Marvell Technology Group Ltd. Reports Third Quarter of Fiscal Year 2019 Financial Results
SANTA CLARA, Calif., Dec. 4, 2018 /PRNewswire/ -- Marvell Technology Group Ltd. (NASDAQ: MRVL), a leader in infrastructure semiconductor solutions, today reported financial results for the third fiscal quarter of fiscal year 2019. Revenue for the third quarter of fiscal 2019 was $851 million, which exceeded the midpoint of the Company's guidance provided on September 6, 2018.
GAAP net loss from continuing operations for the third quarter of fiscal 2019 was $54 million, or $(0.08) per diluted share. Non-GAAP net income from continuing operations for the third quarter of fiscal 2019 was $222 million, or $0.33 per diluted share. Cash flow from operations for the third quarter was $299 million.
"In the first full quarter operating as a combined Marvell and Cavium team, we completed key integration milestones ahead of schedule, delivered revenue above the midpoint of our guidance, and generated strong free cash flow at 30 percent of revenue. We also expect renewed revenue growth from the Cavium business in the fourth quarter," said Matt Murphy, Marvell's President and Chief Executive Officer. "Looking ahead, we expect the deployment of 5G will accelerate our growth over the next several years as engagements with a growing list of Tier 1 customers continue to build momentum in this major infrastructure transition."
Fourth Quarter of Fiscal 2019 Financial Outlook
-- Revenue is expected to be $790 million to $830 million. -- GAAP gross margin is expected to be approximately 46%. -- Non-GAAP gross margin is expected to be approximately 65%. -- GAAP operating expenses are expected to be $375 million to $385 million. -- Non-GAAP operating expenses are expected to be $285 million to $290 million. -- GAAP diluted loss per share from continuing operations is expected to be in the range of $(0.05) to $(0.01) per share. -- Non-GAAP diluted income per share from continuing operations is expected to be in the range of $0.30 to $0.34 per share.
Conference Call
Marvell will conduct a conference call on Tuesday, December 4, 2018 at 1:45 p.m. Pacific Time to discuss results for the third quarter of fiscal 2019. Interested parties may join the conference call by dialing 1-844-647-5488 or 1-615-247-0258, pass-code 3069644. The call will be webcast and can be accessed at the Marvell Investor Relations website at http://investor.marvell.com/ with a replay available following the call until Wednesday December 12, 2018.
Discussion of Non-GAAP Financial Measures
Non-GAAP financial measures exclude the effect of share-based compensation expense, amortization of the inventory fair value step up, amortization and write-off of acquired intangible assets, acquisition-related costs, restructuring and other related charges, litigation settlement, and certain expenses and benefits that are driven primarily by discrete events that management does not consider to be directly related to Marvell's core business.
Marvell uses a non-GAAP tax rate to compute the non-GAAP tax provision. This non-GAAP tax rate is based on Marvell's estimated annual GAAP income tax forecast, adjusted to account for items excluded from GAAP income in calculating Marvell's non-GAAP income, as well as the effects of significant non-recurring and period specific tax items which vary in size and frequency. Marvell's non-GAAP tax rate is determined on an annual basis and may be adjusted during the year to take into account events that may materially affect the non-GAAP tax rate such as tax law changes; significant changes in Marvell's geographic mix of revenue and expenses; or changes to Marvell's corporate structure. For the third quarter of fiscal 2019, a non-GAAP tax rate of 4% has been applied to the non-GAAP financial results.
Non-GAAP diluted net income per share from continuing operations is calculated by dividing non-GAAP net income from continuing operations by weighted average shares outstanding (diluted). Historically, Marvell included non-GAAP share adjustments in its earnings releases. Beginning in the third quarter of fiscal year 2019, Marvell no longer provides this non-GAAP adjustment and will calculate non-GAAP income (loss) per share using the GAAP weighted average shares. Marvell is making this change in order to align with its industry peer companies' non-GAAP income (loss) per share reporting for comparability purposes.
