Marvell Technology Group Ltd. Reports First Quarter of Fiscal Year 2020 Financial Results
SANTA CLARA, Calif., May 30, 2019 /PRNewswire/ -- Marvell Technology Group Ltd. (NASDAQ: MRVL), a leader in infrastructure semiconductor solutions, today reported financial results for the first quarter of fiscal year 2020. Revenue for the first quarter of fiscal 2020 was $662 million, which exceeded the midpoint of the Company's guidance provided on March 7, 2019.
GAAP net loss for the first quarter of fiscal 2020 was $(48) million, or $(0.07) per diluted share. Non-GAAP net income for the first quarter of fiscal 2020 was $105 million, or $0.16 per diluted share. Cash flow from operations for the first quarter was $166 million.
"Marvell continues to take bold steps despite a challenging near-term environment to improve our portfolio through strategic capital deployment and drive long term shareholder value" said Matt Murphy, Marvell's President and CEO. "With the production ramp of our first 5G products later this year, and a growing pipeline of new wireless infrastructure design wins, Marvell is well positioned to becoming a leading silicon supplier to this market."
Marvell's second quarter guidance takes into account the estimated impact from the U.S. Government's recently announced export restriction to one of our customers.
Second Quarter of Fiscal 2020 Financial Outlook
-- Revenue is expected to be $650 million +/- 3%.
-- GAAP gross margin is expected to be 53% to 54%.
-- Non-GAAP gross margin is expected to be 63% to 64%.
-- GAAP operating expenses are expected to be $370 million to $380 million.
-- Non-GAAP operating expenses are expected to be $285 million to $290
million.
-- GAAP diluted loss per share is expected to be $(0.09) to $(0.05) per
share.
-- Non-GAAP diluted income per share is expected to be $0.13 to $0.17 per
share.
On May 6, 2019, Marvell announced its intent to acquire Aquantia, Corp. ("Aquantia"), a publicly traded company. Marvell anticipates that upon closing, this acquisition will position it to further capitalize on automotive in-vehicle networking and strengthen its Multi-Gig Ethernet portfolio for enterprise infrastructure, data center and access. The transaction is expected to close by December 2019, subject to regulatory approval as well as other customary closing conditions, including the adoption by Aquantia shareholders of the merger agreement.
On May 20, 2019, Marvell announced definitive agreements to purchase Avera Semiconductor, the application specific integrated circuit ("ASIC") business of GlobalFoundries Inc. Marvell expects that upon closing, this acquisition will bring together Avera Semiconductor's leading custom design capabilities with its advanced technology platform and scale, creating a leading ASIC supplier for wired and wireless infrastructure while extending its reach in 5G base stations. The transaction is expected to close by January 2020 pending receipt of regulatory approvals and other customary closing conditions.
On May 29, 2019, Marvell announced a definitive agreement under which NXP will acquire Marvell's Wi-Fi Connectivity business Marvell anticipates that this divestiture will unlock substantial value, enhance its margins upon closing and accelerate its transformation into a leading infrastructure semiconductor solution supplier. The transaction is expected to close by March 2020, subject to customary closing conditions and regulatory approvals.
Conference Call
Marvell will conduct a conference call on Thursday, May 30, 2019 at 1:45 p.m. Pacific Time to discuss results for the first quarter of fiscal 2020. Interested parties may join the conference call by dialing 1-844-647-5488 or 1-615-247-0258, pass-code 3160468. 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 Friday, June 7, 2019.
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 first quarter of fiscal 2020, a non-GAAP tax rate of 4.5% has been applied to the non-GAAP financial results.
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. 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 risk that the proposed acquisitions of Aquantia, Corp. and the Application Specific Integrated Circuit (ASIC) business of GLOBALFOUNDRIES and the divestiture of Marvell's Wi-Fi Connectivity business to NXP (collectively, the "Transactions") will not be completed; the risk that the company may not realize the anticipated benefits of the Transactions; the effect of the consummation of the Transactions on the company's business relationships, operating results, and business generally; potential difficulties in employee retention as a result of the Transactions; the ability of Marvell to successfully integrate operations and product lines related to the acquisitions; the ability of Marvell to implement its plans, forecasts, and other expectations with respect to the Transactions and realize the anticipated synergies and cost savings in the time frame anticipated or at all; 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 economic volatility in either domestic or foreign markets; the effects of transitioning to smaller geometry process technologies; the risks associated with manufacturing and selling 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 other potential acquisitions, divestitures 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-K for the fiscal year ended February 2, 2019 as filed with the SEC on March 28, 2019, 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
May 4, February 2, May 5,
2019 2019 2018
Net revenue $
662,452 $
744,799 $
604,631
Cost of goods sold 301,024 422,797 228,938
Gross profit 361,428 322,002 375,693
Operating expenses:
Research and development 266,867 256,102 176,734
Selling, general and administrative 110,005 106,168 72,313
Restructuring related charges 5,682 12,740 1,567
Total operating expenses 382,554 375,010 250,614
Operating income (loss) (21,126) (53,008) 125,079
Interest income 1,268 1,236 6,069
Interest expense (21,203) (21,953) (244)
Other income (loss), net (116) 4,377 1,471
Interest and other income (loss), net (20,051) (16,340) 7,296
Income (loss) before income taxes (41,177) (69,348) 132,375
Provision for income taxes 7,273 191,350 3,763
Net income (loss) (48,450) (260,698) 128,612
Net income (loss) per share - Basic: $
(0.07) $
(0.40) $
0.26
Net income (loss) per share - Diluted: $
(0.07) $
(0.40) $
0.25
Weighted average shares:
Basic 658,963 657,835 497,335
Diluted 658,963 657,835 508,716
Marvell Technology Group Ltd.
