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Form 8-K Mellanox Technologies, For: Apr 20

April 20, 2016 4:09 PM EDT


PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): April 20, 2016

Mellanox Technologies, Ltd.
(Exact name of Registrant as Specified in its Charter)
Israel
 
001-33299
 
98-0233400
(State or other jurisdiction
of incorporation)
 
(Commission
File Number)
 
(I.R.S. Employer
Identification No.)
Beit Mellanox
Yokneam, Israel 20692
(Address of Principal Executive Offices)
+972-4-909-7200
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
o      Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
o      Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
o      Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
o      Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))







Item 2.02. Results of Operations and Financial Condition.
The information in this current report, including Exhibit 99.1 attached hereto, is furnished pursuant to Item 2.02 of this Form 8-K. Consequently, it is not deemed “filed” for the purposes of Section 18 of the Securities and Exchange Act of 1934 (the “Exchange Act”), or otherwise subject to the liabilities of that section. It may only be incorporated by reference in another filing under the Exchange Act or the Securities Act of 1933 if such subsequent filing specifically references this Form 8-K.
On April 20, 2016, Mellanox Technologies, Ltd. publicly disseminated a press release announcing financial results for the first quarter ended March 31, 2016. The foregoing description is qualified in its entirety by reference to the press release dated April 20, 2016, 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 April 20, 2016







SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
 
 
Date: April 20, 2016
 
MELLANOX TECHNOLOGIES, LTD.
 
 
 
 
 
By:
/s/ Jacob Shulman
 
 
Name:
Jacob Shulman
 
 
Title:
Chief Financial Officer







Exhibit Index
Exhibit 99.1 Press Release dated April 20, 2016.
4




PRESS RELEASE
 

Mellanox Technologies, Ltd.

Press/Media Contact
Allyson Scott
McGrath/Power Public Relations and Communications
+1-408-727-0351

Investor Contact
Jeffrey Schreiner
+1-408-916-0012

Israel PR Contact
Sharon Levin
Gelbart Kahana Investor Relations
+972-3-6070567

Mellanox Achieves Record Quarterly Revenue in the First Quarter 2016
Quarterly revenue growth of 34.2 percent, year-over-year to $196.8 million, sets new record
Quarterly Ethernet revenues grew 98 percent year-over-year, including EZchip
Closed acquisition of EZchip Semiconductor Ltd.

SUNNYVALE, Calif. and YOKNEAM, ISRAEL — April 20, 2016 — Mellanox® Technologies, Ltd. (NASDAQ: MLNX) today announced financial results for its first quarter ended March 31, 2016.

“We are pleased to report the fourth consecutive quarter of record revenue. Our profitability grew 37.2 percent year-over-year. During the quarter we closed the acquisition of EZchip Semiconductor Ltd. We see great promise in the combination of EZchip’s intelligent processors, and Mellanox’s leading interconnect technology. We believe the combined company can deliver compelling value to current and future customers,” said Eyal Waldman, president and CEO of Mellanox Technologies. “We recorded strong growth in our Ethernet business, supported by adoption of our 40 Gigabit Ethernet adapters. We are seeing strong interest in the Spectrum product line and expect revenues to accelerate in the coming quarters. Tests demonstrate superior performance, costs, resiliency, and power of Spectrum compared to alternative products. We are pleased to see our InfiniBand business grow year-over-year. We see additional hyperscale entities deployed InfiniBand in their data centers.”




First Quarter 2016 -Highlights
Revenues of $196.8 million increased 11.2 percent, compared to $176.9 million in the fourth quarter of 2015.
GAAP gross margins of 64.2 percent in the first quarter compared to 70.7 percent in the fourth quarter of 2015.
Non-GAAP gross margins of 71.4 percent in the first quarter compared to 72.2 percent in the fourth quarter of 2015.
GAAP operating loss was $3.9 million, compared to operating income of $19.9 million in the fourth quarter of 2015.
Non-GAAP operating income was $41.3 million, or 21.0 percent of revenue, compared to $36.6 million, or 20.7 percent of revenue in the fourth quarter of 2015.
GAAP net loss was $7.2 million, compared to net income of $43.2 million in the fourth quarter of 2015.
Non-GAAP net income was $39.3 million, compared to $37.5 million in the fourth quarter of 2015.
GAAP net loss per diluted share was $0.15 in the first quarter compared to net income per diluted share of $0.90 in the fourth quarter of 2015.
Non-GAAP net income per diluted share was $0.81 in the first quarter compared to $0.77 in the fourth quarter of 2015.
$48.6 million in cash was provided by operating activities, compared to $34.7 million in the fourth quarter of 2015.
Cash and investments totaled $261.8 million at March 31, 2016, compared to $510.5 million at December 31, 2015.

