Marvell: Fiscal 1Q17 Financial Results

Marvell Technology Group Ltd. reported financial results for the first quarter of fiscal year 2017, ended April 30, 2016. 

Key First Quarter of Fiscal 2017 Highlights              

• Revenue: $541 million
• GAAP Net (Loss): ($23) million
• GAAP Diluted (Loss) Per Share: ($0.04)
• Non-GAAP Net Income: $7 million
• Non-GAAP Diluted EPS:  $0.01     
• Cash Flow from Operations: ($610) million
• Cash and ST Investments: $1.6 billion

Second Quarter of Fiscal 2017 Financial Outlook

• Revenue is expected to be in the range of $625 million to $635 million.
• GAAP and non-GAAP gross margins are expected to be in the range of 52% to 54%.
• GAAP operating expenses are expected to be in the range of $307 million to $317 million.  Non-GAAP operating expenses are expected to be in the range of $270 million to $280 million.
• GAAP diluted EPS are expected to be in the range of $0.03 to $0.05. Non-GAAP diluted EPS are expected to be in the range of $0.10 to $0.12.

First Quarter of Fiscal 2017 Summary
Revenues for the first quarter of fiscal 2017 were $541 million, down approximately 12% from $616 million in the fourth quarter of fiscal 2016, ended January 30, 2016, and down approximately 25% from $724 million in the first quarter of fiscal 2016, ended May 2, 2015.

In the first quarter of fiscal 2017, storage revenue declined 16% sequentially, reflecting lower HDD industry demand partially offset by growth in SSD. 

Networking revenue in the first quarter of fiscal 2017 grew 5% sequentially due to improved enterprise networking demand.  

Mobile and wireless revenue decreased 29% sequentially, mainly driven by the previously anticipated declines in revenue resulting from Marvell’s exit of the mobile handset business.

Mobile handset revenues in the first quarter of 2017, fourth quarter, and first quarter of fiscal 2016 were $22 million, $69 million and $65 million, respectively. The company anticipates mobile handset platform-related revenue to decline through fiscal year 2017 due to the restructuring actions announced on September 24, 2015.

GAAP net loss for the first quarter of fiscal 2017 was ($23) million, or ($0.04) per share (diluted) compared with a GAAP net income of $4 million, or $0.01 per share (diluted), for the fourth quarter of fiscal 2016, and GAAP net income of $14 million, or $0.03 per share (diluted), for the first quarter of fiscal 2016.

Non-GAAP net income for the first quarter of fiscal 2017 was $7 million, or $0.01 per share (diluted), which included adjustments of approximately $29 million including: $4 million for restructuring, of which $1 million was related to the mobile handset platform business, and $25 million for share-based compensation. By comparison, non-GAAP net income for the fourth quarter of fiscal 2016 was $55 million, or $0.11 per share (diluted), which included adjustments of $50 million including: $4 million for restructuring related to the mobile handset platform business, $32 million for share-based compensation, $4 million for litigation reserves and settlements, and $10 million for other items. Non-GAAP net income for the first quarter of fiscal 2016 was $71 million, or $0.13 per share (diluted), which included adjustments of $57 million including: $33 million for share-based compensation and $24 million for other items.

GAAP gross margin percentage for the first quarter of fiscal 2017 was 52.1%, compared to 50.9% for the fourth quarter of fiscal 2016 and 51.5% for the first quarter of fiscal 2016.

Non-GAAP gross margin percentage for the first quarter of fiscal 2017 was 52.5%, compared to 51.9% for the fourth quarter of fiscal 2016 and 51.6% for the first quarter of fiscal 2016. The sequential improvement in fourth quarter GAAP and non-GAAP gross margin percentages was mainly due to a larger mix of higher margin networking sales and a smaller mix of lower margin mobile handset platform-related revenues compared to the prior quarter.  

Operating expenses on a GAAP basis for the first quarter of fiscal 2017 were $311 million, unchanged from the fourth quarter of fiscal year 2016, and 14% lower compared to $360 million in the first quarter of fiscal 2016.

Non-GAAP operating expenses were $280 million in the first quarter compared to $267 million in the fourth quarter, a 5% increase, and $307 million in the first quarter of fiscal 2016, a 9% decline.

GAAP and Non-GAAP operating expenses for the first quarter of fiscal 2017 and fourth quarter of fiscal year 2016 include $17 million and $11 million, respectively of legal and accounting fees related to the Audit Committee investigation, and the related shareholder litigation and investigations by the SEC and United States Attorney’s Office and other professional fees.      

Shares used to compute GAAP net income per diluted share for the first quarter of fiscal 2017 were 509 million shares, compared with 509 million shares in the fourth quarter of fiscal 2016 and 527 million shares in the first quarter of fiscal 2016.  

Shares used to compute non-GAAP net income per diluted share for the first quarter of fiscal 2017 were 522 million shares, compared with 519 million shares for the fourth quarter of fiscal 2016 and 535 million shares for the first quarter of fiscal 2016.

Net cash provided from operations for the first quarter of fiscal 2017 was ($610) million, compared to $53 million in the fourth quarter of fiscal 2016 and $59 million reported in the first quarter of fiscal 2016.  Net cash provided from operations for the first quarter of fiscal 2017 reflects the $750 million payment related to the previously announced Carnegie Mellon University litigation settlement.  Free cash flow for the first quarter of fiscal 2017 was ($625) million, compared to the $47 million in the fourth quarter of fiscal 2016 and the $44 million reported in the first quarter of fiscal 2016.  Free cash flow as presented above is defined as cash flow from operations, less capital expenditures and purchases of technology licenses reported under investing and financing activities in the consolidated statement of cash flows.

Marvell made no share repurchases in the first quarter of fiscal 2017. The company paid a quarterly dividend of $0.06 per share on April 22, 2016 to all shareholders of record as of March 29, 2016.

Update Regarding NASDAQ Compliance Plan
On May 3, 2016, Marvell announced that it had received written notification from Nasdaq that, following Marvell’s hearing before The Nasdaq Hearings Panel on April 14, 2016, it granted the company an extension of time to September 6, 2016 to regain compliance with continued listing requirements. Until that time, shares of Marvell stock will remain listed on The Nasdaq Stock Market.

To read the earnings call transcript