued liabilities 124,792 114,058 Deferred
revenue 20,719 23,485 Total current liabilities 216,648
196,633 Accrued severance 21,464 23,205 Deferred revenue 17,791
17,820 Term debt — 72,761 Other long-term liabilities 32,117
34,067 Total liabilities 288,020 344,486 Shareholders’
equity: Ordinary shares 229 221 Additional paid-in capital 923,202
873,979 Accumulated other comprehensive income (loss) (2,182 )
1,618 Retained earnings 240,500 181,630 Total shareholders’
equity 1,161,749 1,057,448 Total liabilities and
shareholders' equity $ 1,449,769 $ 1,401,934
Mellanox Technologies, Ltd. Condensed Consolidated
Statement of Cash Flows (in thousands, unaudited)
Six Months Ended June 30, 2018
2017 Cash flows from operating activities: Net income
(loss) $ 54,369 $ (20,235 ) Adjustments to reconcile net income
(loss) to net cash provided by operating activities: Depreciation
and amortization 52,674 50,814 Deferred income taxes (28,085 ) (704
) Share-based compensation 29,890 32,433 Gain on investments, net
(1,828 ) (1,701 ) Impairment and loss on disposal of property and
equipment 1,567 — Changes in assets and liabilities: Accounts
receivable (1,451 ) (7,780 ) Inventories (30,598 ) (7,679 ) Prepaid
expenses and other assets 718 (2,667 ) Accounts payable 12,530 48
Accrued liabilities and other liabilities 12,334 (1,141 )
Net cash provided by operating activities 102,120 41,388
Cash flows from investing activities: Purchase of
severance-related insurance policies (612 ) (651 ) Purchase of
short-term investments (82,486 ) (69,110 ) Proceeds from sales of
short-term investments 13,893 74,359 Proceeds from maturities of
short-term investments 62,396 13,590 Proceeds from sales of
property and equipment 3,239 — Purchase of property and equipment
(20,078 ) (27,120 ) Purchase of intangible assets (6,383 ) (1,647 )
Purchase of investments in private companies (6,000 ) (11,000 )
Acquisition, net of cash acquired (7,129 ) — Net cash used
in investing activities (43,160 ) (21,579 ) Cash flows from
financing activities: Principal payments on term debt (74,000 )
(30,000 ) Payments on capital lease and intangible asset financings
(3,446 ) (3,263 ) Proceeds from issuances of ordinary shares
through employee equity incentive plans 19,341 12,396
Net cash used in financing activities (58,105 ) (20,867 )
Net increase (decrease) in cash, cash equivalents, and restricted
cash 855 (1,058 ) Cash, cash equivalents, and restricted cash at
beginning of period 70,498 56,780 Cash, cash
equivalents, and restricted cash at end of period $ 71,353 $
55,722
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180717005985/en/
Mellanox Technologies, Ltd.Press/Media
ContactMcGrath/Power Public Relations and CommunicationsDerek
James, +1-408-727-0351derekjames@mcgrathpower.comorInvestor
ContactErik Bylin,
+1-510-315-1004erik@nmnadvisors.comorIsrael PR ContactGalai
Communications Public RelationsJonathan Wolf,
+972-3-613-52-84yoni@galaipr.comorIsrael IR ContactGelbart
Kahana Investor RelationsEmanuel Kahana,
+972-3-607-47-17mano@gk-biz.com
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