Date of report (Date of earliest event reported): January 18,2018
Mellanox Technologies, Ltd.
Item 2.02. Results of Operations and Financial Condition.
On January 18, 2018 , Mellanox Technologies, Ltd.publicly disseminated a press release announcing financial results for thefourth quarter ended December 31, 2017 . The foregoing description isqualified in its entirety by reference to the press release dated January 18,2018 , a copy of which is attached hereto as Exhibit 99.1 and incorporatedherein by reference.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
The following exhibit is filed with this Form 8-K:
99.1 Press Release dated January 18, 2018
Mellanox Achieves Record Quarterly and Annual Revenues; Forecasts Strong2018
Quarterly Revenue Record of $238 Million, Up 5 PercentSequentially and 7 Percent Year Over Year
2017 Ethernet Revenues Up 26 Percent and 25/50/100Gigabit Revenues Up 156 Percent Year-Over-Year
Revenue Growth and Cost Rationalization Builds Foundationfor Expanding Operating Leverage
SUNNYVALE, Calif. and YOKNEAM, ISRAEL — January 18, 2018 — Mellanox®Technologies, Ltd. (NASDAQ: MLNX) today announced financial results for itsfourth quarter and full year 2017 ended December 31, 2017 .
“We are pleased to achieve record quarterly and full yearrevenues,” said Eyal Waldman, President and CEO of Mellanox Technologies. “2017represented a year of investment and product transitions for Mellanox. Fourthquarter Ethernet revenues increased 11 percent sequentially, due to expandingcustomer adoption of our 25 gigabit per second and above Ethernet productsacross all geographies. We are encouraged by the acceleration of our 25 gigabitper second and above Ethernet switch business, which grew 41 percentsequentially, with broad based growth across OEM, hyperscale, tier-2, cloud,financial services and channel customers. During the fourth quarter, InfiniBandrevenues grew 2 percent sequentially, driven by growth from ourhigh-performance computing and artificial intelligence customers. For the fullfiscal 2017, our revenues from the high performance computing market grew 13percent year over year. Our 2017 results demonstrate the successful executionof our multi-year revenue diversification strategy, and our leadership positionin 25 gigabit per second and above Ethernet adapters.”
Fourth Quarter 2017 -Highlights
·
Revenues were $237.6 million in the fourth quarter, and $863.9 million in fiscal year 2017 .
·
GAAP gross margins were 64.1 percent in the fourth quarter, and 65.2 percent in fiscal year 2017 .
·
Non-GAAP gross margins were 68.8 percent in the fourth quarter, and 70.4 percent in fiscal year 2017 .
·
GAAP operating loss was $(6.7) million , or (2.8) percent of revenue, in the fourth quarter, and was $(17.1) million , or (2.0) percent of revenue, in fiscal year 2017 .
·
Non-GAAP operating income was $38.0 million , or 16.0 percent of revenue, in the fourth quarter, and $118.7 million , or 13.7 percent of revenue, in fiscal year 2017 .
·
GAAP net loss was $(2.6) million in the fourth quarter, and was $(19.4) million in fiscal year 2017 .
·
Non-GAAP net income was $42.9 million in the fourth quarter, and $116.6 million in fiscal year 2017 .
·
GAAP net loss per diluted share was $(0.05) in the fourth quarter, and $(0.39) in fiscal year 2017 .
·
Non-GAAP net income per diluted share was $0.82 in the fourth quarter, and $2.28 in fiscal year 2017 .
·
$66.9 million in cash was provided by operating activities during the fourth quarter.
·
$161.3 million in cash was provided by operating activities during fiscal year 2017 .
2
·
Cash and investments totaled $273.8 million at December 31, 2017 .
Mr. Waldman continued, “As we enter 2018, we expect tobuild on our momentum in Ethernet and InfiniBand. With the recent release ofour BlueField system-on-chip, and the future introduction of our 200 gigabitper second InfiniBand and Ethernet products, Mellanox is well positioned tobegin reaping the benefits from prior investments. Looking ahead, we anticipateseeing acceleration of revenue growth, while delivering on our commitment tomore efficiently manage costs and achieve fiscal 2018 non-GAAP operatingmargins of 18 to 19 percent. We continue to drive improvements in profitabilityand identify further efficiencies that can be realized as our prior investmentsbegin to yield positive results and we transition towards new productintroductions in 2018 and beyond.”