Marvell believes that the presentation of non-GAAP financial measures provide important supplemental information to management and investors regarding financial and business trends relating to Marvell's financial condition and results of operations. While Marvell uses non-GAAP financial measures as a tool to enhance its understanding of certain aspects of its financial performance, Marvell does not consider these measures to be a substitute for, or superior to, financial measures calculated in accordance with GAAP. Consistent with this approach, Marvell believes that disclosing non-GAAP financial measures to the readers of its financial statements provides such readers with useful supplemental data that, while not a substitute for GAAP financial measures, allows for greater transparency in the review of its financial and operational performance.
Externally, management believes that investors may find Marvell's non-GAAP financial measures useful in their assessment of Marvell's operating performance and the valuation of Marvell. Internally, Marvell's non-GAAP financial measures are used in the following areas:
-- Management's evaluation of Marvell's operating performance; -- Management's establishment of internal operating budgets; -- Management's performance comparisons with internal forecasts and targeted business models; and -- Management's determination of the achievement and measurement of certain performance-based equity awards (adjustments may vary from award to award).
Non-GAAP financial measures have limitations in that they do not reflect all of the costs associated with the operations of Marvell's business as determined in accordance with GAAP. As a result, you should not consider these measures in isolation or as a substitute for analysis of Marvell's results as reported under GAAP. Marvell expects to continue to incur expenses similar to the non-GAAP adjustments described above, and exclusion of these items from Marvell's non-GAAP net income should not be construed as an inference that these costs are unusual, infrequent or non-recurring.
Forward-Looking Statements under the Private Securities Litigation Reform Act of 1995
This press release contains forward-looking statements within the meaning of the federal securities laws that involve risks and uncertainties, including: the impact on future performance of Marvell's newly announced products; Marvell's expectations regarding its fourth quarter of fiscal 2019 financial outlook, renewed revenue growth from the Cavium business and 5G product development growth; and Marvell's use of non-GAAP financial measures as important supplemental information. Words such as "anticipates," "expects," "intends," "plans," "projects," "believes," "seeks," "estimates," "can," "may," "will," "would" and similar expressions identify such forward-looking statements. These statements are not guarantees of results and should not be considered as an indication of future activity or future performance. Actual events or results may differ materially from those described in this press release due to a number of risks and uncertainties, including, but not limited to: the effect of the consummation of our acquisition of Cavium on the combined company's business relationships, operating results, and business generally; potential difficulties in Cavium employee retention as a result of the transaction; the ability of Marvell to successfully integrate Cavium's operations and product lines; the ability of Marvell to implement its plans, forecasts, and other expectations with respect to Cavium's business and realize the anticipated synergies and cost savings in the time frame anticipated or at all, and identify and realize additional opportunities; the risk of downturns in the highly cyclical semiconductor industry; Marvell's dependence upon the storage and networking markets, which are highly cyclical and intensely competitive; the outcome of pending or future litigation and legal and regulatory proceedings; Marvell's dependence on a small number of customers; severe financial hardship or bankruptcy of one or more of Marvell's major customers; Marvell's ability to define, design and develop products for the 5G market; Marvell's ability to market its 5G products to Tier 1 infrastructure customers; Marvell's ability and the ability of its customers to successfully compete in the markets in which it serves; Marvell's reliance on independent foundries and subcontractors for the manufacture, assembly and testing of its products; Marvell's ability and its customers' ability to develop new and enhanced products and the adoption of those products in the market; decreases in gross margin and results of operations in the future due to a number of factors; Marvell's ability to estimate customer demand and future sales accurately; Marvell's ability to scale its operations in response to changes in demand for existing or new products and services; the impact of international conflict and continued economic volatility in either domestic or foreign markets; the effects of transitioning to smaller geometry process technologies; the risks associated with manufacturing and selling a majority of products and customers' products outside of the United States; risks associated with acquisition and consolidation activity in the semiconductor industry; the impact of any change in the income tax laws in jurisdictions where Marvell operates and the loss of any beneficial tax treatment that Marvell currently enjoys; the effects of any potential acquisitions or investments; Marvell's ability to protect its intellectual property; the impact and costs associated with changes in international financial and regulatory conditions; Marvell's maintenance of an effective system of internal controls; and other risks detailed in Marvell's SEC filings from time to time. For other factors that could cause Marvell's results to vary from expectations, please see the risk factors identified in Marvell's Quarterly Report on Form 10-Q for the fiscal quarter ended August 4, 2018 as filed with the SEC on September 12, 2018, and other factors detailed from time to time in Marvell's filings with the SEC. Marvell undertakes no obligation to revise or update publicly any forward-looking statements.
