Mellanox: Fiscal 4Q14 Financial Results

 Mellanox Technologies, Ltd. announced financial results for its fourth quarter and fiscal year 2014.

Fourth Quarter and Fiscal Year Highlights:
– Revenues were $141.1 million in the fourth quarter, and $463.6 million in fiscal year 2014.
– GAAP gross margins were 70.9% in the fourth quarter, and 67.9% in fiscal year 2014.
– Non-GAAP gross margins were 72.3% in the fourth quarter, and 70.4% in fiscal year 2014.
– GAAP operating income was $13.6 million, or 9.6% of revenue, in the fourth quarter, and operating loss was $7.2 million, or (1.6)% of revenue, in fiscal year 2014.
– Non-GAAP operating income was $29.1 million, or 20.6% of revenue, in the fourth quarter, and $57.8 million, or 12.5% of revenue, in fiscal year 2014.
– GAAP net loss was $4.8 million in the fourth quarter and $24.0 million in fiscal year 2014 which included a deferred tax valuation allowance expense of $17.2 million in the fourth quarter.
– Non-GAAP net income was $28.0 million in the fourth quarter, and $58.2 million in fiscal year 2014.
– GAAP net loss per diluted share was $0.10 in the fourth quarter, and $0.54 in fiscal year 2014.
– Non-GAAP net income per diluted share was $0.59 in the fourth quarter, and was $1.25 in fiscal year 2014.
– $45.0 million in cash was provided by operating activities during the fourth quarter.
– $80.1 million in cash was provided by operating activities during fiscal year 2014.
– Cash and investments totaled $389.0 million at December 31, 2014.

Mellanox also announced that its ConnectX-4 adapter is up and running in its labs at 10, 25, 40, 50, and 100GbE speeds. In addition, the company announced that its end-to-end 100 Gigabit IB solution is accelerating high-performance computing applications in a cluster environment. These solutions are expected to ship in the first quarter of 2015.

Financial Results

In accordance with GAAP, the company reported revenue of $141.1 million for the fourth quarter, up 16.9% from $120.7 million in the third quarter of 2014, and up 33.7% from $105.6 million in the fourth quarter of 2013. For the year ended December 31, 2014, revenue was $463.6 million, an increase of 18.8% from revenue of $390.4 million reported in 2013.

GAAP gross margins in the fourth quarter of 2014 were 70.9%, compared with 67.4% in the third quarter of 2014 and 65.3% in the fourth quarter of 2013. GAAP gross margins in 2014 were 67.9%, compared with 65.6% in 2013.

Non-GAAP gross margins in the fourth quarter of 2014 were 72.3%, compared with 70.4% in the third quarter of 2014 and 69.0% in the fourth quarter of 2013. Non-GAAP gross margins in 2014 were 70.4%, compared with 69.0% in 2013.

GAAP net loss in the fourth quarter of 2014 was $4.8 million, or $0.10 per diluted share, compared with GAAP net income of $0.6 million, or $0.01 per diluted share in the third quarter of 2014 and net loss of $7.3 million or $0.17 per diluted share in the fourth quarter of 2013.

Non-GAAP net income in the fourth quarter of 2014 was $28.0 million, or $0.59 per diluted share, compared with $18.2 million, or $0.39 per diluted share in the third quarter of 2014, and $9.7 million, or $0.21 per diluted share in the fourth quarter of 2013. The fourth quarter 2014 non-GAAP net income excludes $11.8 million of share-based compensation expense compared to $11.8 million in the third quarter of 2014, and $11.7 million in the fourth quarter of 2013. Fourth quarter 2014 non-GAAP net income also excludes the amortization of intangible assets of $2.7 million, acquisition-related charges of $1.0 million, and a charge related to recognition of a deferred tax valuation allowance of $17.2 million, compared to amortization expenses of acquired intangible assets of $2.9 million, $1.7 million of acquisition-related charges and settlement costs of $1.3 million in the third quarter of 2014, and compared to amortization expenses of acquired intangible assets of $4.5 million, and $0.9 million of acquisition related charges for the fourth quarter of 2013. The company records a valuation allowance on deferred tax assets when all available evidence indicates that deferred tax assets will likely not be realized.

GAAP net loss in 2014 was $24.0 million, or $0.54 per diluted share, compared to $23.3 million of GAAP net loss, or $0.54 per diluted share in 2013.

Non-GAAP net income in 2014 was $58.2 million, or $1.25 per diluted share, compared to $40.5 million or $0.89 per diluted share in 2013. 2014 non-GAAP net income excludes $47.2 million of share-based compensation expense, $12.1 million of amortization expense of acquired intangible assets, $4.4 million of acquisition related charges, settlement costs of $1.3 million and a charge related to recognition of deferred tax valuation allowance of $17.2 million. 2013 non-GAAP net income excludes $45.1 million of share-based compensation expense, $14.0 million of amortization expense of acquired intangible assets and $4.7 million of acquisition related charges.

Total cash and investments at December 31, 2014 were $389.0 million compared to $330.2 million at December 31, 2013. The company generated $45.0 million in cash from operating activities in the fourth quarter of 2014, and $80.1 million for fiscal year 2014.

“We are pleased with the results of the quarter. They were achieved by the adoption of 40GbE by some of our leading customers, the growth in high-performance computing deployments with our increased market share and additional penetration into Web 2.0, storage and cloud markets,” said Eyal Waldman, president and CEO. “The need for faster interconnects continues to grow as data increases exponentially. We are very excited to see our 100 Gigabit per second IB interconnect solution go to market and expect to be utilized by multiple applications starting in the first quarter of 2015. In addition, we are also excited to see our 25, 50 and 100 GbE NICs and cables up and running, and expect to ship these products this quarter as well. As the only provider of full end-to-end standard IB and Ethernet interconnect solutions and the first company with a full end-to-end EDR 100GbE solution, we believe we are the only vendor who can help our customers handle the demands that this data growth creates.”

Guidance for first quarter 2015 non-GAAP results is as follows:
– Quarterly revenues of $140 million to $145 million
– Non-GAAP gross margins of 70% to 71%
– An increase in non-GAAP operating expenses of 5% to 7%
– Share-based compensation expense of $12.0 million to $12.5 million
– Non-GAAP diluted share count of 47.3 million to 47.8 million shares