2


Second Quarter 2016 Guidance
We currently project:
   Quarterly revenues of $210 million to $215 million
   Non-GAAP gross margins of 71 percent to 72 percent
   An increase in non-GAAP operating expenses of 8 percent to 10 percent
   Share-based compensation expense of $13.4 million to $13.9 million
   Non-GAAP diluted share count of 48.8 million to 49.3 million shares
















Recent Mellanox Press Release Highlights
April 4, 2016
Mellanox Announces New Line of InfiniBand Router Systems, Expanding Data Center Scalability and Enabling Infrastructure Flexibility
Mar 22, 2016
Mellanox Announces First 200Gb/s Silicon Photonics Devices, Doubling The Performance in the QSFP Form Factor
Mar 22, 2016
Mellanox and InnoLight Announce the Availability and Interoperability of 100Gb/s PSM4 Transceivers at 1310 and 1550nm Wavelengths
Mar 8, 2016
Mellanox Showcases End to End 100Gb/s Ethernet Solutions for Content Distribution Networks
Mar 7, 2016
Mellanox Adds Cumulus Linux Support for Ethernet Switches
Mar 7, 2016
Mellanox Introduces World's First 25/50 Gb/s OCP Ethernet Adapters for Single and Multi-Host Technology
Mar 7, 2016
Mellanox Introduces Open Composable Networks to Enable New Interconnect Speeds and Higher Efficiency for OCP Platforms
Mar 2, 2016
Mellanox Joins RISC-V Foundation as a Platinum Founding Sponsor
Mar 1, 2016
Mellanox Delivers Next Generation Network Processor to Key Telco Customers
Feb 24, 2016
Mellanox Partners with Nutanix to Deliver Effortless Enterprise Infrastructure



Conference Call
Mellanox will hold its first quarter 2016 financial results conference call today at 2 p.m. Pacific Time to discuss the company’s financial results. To listen to the call, dial +1-877-876-9177, or for investors outside the U.S., +1-785-424-1666, 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.mellanox.com. 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.
About Mellanox
Mellanox Technologies is a leading supplier of end-to-end InfiniBand and Ethernet interconnect solutions and services for servers and storage. Mellanox interconnect solutions increase data center efficiency by providing the highest throughput and lowest latency, delivering data faster to applications and unlocking system performance capability. Mellanox offers a choice of fast interconnect products: adapters, switches, software, cables and silicon that accelerate application runtime and maximize business results for a wide range of markets including high-performance computing, enterprise data centers, Web 2.0, cloud, storage and financial services. More information is available at www.mellanox.com.





