Mellanox: Fiscal 4Q19 Financial Results

• Achieved $380 million revenue in 4Q19, up 13% vs. prior quarter and 31% vs. prior year
• Annual revenue of $1.33 billion in 2019, up 22% vs. prior year
• Annual GAAP operating income of $208 million and operating margin of 15.6%; annual non-GAAP operating income of $384 million and operating margin of 28.9%

Mellanox Technologies, Ltd. announced preliminary financial results for its fourth quarter and fiscal year 2019.

“Mellanox delivered record revenue, operating income, and cash flow from operations in both 4Q19 and the FY19. All our major product lines grew in 4Q19, demonstrating the advantages of our broad product portfolio. We are shipping over 1.2 million units per quarter of ConnectX and Bluefield adapters, driven by strong adoption of our smart offload and secure in-network compute capabilities. We continue to lead with our Ethernet adapters at data rates of 25Gb/s and above. Our Ethernet switch business is expanding at a healthy rate as well, attaining sequential revenue growth of 25% for two quarters in a row. Powered by our Spectrum product line with data rates of up to 400Gb/s, our Ethernet switch solutions are being deployed in a wide range of applications for hyperscale, cloud, storage, and financial markets. We expect to see continued growth with the introduction of Spectrum-3 products very soon,” said Eyal Waldman, president and CEO.

“4Q19 revenue for our IB solutions grew 19% sequentially, and 2019 annual revenue grew 29% compared to 2018, driven by the strong adoption of our 200Gb/s HDR solutions in the HPC, AI, cloud, and storage market segments. HDR IB accelerates nearly one-third of the new IB platforms on the recent TOP500 supercomputing list and has been selected to connect some of the most powerful supercomputing installations in 2020, including Meteo France, the European Centre for Medium-Range Weather Forecasts (ECMWF), the Eni Supercomputing platform, and several national and Exascale programs,” he continued. “We are pleased with the robust adoption of our adapters, switches, and cables for leading data centers, as well as our superb financial performance throughout 2019, culminating in record revenue, operating income, and cash flow from operations. We are also proud to end 2019 with $876 million cash and short-term investments.”

4FQ19 – Financial Results Summary
• Revenue of $379.8 million, an increase of 30.9%, compared to $290.1 million in 4FQ18.
• GAAP gross margins of 66.2%, compared to 65.4% in 4FQ18.
• Non-GAAP gross margins of 69.1%, compared to 69.0% in 4FQ18.
• GAAP operating income of $72.2 million, or 19.0% of revenue, compared to $44.0 million, or 15.2% of revenue in 4FQ18.
• Non-GAAP operating income of $118.2 million, or 31.1% of revenue, compared to $78.7 million, or 27.1% of revenue in 4FQ18.
• GAAP net income of $73.9 million, compared to $42.8 million in 4FQ18.
• Non-GAAP net income of $129.3 million, compared to $77.1 million in 4FQ18.
• GAAP net income per diluted share of $1.29, compared to $0.78 in 4FQ18.
• Non-GAAP net income per diluted share of $2.31, compared to $1.42 in 4FQ18.
• $147.8 million in cash provided by operating activities, compared to $96.4 million in 4FQ18.
• Cash and short-term investments totaled $875.9 million at December 31, 2019, compared to $742.5 million at September 30, 2019.

FY19 – Financial Highlights
• Revenue of $1,330.6 million, an increase of 22.2%, compared to $1,088.7 million in 2018.
• GAAP gross margins of 65.1%, compared to 64.3% in 2018.
• Non-GAAP gross margins of 68.3%, compared to 69.2% in 2018.
• GAAP operating income of $207.9 million, an increase of 85.5%, compared to $112.1 million in 2018.
• Non-GAAP operating income of $384.3 million, or 28.9% of revenue, compared to $270.2 million, or 24.8% of revenue in 2018.
• GAAP net income of $205.1 million, an increase of 52.8%, compared to $134.3 million in 2018.
• Non-GAAP net income of $393.5 million, an increase of 47.7%, compared to $266.5 million in 2018.
• GAAP net income per diluted share of $3.62, compared to $2.46 in 2018.
• Non-GAAP net income per diluted share of $7.13, compared to $5.01 in 2018.
• Cash provided by operating activities in 2019 was $424.8 million, compared to $264.9 million in 2018.

Commentary Regarding Mellanox Acquisition by NVIDIA
As announced on March 11, 2019, NVIDIA Corporation intends to acquire all the issued and outstanding common shares of Mellanox for $125 per share in cash. Due to the pending acquisition, to be acquired company will not hold an earnings conference call and has suspended the practice of providing forward-looking guidance.

The 2 companies have now received regulatory antitrust approval for the deal from the European Commission and Mexico. In addition, the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, in connection with the proposed acquisition expired at 11:59 p.m., Eastern time, on May 23, 2019. The transaction remains subject to customary closing conditions and the remaining regulatory approval from the Anti-Monopoly Bureau of the State Administration for Market Regulation of the People’s Republic of China.

Recent Mellanox Press Release Highlights

• OpenStack Software Adds Native Upstream Support for HDR 200Gb IB for Building High-Performance Clouds – January 13, 2020
• 200Gb HDR IB to Accelerate the New European Centre for Medium-Range Weather Forecasts (ECMWF) HPC – November 21, 2019
• 200Gb HDR IB Advances Innovations in HPC and AI – November 20, 2019
  HDR IB Selected by Meteo France to Accelerate Two New Large Scale HPCs – November 19, 2019
• 200Gb HDR IB to Accelerate Eni Supercomputing Platform, to Become World’s Most Powerful Industrial HPC – November 19, 2019
• IT4Innovations National Supercomputing Center, a EuroHPC Supercomputing Site, Selected Mellanox 200Gb HDR IB to Accelerate Their New Research Infrastructure – November 19, 2019
• Beijing Meteorological Service Selects 200Gbt HDR IB to Accelerate New Supercomputing Platform – November 18, 2019
• 200Gb HDR IB Boosts Microsoft Azure High-Performance Computing Cloud Instances – November 18, 2019
• 200Gb HDR IB Accelerates 31% of New IB Systems on November’s TOP500, Including
• Fastest 2019-Built TOP500 HPC – November 18, 2019
• Fujitsu Selects IB to Accelerate Their New Arm-Based PRIMEHPC FX700 HPC Platform – November 14, 2019
• Introduces Skyway 200Gbt HDR IB to Ethernet Gateway Appliance for High
• Performance and Cloud Data Centers – November 14, 2019
• Introduces Quantum LongReach Appliance, Extending 100Gb EDR and 200Gb HDR IB Connectivity to 10 and 40km – October 30, 2019