About Marvell
Marvell first revolutionized the digital storage industry by moving information at speeds never thought possible. Today, that same breakthrough innovation remains at the heart of the Company's storage, processing, networking, security and connectivity solutions. With leading intellectual property and deep system-level knowledge, Marvell's semiconductor solutions continue to transform the enterprise, cloud, automotive, industrial, and consumer markets. To learn more, visit: www.marvell.com.
Marvell(®) and the Marvell logo are registered trademarks of Marvell and/or its affiliates.
Marvell Technology Group Ltd. Condensed Consolidated Statements of Operations (Unaudited) (In thousands, except per share amounts) Three Months Ended Nine Months Ended November 3, August 4, October 28, November 3, October 28, 2018 2018 2017 2018 2017 Net revenue $ 851,051 $ 665,310 $ 616,302 $ 2,120,992 $ 1,793,761 Cost of goods sold 467,464 288,200 238,533 984,602 705,303 Gross profit 383,587 377,110 377,769 1,136,390 1,088,458 Operating expenses: Research and development 264,888 216,285 165,477 657,907 534,444 Selling, general and administrative 112,178 133,701 59,112 318,192 169,875 Restructuring related charges 27,031 35,415 3,284 64,013 8,455 Total operating expenses 404,097 385,401 227,873 1,040,112 712,774 Operating income (loss) from continuing operations (20,510) (8,291) 149,896 96,278 375,684 Interest income 1,046 3,575 4,301 10,690 11,643 Interest expense (22,370) (15,795) (262) (38,409) (393) Other income (loss), net (2,628) (2,701) 2,161 (3,858) 5,471 Interest and other income (loss), net (23,952) (14,921) 6,200 (31,577) 16,721 Income (loss) from continuing operations before income taxes (44,462) (23,212) 156,096 64,701 392,405 Provision (benefit) for income taxes 9,305 (29,971) 6,759 (16,903) 8,026 Income (loss) from continuing operations, net of tax (53,767) 6,759 149,337 81,604 384,379 Income from discontinued operations, net of tax 50,851 87,689 Net income (loss) $ (53,767) $ 6,759 $ 200,188 $ 81,604 $ 472,068 Net income (loss) per share - Basic: Continuing operations $ (0.08) $ 0.01 $ 0.30 $ 0.14 $ 0.77 Discontinued operations $ $ $ 0.11 $ $ 0.17 Net income (loss) per share - Basic $ (0.08) $ 0.01 $ 0.41 $ 0.14 $ 0.94 Net income (loss) per share - Diluted: Continuing operations $ (0.08) $ 0.01 $ 0.30 $ 0.14 $ 0.75 Discontinued operations $ $ $ 0.10 $ $ 0.17 Net income (loss) per share - Diluted $ (0.08) $ 0.01 $ 0.40 $ 0.14 $ 0.92 Weighted average shares: Basic 657,519 552,238 494,096 569,031 499,568 Diluted 657,519 562,149 504,903 578,872 510,935
Marvell Technology Group Ltd. Condensed Consolidated Balance Sheets (Unaudited) (In thousands) November 3, February 3, 2018 2018 Assets Current assets: Cash and cash equivalents $ 610,261 $ 888,482 Short-term investments 952,790 Accounts receivable, net 453,775 280,395 Inventories 376,210 170,039 Prepaid expenses and other current assets 49,230 41,482 Assets held for sale 30,745 30,767 Total current assets 1,520,221 2,363,955 Property and equipment, net 313,113 202,222 Goodwill 5,499,145 1,993,310 Acquired intangible assets, net 2,639,370 Other non-current assets 260,176 148,800 Total assets $ 10,232,025 $ 4,708,287 Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 209,562 $ 145,236 Accrued liabilities 302,095 86,958 Accrued employee compensation 141,602 127,711 Deferred income 2,947 61,237 Total current liabilities 656,206 421,142 Long-term debt 1,805,734 Non-current income taxes payable 53,862 56,976 Deferred tax liabilities 108,016 52,204 Other non-current liabilities 32,928 36,552 Total liabilities 2,656,746 566,874 Shareholders' equity: Common stock 1,314 991 Additional paid-in capital 6,157,283 2,733,292 Accumulated other comprehensive loss (2,322) Retained earnings 1,416,682 1,409,452 Total shareholders' equity 7,575,279 4,141,413 Total liabilities and shareholders' equity $ 10,232,025 $ 4,708,287