GAAP to Non-GAAP Reconciliation
To supplement our consolidated financial statements presented in accordance with generally accepted accounting principles (GAAP), Mellanox uses non-GAAP measures of net (loss) income which are adjusted from results based on GAAP to exclude share-based compensation expense, amortization expense of acquired intangible assets, acquisition related expense, settlement costs, changes in certain deferred tax assets and gains (impairment losses) on equity investments. The company believes the non-GAAP results provide useful information to both management and investors, as these non-GAAP results exclude expenses that are not indicative of our core operating results. Management believes it is useful to exclude share-based compensation expense, amortization expense of acquired intangible assets, acquisition related expense, settlement costs, changes in deferred tax assets, and gains (impairment losses) on equity investments because it enhances investors’ ability to understand our business from the same perspective as management, which believes that such items are not directly attributable to nor reflect the underlying performance of the company’s business operations. Further, management believes certain non-cash charges such as share-based compensation, amortization of acquired intangible assets and changes related to recognition of deferred taxes do not reflect the cash operating results of the business. These measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results. These non-GAAP measures may be different than the non-GAAP measures used by other companies. A reconciliation of GAAP to non-GAAP condensed consolidated statements of operations is also presented in the financial statements portion of this release and is posted under the “Investor Relations” section on our website.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
All statements included or incorporated by reference in this release, other than statements or characterizations of historical fact, are forward-looking statements, including the guidance for the three months ended June 30, 2016, statements related to trends in the market for our solutions and services, opportunities for our company in 2016 and beyond, and future product capabilities. These forward-looking statements are based on our current expectations, estimates and projections about our industry and business, management’s beliefs and certain assumptions made by us, all of which are subject to change.
Forward-looking statements can often be identified by words such as “projects,” “anticipates,” “expects,” “intends,” “plans,” “predicts,” “believes,” “seeks,” “estimates,” “may,” “will,” “should,” “would,” “could,” “potential,” “continue,” “ongoing,” similar expressions and variations or negatives of these words. These forward-looking statements are not guarantees of future results and are subject to risks, uncertainties and assumptions that could cause our actual results to differ materially and adversely from those expressed in any forward-looking statement.
The risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward-looking statements include the continued expansion of our product line, customer base and the total available market of our products, the continued growth in demand for our products, the continued, increased demand for industry standards-based technology, our ability to react to trends and challenges in our business and the markets in which we operate, our ability to anticipate market needs or develop new or enhanced products to meet those needs, the adoption rate of our products, our ability to establish and maintain successful relationships with our OEM partners, our ability to effectively compete in our industry, fluctuations in demand, sales cycles and prices for our products and services, our success converting design wins to revenue-generating product shipments, the continued launch and volume ramp of large customer sales opportunities, our ability to protect our intellectual property rights, our ability to successfully acquire businesses and technologies and to successfully integrate and operate these acquired businesses, our success in realizing the anticipated benefits of mergers and acquisitions, and our ability to obtain debt at competitive rates or in sufficient amounts in order to fund our contractual commitments. Furthermore, the majority of our quarterly revenues are derived from customer orders received and fulfilled in the same quarterly period. We have limited visibility into actual end-user demand as such demand impacts us and our OEM customer inventory balances in any given quarter. Consequently, this introduces risk and uncertainty into our revenue and production forecasts and business planning and could negatively impact our financial results. In addition, current uncertainty in the global economic environment poses a risk to the overall economy as businesses may defer purchases in response to tighter credit conditions, changing overall demand for our products, and negative financial news. Consequently, our results could differ materially from our prior results due to these general economic and market conditions, political events and other risks and uncertainties described more fully in our documents filed with or furnished to the Securities and Exchange Commission.
More information about the risks, uncertainties and assumptions that may impact our business is set forth in our annual report on Form 10-K filed with the SEC on February 26, 2016. All forward-looking statements in this press release, including the guidance for the three months ended June 30, 2016, are based on information available to us as of the date hereof, and we assume no obligation to update these forward-looking statements.
Mellanox is a registered trademark of Mellanox Technologies, Ltd. All other trademarks are property of their respective owners.




Mellanox Technologies, Ltd.
Condensed Consolidated Statements of Operations
(in thousands, except per share data, unaudited)
 
 
 
 
 
 
 
 
 
Three Months Ended
 
 
March 31,
 
 
2016
 
2015
Total revenues
 
$
196,810

 
 $
146,675

Cost of revenues
 
 
70,481

 
 
41,087

Gross profit
 
 
126,329

 
 
105,588

Operating expenses:
 
 
 
 
 
 
Research and development
 
 
71,034

 
 
58,118

Sales and marketing
 
 
31,228

 
 
22,558

General and administrative
 
 
27,938

 
 
9,701

Total operating expenses
 
 
130,200

 
 
90,377

(Loss) income from operations
 
 
(3,871
)
 
 
15,211

Interest expense
 
 
998

 
 

Other income (loss)
 
 
61

 
 
(2,469
)
Other loss, net
 
 
(937
)
 
 
(2,469
)
(Loss) income before taxes
 
 
(4,808
)
 
 
12,742

Provision for taxes on income
 
 
2,360

 
 
2,246

Net (loss) income
 
$
(7,168
)
 
 $
10,496

Net (loss) income per share — basic
 
$
(0.15
)
 
 $
0.23

Net (loss) income per share — diluted
 
$
(0.15
)
 
 $
0.22

Shares used in computing net (loss) income per share:
 
 
 
 
 
 
Basic
 
 
47,358

 
 
45,691

Diluted
 
 
47,358

 
 
