Mellanox: Fiscal 3Q14 Financial Results

Mellanox Technologies, Ltd. announced financial results for its third quarter 2014, ended September 30, 2014.

Third Quarter 2014 Highlights

• Revenues were $120.7 million
• GAAP gross margins were 67.2%
• Non-GAAP gross margins were 70.2%
• GAAP operating loss was $1.1 million
• Non-GAAP operating income was $16.5 million
• GAAP net income was $0.4 million
• Non-GAAP net income was $18.0 million
• GAAP net income per diluted share was $0.01
• Non-GAAP net income per diluted share was $0.38
• $17.2 million in cash was provided by operating activities
• Total cash and investments increased $10.6 million to $354.3 million at September 30, 2014

Third Quarter Financial Results
In accordance with GAAP, the company reported revenue of $120.7 million for the 3Q14, up 17.7% from $102.6 million in the 2Q14, and up 16.0% from $104.1 million in 3Q13.

GAAP gross margins in the 3Q14 were 67.2%, compared with 66.6% in 2Q14, and 64.6% in 3Q13.

Non-GAAP gross margins in 3Q14 were 70.2%, compared with 69.1% in the second quarter of 2014, and 69.1% in 3Q13.

GAAP net income in 3Q14 was $0.4 million, or $0.01 per diluted share, compared with GAAP net loss of $9.0 million, or $0.20 per diluted share in the second quarter of 2014, and GAAP net loss of $5.9 million, or $0.14 per diluted share, in 3Q13.

Non-GAAP net income in 3Q14 was $18.0 million, or $0.38 per diluted share, compared with $6.8 million, or $0.15 per diluted share in the second quarter of 2014, and $12.6 million, or $0.28 per diluted share, in 3Q13. 3Q14 non-GAAP net income excludes $11.8 million of share-based compensation expenses compared to $11.9 million in 2Q14, and $11.9 million in 3Q13. 3Q14 non-GAAP net income also excludes the amortization of intangible assets of $2.8 million, acquisition-related charges of $1.7 million and settlement costs of $1.3 million, compared to amortization expenses of acquired intangible assets of $2.8 million and $1.0 million of acquisition-related charges in 2Q14, and compared to $4.6 million and $2.0 million, respectively, in 3Q13.

Total cash and investments increased by $10.6 million to $354.3 million at September 30, 2014, compared to $343.7 million at June 30, 2014. The company generated $17.2 million in cash from operating activities in the third quarter.

“We are pleased with our results for the third quarter. Demand from high-performance computing customers was strong which contributed to solid revenue growth from our FDR IB solutions. Revenue from our Ethernet solutions also increased in the quarter,” said Eyal Waldman, president and CEO, Mellanox. “The transition from 10GbE to 40GbE is happening now with our Web 2.0 and cloud customers. We expect to ship hundreds of thousands of 40 GbE adapters in the fourth quarter to these markets. This transition is driven by the growth of data producing and consuming applications. We expect this transition to accelerate in 2015 and beyond.”

Recent Mellanox Press Release Highlights

• Oct. 21, 2014 – IB Powers Top European HPC Centers
• Oct. 20, 2014 – Ethernet Solutions Selected for New HP 64-bit ARM Data Center Platform
• Oct. 15, 2014 – Introduces New Ethernet Switches to Provide Enhanced Features and Performance for Hyperscale and cloud Data Centers
• Oct. 6, 2014 – Named to Inaugural CRN Cloud Partner Program Guide
• Sept. 30, 2014 – Science & Technology Facilities Council Selects Mellanox’s Ethernet Solutions to Further Atmospheric Science and Research
• Sept. 29, 2014 – Yahoo! Japan Selects Mellanox IB Solutions
• Sept. 29, 2014 – MCloudX Platform Now Supported with Oracle OpenStack for Oracle Linux
• Sept. 16, 2014 – Announces Complete End-to-End Support for New RDMA over Converged Ethernet Version 2 (RoCEv2) Specification
• Sept. 8, 2014 – End-to-End IB and Ethernet Interconnect Solutions Optimized for Xeon E5-2600 v3 Product Family (code name Haswell) Platforms
• Aug. 25, 2014 – Enables Highly Efficient VDI using VMware’s Virtual SAN Storage Solution and Micron SSDs

4Q14 Guidance

• Quarterly revenues of $133 million to $137 million
• Non-GAAP gross margins of 69% to 70%
• Increase in non-GAAP operating expenses of 4% to 6%
• Share-based compensation expense of $11.9 million to $12.4 million
• Non-GAAP diluted share count of 46.9 million to 47.4 million shares