Marvell Technology Group Ltd. Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands) Three Months Ended Nine Months Ended November 3, October 28, November 3, October 28, 2018 2017 2018 2017 Cash flows from operating activities: Net income (loss) $ (53,767) $ 200,188 $ 81,604 $ 472,068 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 39,259 21,383 86,356 62,569 Share-based compensation 50,240 18,873 133,484 65,312 Amortization of acquired intangible assets 78,691 1,076 104,630 3,212 Amortization of inventory fair value adjustment associated with acquisition of Cavium 102,842 125,775 Amortization of deferred debt issuance costs and debt discounts 2,217 9,290 Restructuring related impairment charges (gain) 9,888 44 11,881 (402) Gain from investments in privately-held companies (1,751) (1,100) (2,501) Amortization (accretion) of premium/discount on available- for-sale securities (200) 624 603 Other non-cash expense (income), net 2,755 4,227 1,331 Deferred income taxes (6,261) 7 (27,675) 2,797 Loss (gain) on sale of property and equipment 179 (190) 59 (473) Gain on sale of discontinued operations (46,219) (88,406) Loss (gain) on sale of business 1,592 1,592 (5,254) Changes in assets and liabilities: Accounts receivable (10,948) 5,583 (59,697) (30,730) Inventories (5,007) (1,327) 1,859 (16,039) Prepaid expenses and other assets 7,630 5,268 (11,874) 13,122 Accounts payable 22,531 16,119 22,260 20,087 Accrued liabilities and other non-current liabilities 40,255 (7,046) 29,023 (40,462) Accrued employee compensation 20,617 (2,237) (20,922) (10,612) Deferred income (564) 3,865 (1,293) 5,149 Net cash provided by operating activities 299,394 216,191 490,103 451,371 Cash flows from investing activities: Purchases of available-for-sale securities (296,659) (14,956) (672,887) Sales of available-for-sale securities 167,451 623,896 284,151 Maturities of available-for-sale securities 136,090 187,985 305,702 Return of investment from privately-held companies 3,701 6,089 Purchases of time deposits (75,000) (25,000) (225,000) Maturities of time deposits 25,000 75,000 175,000 225,000 Purchases of technology licenses (9,918) (3,555) (11,181) (5,256) Purchases of property and equipment (12,646) (10,613) (47,035) (25,156) Proceeds from sales of property and equipment 595 249 818 1,988 Cash payment for acquisition of Cavium, net of cash and cash equivalents acquired (2,649,465) Net proceeds from sale of discontinued operations 93,735 165,940 Net proceeds (payments) from sale of business (4,602) 2,402 (3,352) 2,402 Other (5,000) Net cash provided by (used in) investing activities (1,571) 92,801 (1,768,290) 62,973 Cash flows from financing activities: Repurchases of common stock (53,969) (140,017) (53,969) (527,574) Proceeds from employee stock plans 16,192 39,614 60,772 137,424 Tax withholding paid on behalf of employees for net share settlement (8,915) (1,120) (45,691) (25,934) Dividend payments to shareholders (39,411) (29,470) (108,592) (89,556) Payments on technology license obligations (23,003) (8,401) (52,481) (22,697) Proceeds from issuance of debt 1,892,605 Principal payments of debt (75,000) (681,128) Payment of equity and debt financing costs (2,115) (11,550) Net cash provided by (used in) financing activities (186,221) (139,394) 999,966 (528,337) Net increase (decrease) in cash and cash equivalents 111,602 169,598 (278,221) (13,993) Cash and cash equivalents at beginning of period 498,659 630,501 888,482 814,092 Cash and cash equivalents at end of period $ 610,261 $ 800,099 $ 610,261 $ 800,099
Marvell Technology Group Ltd. Reconciliations from GAAP to Non-GAAP (Unaudited) (In thousands, except per share amounts) Three Months Ended Nine Months Ended November 3, August 4, October 28, November 3, October 28, 2018 2018 2017 2018 2017 GAAP gross profit: $ 383,587 $ 377,110 $ 377,769 $ 1,136,390 $ 1,088,458 Special items: Share-based compensation 2,429 4,748 1,747 9,082 4,983 Amortization of acquired intangible assets 57,594 18,984 76,577 Other cost of goods sold (a) 105,841 22,933 128,774 3,000 Total special items 165,864 46,665 1,747 214,433 7,983 Non-GAAP gross profit $ 549,451 $ 423,775 $ 379,516 $ 1,350,823 $ 1,096,441 GAAP gross margin 45.1 % 56.7 % 61.3 % 53.6 % 60.7 % Non-GAAP gross margin 64.6 % 63.7 % 61.6 % 63.7 % 61.1 % Total GAAP operating expenses $ 404,097 $ 385,401 $ 227,873 $ 1,040,112 $ 712,774 Special items: Share-based compensation (47,811) (68,675) (18,892) (138,433) (58,762) Restructuring related charges (b) (27,031) (35,415) (3,284) (64,013) (8,455) Amortization of acquired intangible assets (21,098) (6,955) (1,076) (28,053) (3,212) Other operating expenses (c) (11,222) (28,229) (120) (54,703) (4,110) Total special items (107,162) (139,274) (23,372) (285,202) (74,539) Total non-GAAP operating expenses $ 296,935 $ 246,127 $ 204,501 $ 754,910 $ 638,235 GAAP operating margin (2.4) (1.2) % % 24.3 % 4.5 % 20.9 % Other cost of goods sold (a) 12.4 % 3.5 % % 6.1 % 0.2 % Share-based compensation 5.9 % 11.0 % 3.3 % 7.0 % 3.6 % Restructuring related charges (b) 3.2 % 5.3 % 0.5 % 3.0 % 0.5 % Amortization and write-off of acquired intangible assets 9.2 % 3.9 % 0.2 % 4.9 % 0.2 % Other operating expenses (c) 1.4 % 4.2 % 0.1 % 2.6 % 0.1 % Non-GAAP operating margin 29.7 % 26.7 % 28.4 % 28.1 % 25.5 % GAAP interest and other income (loss), net $ (23,952) $ (14,921) $ 6,200 $ (31,577) $ 16,721 Special items: Restructuring related items (d) 1,491 (121) (2,286) (142) (5,371) Write-off of debt issuance costs (e) 850 6,104 6,954 Total special items 2,341 5,983 (2,286) 6,812 (5,371) Total non-GAAP interest and other income (loss), net $ (21,611) $ (8,938) $ 3,914 $ (24,765) $ 11,350 GAAP net income (loss) $ (53,767) $ 6,759 $ 200,188 $ 81,604 $ 472,068 Less: Income from discontinued operations, net of tax 50,851 87,689 GAAP net income (loss) from continuing operations (53,767) 6,759 149,337 81,604 384,379 Special items: Other cost of goods sold (a) 105,841 22,933 128,774 3,000 Share-based compensation 50,240 73,423 20,639 147,515 63,745 Restructuring related charges in operating expenses (b) 27,031 35,415 3,284 64,013 8,455 Restructuring related items in interest and other income, net (d) 1,491 (121) (2,286) (142) (5,371) Amortization of acquired intangible assets 78,692 25,939 1,076 104,630 3,212 Write-off of debt issuance costs (e) 850 6,104 6,954 Other operating expenses (c) 11,222 28,229 120 54,703 4,110 Pre-tax total special items 275,367 191,922 22,833 506,447 77,151 Other income tax effects and adjustments (f) 55 (36,720) (398) (39,763) (10,760) Non-GAAP net income from continuing operations $ 221,655 $ 161,961 $ 171,772 $ 548,288 $ 450,770 Weighted average shares - basic 657,519 552,238 494,096 569,031 499,568 Weighted average shares -diluted 657,519 562,149 504,903 578,872 510,935 GAAP diluted net income (loss) per share from continuing operations $ (0.08) $ 0.01 $ 0.30 $ 0.14 $ 0.75 Non-GAAP diluted net income per share from continuing operations (g) $ 0.33 $ 0.28 $ 0.34 $ 0.95 $ 0.87
(a) Other costs of goods sold includes amortization of the Cavium inventory fair value step up and charges for past intellectual property licensing matters. (b) Restructuring related charges include employee severance, facilities related costs, and impairment of equipment and other assets. (c) Other operating expenses primarily include Cavium merger costs and costs of retention bonuses offered to employees who remained through the ramp down of certain operations due to restructuring actions. (d) Interest and other income, net, includes restructuring related items such as foreign currency remeasurement associated with restructuring related accruals. (e) Write-off of debt issuance costs is associated with the partial term loan repayment during the three months ended November 3, 2018 and the terminated bridge loan commitment during the three months ended August 4, 2018. (f) Other income tax effects and adjustments relate to tax provision based on a non-GAAP income tax rate of 4%. (g) Non-GAAP diluted net income per share from continuing operations for the three months ended November 3, 2018 was calculated by dividing non-GAAP net income from continuing operations by weighted average shares outstanding (diluted) of 665,752 shares due to the non-GAAP net income reported in that period.
