MLNX 17Q4

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 the fourth quarter ended December 31, 2017 . The foregoing description is qualified 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 incorporated herein 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 Strong 2018

Quarterly Revenue Record of $238 Million, Up 5 Percent Sequentially and 7 Percent Year Over Year

2017 Ethernet Revenues Up 26 Percent and 25/50/100 Gigabit Revenues Up 156 Percent Year-Over-Year

Revenue Growth and Cost Rationalization Builds Foundation for Expanding Operating Leverage 

​ 

SUNNYVALE, Calif. and YOKNEAM, ISRAEL — January 18, 2018 — Mellanox® Technologies, Ltd. (NASDAQ: MLNX) today announced financial results for its fourth quarter and full year 2017 ended December 31, 2017 .

“We are pleased to achieve record quarterly and full year revenues,” said Eyal Waldman, President and CEO of Mellanox Technologies. “2017 represented a year of investment and product transitions for Mellanox. Fourth quarter Ethernet revenues increased 11 percent sequentially, due to expanding customer adoption of our 25 gigabit per second and above Ethernet products across all geographies. We are encouraged by the acceleration of our 25 gigabit per second and above Ethernet switch business, which grew 41 percent sequentially, with broad based growth across OEM, hyperscale, tier-2, cloud, financial services and channel customers. During the fourth quarter, InfiniBand revenues grew 2 percent sequentially, driven by growth from our high-performance computing and artificial intelligence customers. For the full fiscal 2017, our revenues from the high performance computing market grew 13 percent year over year. Our 2017 results demonstrate the successful execution of our multi-year revenue diversification strategy, and our leadership position in 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 .

 

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·	Cash and investments totaled $273.8 million at December 31, 2017 .

Mr. Waldman continued, “As we enter 2018, we expect to build on our momentum in Ethernet and InfiniBand. With the recent release of our BlueField system-on-chip, and the future introduction of our 200 gigabit per second InfiniBand and Ethernet products, Mellanox is well positioned to begin reaping the benefits from prior investments. Looking ahead, we anticipate seeing acceleration of revenue growth, while delivering on our commitment to more efficiently manage costs and achieve fiscal 2018 non-GAAP operating margins of 18 to 19 percent. We continue to drive improvements in profitability and identify further efficiencies that can be realized as our prior investments begin to yield positive results and we transition towards new product introductions 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

 

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Recent Mellanox Press Release Highlights

·	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 financial results conference call today, at 2 p.m. Pacific Time, to discuss the company’s financial results. To listen to the call, dial 1-800-459-5343, or for investors outside the U.S., [phone], 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.. 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.

 

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

 

 

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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

 

 

 

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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

 

 

 

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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

 

 

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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