First Quarter 2018 Outlook
We currently project:
·
Quarterly revenues of $222 million to $232 million
·
Non-GAAP gross margins of 68.5 percent to 69.5 percent
·
Non-GAAP operating expenses of $120 million to $122 million
·
Share-based compensation expense of $16.3 million to $16.8 million
·
Non-GAAP diluted share count of 52.4 million to 52.9 million
Full Year 2018 Outlook
We currently project:
·
Revenues of $970 million to $990 million
·
Non-GAAP gross margins of 68.0 percent to 69.0 percent
·
Non-GAAP operating margin of 18.0 percent to 19.0 percent
·
Non-GAAP operating margin of more than 20.0 percent exiting 2018
3
Recent Mellanox Press ReleaseHighlights
·
January 16, 2018
Mellanox ConnectX®-5 Ethernet Adapter Wins Linley Group Analyst Choice Award for Best Networking Chip
·
January 9, 2018
Mellanox Discontinuing 1550nm Silicon Photonics Development Activities
·
January 4, 2018
Mellanox Ships BlueField™ System-on-Chip Platforms and SmartNIC Adapters to Leading OEMs and Hyperscale Customers
·
December 18, 2017
Meituan.com Selects Mellanox Interconnect Solutions to Accelerate its Artificial Intelligence, Big Data and Cloud Data Centers
·
December 12, 2017
Mellanox Interconnect Solutions Accelerate Tencent Cloud High-Performance Computing and Artificial Intelligence Infrastructure
·
December 4, 2017
Mellanox and NEC Partner to Deliver Innovative High-Performance and Artificial Intelligence Platforms
·
November 14, 2017
Mellanox Propels NetApp to New Heights with 100Gb/s InfiniBand Connectivity
·
November 13, 2017
Deployment Collaboration with Lenovo will Power Canada’s Largest Supercomputer Centre with Leading Performance, Scalability for High Performance Computing Applications
·
November 13, 2017
Mellanox InfiniBand Solutions to Accelerate the World’s Next Fastest Supercomputers
·
November 13, 2017
Mellanox InfiniBand to Accelerate Japan's Fastest Supercomputer for Artificial Intelligence Applications
·
November 13, 2017
InfiniBand Accelerates 77 Percent of New High-Performance Computing Systems on TOP500 Supercomputer List
Conference Call
Mellanox will hold its fourth quarter and fiscal year 2017 financialresults conference call today, at 2 p.m. Pacific Time, to discuss the company’sfinancial results. To listen to the call, dial 1-800-459-5343, or for investorsoutside the U.S., +1-203-518-9553, approximately 10 minutes prior to the starttime.
The Mellanox financial results conference call will be available via livewebcast on the investor relations section of the Mellanox website at:http://ir.mellanox.com. Access the webcast 15 minutes prior to the start of thecall to download and install any necessary audio software. A replay of thewebcast will also be available on the Mellanox website.
Mellanox Technologies, Ltd.
Condensed Consolidated Statements of Operations
(in thousands, except per share data, unaudited)
Three Months Ended
Year Ended
December 31,
December 31,
2017
2016
2017
2016
Total revenues
237,581
221,676
$
863,893
$
857,498
Cost of revenues
85,238
73,507
300,450
301,986
Gross profit
152,343
148,169
563,443
555,512
Operating expenses:
Research and development
94,123
85,651
365,878
322,620
Sales and marketing
38,761
35,568
150,457
133,780
General and administrative
14,136
13,589
52,170
68,522
Impairment of long-lived assets
12,019
—
12,019
—
Total operating expenses
159,039
134,808
580,524
524,922
Income (loss) from operations
(6,696
)
13,361
(17,081
)
30,590
Interest expense
(1,932
)
(1,944
)
(7,937
)
(7,352
)
Other income, net
649
108
3,115
1,090
Interest and other, net
(1,283
)
(1,836
)
(4,822
)
(6,262
)
Income (loss) before taxes on income
(7,979
)
11,525
(21,903
)
24,328
Provision for (benefit from) taxes on income
(5,386
)
2,530
(2,478
)
5,810
Net income (loss)
(2,593
)
8,995
$
(19,425
)
$
18,518
Net income (loss) per share — basic
(0.05
)
0.18
$
(0.39
)
$
0.38
Net income (loss) per share — diluted
(0.05
)
0.18
$
(0.39
)
$
0.37
Shares used in computing net income (loss) per share:
Basic
51,234
48,926
50,310
48,145
Diluted
51,234
49,971
50,310
49,526
7
Mellanox Technologies, Ltd.