47,034



7



Mellanox Technologies, Ltd.
Reconciliation of Non-GAAP Adjustments
(in thousands, percentages, unaudited)
 
 
 
 
 
 
 
Three Months Ended
 
 
March 31,
 
 
2016
 
2015
Reconciliation of GAAP net income (loss) to non-GAAP:
 
 
 
 
GAAP (loss) net income
 
$
(7,168
)
 
$
10,496

Adjustments:
 
 
 
 
Share-based compensation expense:
 
 
 
 
Cost of revenues
 
475

 
547

Research and development
 
9,152

 
6,768

Sales and marketing
 
3,648

 
2,394

General and administrative
 
4,991

 
2,009

Total share-based compensation expense
 
18,266

 
11,718

Amortization of acquired intangibles:
 
 
 
 
Cost of revenues
 
10,429

 
1,474

Research and development
 
195

 
195

Sales and marketing
 
1,023

 
584

Total amortization of acquired intangibles
 
11,647

 
2,253

Settlement costs:
 
 
 
 
General and administrative
 
5,106

 

Total settlement costs
 
5,106

 
 
Acquisition related charges:
 
 
 
 
Cost of revenues
 
3,300

 

Research and development
 
476

 
763

Sales and marketing
 
56

 
225

General and administrative
 
6,348

 

Total acquisition related charges
 
10,180

 
988

Impairment loss on equity investment in a private company
 

 
3,189

Deferred taxes on NOL in Israel
 
1,265

 

Non-GAAP net income
 
$
39,296

 
$
28,644

 
 
 
 
 
Reconciliation of GAAP gross profit to non-GAAP:
 
 
 
 
Revenues
 
$
196,810

 
$
146,675

GAAP gross profit
 
126,329

 
105,588

GAAP gross margin
 
64.2
%
 
72.0
%
Share-based compensation expense
 
475

 
547

Amortization of acquired intangibles
 
10,429

 
1,474

Acquisition related charges
 
3,300

 

Non-GAAP gross profit
 
140,533

 
107,609

Non-GAAP gross margin
 
71.4
%
 
73.4
%
 
 


 
 
Reconciliation of GAAP operating expenses to non-GAAP:
 
 
 
 
GAAP operating expenses
 
$
130,200

 
$
90,377

Share-based compensation expense
 
(17,791
)
 
(11,171
)
Amortization of acquired intangibles
 
(1,218
)
 
(779
)
Settlement costs
 
(5,106
)
 

Acquisition related charges
 
(6,880
)
 
(988
)
Non-GAAP operating expenses
 
$
99,205

 
$
77,439


 

8



Mellanox Technologies, Ltd.
Reconciliation of Non-GAAP Adjustments
(in thousands, except per share data, unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
 
March 31,
 
 
2016
 
2015
 
 
 
 
 
Reconciliation of GAAP (loss) income from operations to non-GAAP:
 
 
 
 
GAAP (loss) income from operations
 
$
(3,871
)
 
$
15,211

Share-based compensation expense
 
18,266

 
11,718

Settlement costs
 
5,106

 

Amortization of acquired intangibles
 
11,647

 
2,253

Acquisition related charges
 
10,180

 
988

Non-GAAP income from operations
 
$
41,328

 
$
30,170

 
 
 
 
 
Shares used in computing GAAP diluted earnings per share
 
47,358

 
47,034

Adjustments:
 
 
 
 
Effect of dilutive securities under GAAP*
 

 
(1,343
)
Total options vested and exercisable
 
1,450

 
1,797

Shares used in computing non-GAAP diluted earnings per share
 
48,808

 
47,488

 
 
 
 
 
GAAP diluted net (loss) income per share
 
$
(0.15
)
 
$
0.22

Adjustments:
 
 
 
 
Share-based compensation expense
 
0.38

 
0.25

Amortization of acquired intangibles
 
0.25

 
0.04

Settlement costs
 
0.11

 

Acquisition related charges
 
0.21

 
0.02

Deferred taxes in NOL in Israel
 
0.03

 

Impairment loss on equity investment in a private company
 

 
0.07

Effect of dilutive securities under GAAP*
 

 
0.02

Total options vested and exercisable
 
(0.02
)
 
(0.02
)
Non-GAAP diluted net income per share
 
$
0.81

 
$
0.60


This adjustment adds back the GAAP effect of additional ordinary shares that would have been outstanding if the dilutive potential ordinary shares from stock options had been issued under the Treasury method.