Marvell Technology Group Ltd. Outlook for the Fourth Quarter of Fiscal Year 2019 Reconciliations from GAAP to Non-GAAP (Unaudited) (In millions, except per share amounts) Outlook for Three Months Ended February 2, 2019 GAAP revenue $790 - $830 Special items: - Non-GAAP revenue $790 - $830 GAAP gross margin 46% Special items: Share-based compensation 0.2% Amortization of acquired intangible assets 7% Other costs of goods sold 12% Non-GAAP gross margin 65% Total GAAP operating expenses $375 - $385 Special items: Share-based compensation 55 Restructuring related charges 15 Amortization of acquired intangible assets 21 Other operating expenses 2 Total non-GAAP operating expenses $285 - $290 GAAP diluted net income per share from continuing operations $(0.05) - $(0.01) Special items: Other costs of goods sold 0.15 Share-based compensation 0.09 Restructuring related charges in operating expenses 0.02 Amortization of acquired intangible assets 0.12 Other (gains) and losses in interest and other income, net (0.01) Other income tax effects and adjustments (0.02) Non-GAAP diluted net income per share from continuing operations $0.30 - $0.34
Quarterly Revenue Trend (Unaudited) (In thousands) Three Months Ended % Change November 3, August 4, October 28, YoY QoQ 2018 2017 2018* --- Storage (1) $ 406,822 $ 335,764 $ 315,338 29 21 % % Networking (2) 398,424 283,330 253,159 57 41 % % --- Total Core 805,246 619,094 568,497 42 30 % % Other (3) 45,805 46,216 47,805 (4) (1) % % Total Revenue $ 851,051 $ 665,310 $ 616,302 38 28 % % ===
* Results for the three months ended August 4, 2018 include total Cavium revenue from the period July 6, 2018 to August 4, 2018.
Three Months Ended % of Total November 3, August 4, October 28, 2018 2018 2017 Storage 48 50 51 (1) % % % Networking 47 43 41 (2) % % % Total 95 93 92 Core % % % Other 5 7 8 (3) % % % Total 100 100 Revenue % % % 100
(1) Storage products are comprised primarily of HDD and SSD Controllers, Fibre Channel Adapters and Data Center Storage Solutions. (2) Networking products are comprised primarily of Ethernet Switches, Ethernet Transceivers, Ethernet NICs, Embedded Communication Processors, Automotive Ethernet, Security Adapters and Processors as well as WiFi solutions including WiFi only, WiFi/Bluetooth combos and WiFi Microcontroller combos. In addition, this grouping includes a few legacy product lines in which we no longer invest, but will generate revenue for several years. (3) Other products are comprised primarily of Printer Solutions, Application Processors and others.
For further information, contact:
Ashish Saran
Vice President, Investor Relations
408-222-0777
ir@marvell.com
View original content to download multimedia:http://www.prnewswire.com/news-releases/marvell-technology-group-ltd-reports-third-quarter-of-fiscal-year-2019-financial-results-300760162.html
SOURCE Marvell Technology Group Ltd.