Reconciliation of Non-GAAP Adjustments
(in thousands, except percentages, unaudited)
Three Months Ended
Year Ended
December 31,
December 31,
2017
2016
2017
2016
Reconciliation of GAAP net income (loss) to non-GAAP:
GAAP net income (loss)
$
(2,593
)
$
8,995
$
(19,425
)
$
18,518
Adjustments:
Share-based compensation expense:
Cost of revenues
470
602
2,000
2,375
Research and development
10,479
10,156
40,278
40,474
Sales and marketing
4,009
3,809
15,693
15,183
General and administrative
2,913
2,615
10,893
13,086
Total share-based compensation expense
17,871
17,182
68,864
71,118
Amortization of acquired intangibles:
Cost of revenues
10,641
10,640
42,482
48,119
Research and development
196
196
779
781
Sales and marketing
2,230
2,230
8,919
7,713
Total amortization of acquired intangibles
13,067
13,066
52,180
56,613
Settlement costs:
General and administrative
—
(125
)
—
4,981
Total settlement costs
—
(125
)
—
4,981
Acquisition and other charges
Cost of revenues
—
—
—
8,261
Research and development
193
787
734
1,834
Sales and marketing
48
—
141
206
General and administrative
1,507
97
1,794
6,844
Total acquisition and other charges
1,748
884
2,669
17,145
Restructuring and related charges
12,019
—
12,019
—
Income tax effects and adjustments
799
1,294
250
1,086
Non-GAAP net income
$
42,911
$
41,296
$
116,557
$
169,461
Reconciliation of GAAP gross profit to non-GAAP:
Revenues
$
237,581
$
221,676
$
863,893
$
857,498
GAAP gross profit
152,343
148,169
563,443
555,512
GAAP gross margin
64.1
%
66.8
%
65.2
%
64.8
%
Share-based compensation expense
470
602
2,000
2,375
Amortization of acquired intangibles
10,641
10,640
42,482
48,119
Acquisition and other charges
—
—
—
8,261
Non-GAAP gross profit
$
163,454
$
159,411
$
607,925
$
614,267
Non-GAAP gross margin
68.8
%
71.9
%
70.4
%
71.6
%
Reconciliation of GAAP operating expenses to non-GAAP:
GAAP operating expenses
$
159,039
$
134,808
$
580,524
$
524,922
Share-based compensation expense
(17,401
)
(16,580
)
(66,864
)
(68,743
)
Amortization of acquired intangibles
(2,426
)
(2,426
)
(9,698
)
(8,494
)
Settlement costs
—
125
—
(4,981
)
Acquisition and other charges
(1,748
)
(884
)
(2,669
)
(8,884
)
Restructuring and related charges
(12,019
)
—
(12,019
)
—
Non-GAAP operating expenses
$
125,445
$
115,043
$
489,274
$
433,820
8
Mellanox Technologies, Ltd.
Reconciliation of Non-GAAP Adjustments
(in thousands, except per share data, unaudited)
Three Months Ended
Year Ended
December 31,
December 31,
2017
2016
2017
2016
Reconciliation of GAAP income (loss) from operations to non-GAAP:
GAAP income (loss) from operations
$
(6,696
)
$
13,361
$
(17,081
)
$
30,590
Share-based compensation expense
17,871
17,182
68,864
71,118
Settlement costs
—
(125
)
—
4,981
Amortization of acquired intangibles
13,067
13,066
52,180
56,613
Acquisition and other charges
1,748
884
2,669
17,145
Restructuring and related charges
12,019
—
12,019
—
Non-GAAP income from operations
$
38,009
$
44,368
$
118,651
$
180,447
Non-GAAP income from operations %
16.0
%
20.0
%
13.7
%
21.0
%
Shares used in computing GAAP diluted net income (loss) per share
51,234
49,971
50,310
49,526
Adjustments:
Effect of dilutive securities under GAAP
—
(1,045
)
—
(1,381
)
Total options vested and exercisable
835
1,217
835
1,217
Shares used in computing non-GAAP diluted net income per share
52,069
50,143
51,145
49,362
GAAP diluted net income (loss) per share
$
(0.05
)
$
0.18
$
(0.39
)
$
0.37
Adjustments:
Share-based compensation expense
0.34
0.33
1.38
1.44
Amortization of acquired intangibles
0.26
0.26
1.04
1.14
Settlement costs
—
—
—
0.10
Restructuring and related charges
0.23
—
0.24
—
Acquisition and other charges
0.03
0.02
0.05
0.34
Income tax effects and adjustments
0.02
0.03
—
0.02
Effect of dilutive securities under GAAP
—
0.02
—
0.10
Total options vested and exercisable
(0.01
)
(0.02
)
(0.04
)
(0.08
)
Non-GAAP diluted net income per share
$
0.82
$
0.82
$
2.28
$
3.43
9
Mellanox Technologies, Ltd.