9



Mellanox Technologies, Ltd.
Condensed Consolidated Balance Sheets
(in thousands, unaudited)
 
 
March 31,
 
December 31,
 
 
2016
 
2015
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
117,912

 
$
263,199

Short-term investments
 
143,926

 
247,314

Accounts receivable, net
 
105,114

 
84,273

Inventories
 
72,271

 
62,473

Other current assets
 
22,907

 
19,979

Total current assets
 
462,130

 
677,238

Property and equipment, net
 
103,157

 
100,018

Severance assets
 
15,787

 
9,514

Intangible assets, net
 
308,721

 
32,154

Goodwill
 
476,037

 
200,743

Deferred taxes and other long-term assets
 
32,627

 
33,715

Total assets
 
$
1,398,459

 
$
1,053,382

 
 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
47,632

 
$
44,600

Accrued liabilities
 
106,684

 
74,296

Deferred revenue
 
18,948

 
17,743

Capital lease liabilities, current
 
217

 
491

Current portion of term debt
 
25,905

 

Total current liabilities
 
199,386

 
137,130

Accrued severance
 
19,630

 
12,464

Deferred revenue
 
12,197

 
12,439

Term debt
 
248,926

 

Other long-term liabilities
 
26,498

 
24,668

Total liabilities
 
506,637

 
186,701

Shareholders’ equity:
 
 
 
 
Ordinary shares
 
202

 
200

Additional paid-in capital
 
713,039

 
684,824

Accumulated other comprehensive income (loss)
 
2,423

 
(1,669
)
Retained earnings
 
176,158

 
183,326

Total shareholders’ equity
 
891,822

 
866,681

Total liabilities and shareholders’ equity
 
$
1,398,459

 
$
1,053,382



10



Mellanox Technologies, Ltd.
Condensed Consolidated Statement of Cash Flows
(in thousands, unaudited) 
 
 
Three months ended March 31,
 
 
2016
 
2015
Cash flows from operating activities:
 
 

 
 

Net (loss) income
 
$
(7,168
)
 
$
10,496

Adjustments to reconcile net (loss) income to net cash provided by operating activities, net of effects from acquired company:
 
 

 
 

Depreciation and amortization
 
20,614

 
9,546

Deferred income taxes
 
1,265

 
104

Share-based compensation expense
 
18,266

 
11,718

Loss (gain) on investments
 
112

 
(309
)
Impairment of equity investment in a private company
 

 
3,189

Changes in assets and liabilities:
 
 
 
 

Accounts receivable, net
 
(4,677
)
 
9,005

Inventory
 
4,361

 
(8,689
)
Prepaid expenses and other assets
 
2,305

 
3,895

Accounts payable
 
3,340

 
(2,122
)
Accrued liabilities and other payables
 
10,177

 
8,962

Net cash provided by operating activities
 
48,595

 
45,795

 
 
 
 
 
Cash flows from investing activities:
 
 

 
 

Purchase of severance-related insurance policies
 
(226
)
 
(186
)
Purchase of short term investments
 
(64,908
)
 
(87,793
)
Proceeds from sale of short term investments
 
199,932

 
37,326

Proceeds from maturities of short term investments
 
77,715

 
17,798

Purchase of property and equipment
 
(8,283
)
 
(9,521
)
Purchase of equity investment in a private company
 
(107
)
 

Acquisition, net of cash acquired $87.5 million
 
(681,189
)
 

Net cash used in investing activities
 
(477,066
)
 
(42,376
)
 
 
 
 
 
Cash flows from financing activities:
 
 

 
 

Proceeds from term debt
 
280,000

 

Term debt issuance costs
 
(5,521
)
 

Principal payments on capital lease obligations
 
(274
)
 
(281
)
Proceeds from exercise of share awards
 
8,979

 
7,192

Net cash provided by financing activities
 
283,184

 
6,911

 
 
 
 
 
Net (decrease) increase in cash and cash equivalents
 
(145,287
)
 
10,330

Cash and cash equivalents at beginning of period
 
263,199

 
51,326

Cash and cash equivalents at end of period
 
$
117,912

 
$
61,656


11


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