Condensed Consolidated Balance Sheets
(in thousands, unaudited)
December 31,
December 31,
2017
2016
ASSETS
Current assets:
Cash and cash equivalents
$
62,473
$
56,780
Short-term investments
211,281
271,661
Accounts receivable, net
154,213
141,768
Inventories
64,657
65,523
Other current assets
14,295
17,346
Total current assets
506,919
553,078
Property and equipment, net
109,919
118,585
Severance assets
18,302
15,870
Intangible assets, net
228,195
278,031
Goodwill
472,437
471,228
Deferred taxes and other long-term assets
66,162
36,713
Total assets
$
1,401,934
$
1,473,505
LIABILIITES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable
$
59,090
$
59,533
Accrued liabilities
114,058
105,042
Deferred revenue
23,485
24,364
Current portion of term debt
—
23,628
Total current liabilities
196,633
212,567
Accrued severance
23,205
19,874
Deferred revenue
17,820
15,968
Term debt
72,761
218,786
Other long-term liabilities
34,067
30,580
Total liabilities
344,486
497,775
Shareholders' equity:
Ordinary shares
221
209
Additional paid-in capital
873,979
774,605
Accumulated other comprehensive income (loss)
1,618
(928
)
Retained earnings
181,630
201,844
Total shareholders’ equity
1,057,448
975,730
Total liabilities and shareholders’ equity
$
1,401,934
$
1,473,505
10
Mellanox Technologies, Ltd.
Condensed Consolidated Statement of Cash Flows
(in thousands, unaudited)
Year ended December 31,
2017
2016
Cash flows from operating activities:
Net income (loss)
$
(19,425
)
$
18,518
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization
103,821
97,731
Deferred income taxes
(2,150
)
809
Share-based compensation
68,864
66,309
(Gains) on short-term investments, net
(3,460
)
(1,774
)
Impairment of long-lived assets
12,019
—
Changes in assets and liabilities, net of effect of acquisitions:
Accounts receivable, net
(12,175
)
(41,331
)
Inventories
(887
)
8,263
Prepaid expenses and other assets
(681
)
6,948
Accounts payable
170
13,330
Accrued liabilities and other liabilities
15,216
27,261
Net cash provided by operating activities
161,312
196,064
Cash flows from investing activities:
Purchase of severance-related insurance policies
(1,312
)
(1,172
)
Purchase of short-term investments
(188,745
)
(300,858
)
Proceeds from sales of short-term investments
193,082
237,764
Proceeds from maturities of short-term investments
59,129
149,725
Purchase of property and equipment
(41,376
)
(42,976
)
Purchase of intangible assets
(2,843
)
(7,962
)
Purchase of investments in privately-held companies
(15,021
)
(4,982
)
Acquisitions, net of cash acquired
(872
)
(693,692
)
Net cash provided by (used in) investing activities
2,042
(664,153
)
Cash flows from financing activities:
Proceeds from term debt
—
280,000
Principal payments on term debt
(172,000
)
(34,000
)
Term debt issuance costs
—
(5,521
)
Principal payments on capital lease and intangible assets obligations
(7,369
)
(1,364
)
Proceeds from issuances of ordinary shares through employee equity incentive plans
29,733
22,555
Net cash provided by (used in) financing activities
(149,636
)
261,670
Net increase (decrease) in cash and cash equivalents
13,718
(206,419
)
Cash, cash equivalents, and restricted cash at beginning of period
56,780
263,199
Cash, cash equivalents, and restricted cash at end of period
$
70,498
$
56,780