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands)
May 4, February 2,
2019 2019
Assets
Current assets:
Cash and cash equivalents $
571,893 $
582,410
Accounts receivable, net 470,347 493,122
Inventories 260,981 276,005
Prepaid expenses and other current assets 39,711 43,721
Total current assets 1,342,932 1,395,258
Property and equipment, net 326,599 318,978
Goodwill 5,494,505 5,494,505
Acquired intangible assets, net 2,480,942 2,560,682
Other non-current assets 403,240 247,329
Total assets $
10,048,218 $
10,016,752
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $
191,249 $
185,362
Accrued liabilities 333,680 335,509
Accrued employee compensation 122,441 115,925
Total current liabilities 647,370 636,796
Long-term debt 1,684,281 1,732,699
Non-current income taxes payable 56,621 59,221
Deferred tax liabilities 250,137 246,252
Other non-current liabilities 179,677 35,374
Total liabilities 2,818,086 2,710,342
Shareholders' equity:
Common stock 1,323 1,317
Additional paid-in capital 6,200,231 6,188,598
Retained earnings 1,028,578 1,116,495
Total shareholders' equity 7,230,132 7,306,410
Total liabilities and shareholders' equity $
10,048,218 $
10,016,752
Marvell Technology Group Ltd.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Three Months Ended
May 4, May 5,
2019 2018
Cash flows from operating activities:
Net income (loss) $
(48,450) $
128,612
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 44,298 20,343
Share-based compensation 58,598 23,852
Amortization of acquired intangible assets 79,740
Amortization of deferred debt issuance costs and debt
discounts 1,681
Other non-cash expense, net 5,252 891
Deferred income taxes 4,356 824
Changes in assets and liabilities:
Accounts receivable 22,775 (47,393)
Inventories 15,848 2,680
Prepaid expenses and other assets 8,004 (14,108)
Accounts payable (1,873) 14,744
Accrued liabilities and other non-current liabilities (30,929) 20,439
Accrued employee compensation 6,516 (22,110)
Net cash provided by operating activities 165,816 128,774
Cash flows from investing activities:
Purchases of available-for-sale securities (13,457)
Sales of available-for-sale securities 70,273
Maturities of available-for-sale securities 128,820
Purchases of time deposits (25,000)
Maturities of time deposits 75,000
Purchases of technology licenses (1,484) (360)
Purchases of property and equipment (19,183) (13,588)
Other (342) (4,989)
Net cash provided by (used in) investing activities (21,009) 216,699
Cash flows from financing activities:
Repurchases of common stock (48,022)
Proceeds from employee stock plans 31,084 11,055
Tax withholding paid on behalf of employees for net share
settlement (28,758) (23,893)
Dividend payments to shareholders (39,467) (29,798)
Payments on technology license obligations (15,268) (20,461)
Principal payments of debt (50,000)
Payment of equity and debt financing costs (3,600)
Other (4,893)
Net cash used in financing activities (155,324) (66,697)
Net increase (decrease) in cash and cash equivalents (10,517) 278,776
Cash and cash equivalents at beginning of period 582,410 888,482
Cash and cash equivalents at end of period $
571,893 $
1,167,258
Marvell Technology Group Ltd.
Reconciliations from GAAP to Non-GAAP (Unaudited)
(In thousands, except per share amounts)
Three Months Ended
May 4, February 2, May 5,
2019 2019 2018
GAAP gross profit: $
361,428 $
322,002 $
375,693
Special items:
Share-based compensation 2,926 2,942 1,905
Amortization of acquired intangible assets 59,906 57,591
Other cost of goods sold (a) 450 97,598
Total special items 63,282 158,131 1,905
Non-GAAP gross profit $
424,710 $
480,133 $
377,598
GAAP gross margin 54.6
% 43.2
% 62.1
%
Non-GAAP gross margin 64.1
% 64.5
% 62.5
%
Total GAAP operating expenses $
382,554 $
375,010 $
250,614
Special items:
Share-based compensation (55,672) (47,638) (21,947)
Restructuring related charges (b) (5,682) (12,740) (1,567)
Amortization of acquired intangible assets (19,834) (21,097)
Other operating expenses (c) (6,569) (7,392) (15,252)
Total special items (87,757) (88,867) (38,766)
Total non-GAAP operating expenses $
294,797 $
286,143 $
211,848
GAAP operating margin (3.2) (7.1)
% % 20.7
%
Other cost of goods sold (a) 0.1
% 13.1
% %
Share-based compensation 8.8
% 6.8
% 3.9
%
Restructuring related charges (b) 0.9
% 1.7
% 0.3
%
Amortization of acquired intangible assets 12.0
% 10.6
% %
Other operating expenses (c) 1.0
% 0.9
% 2.5
%
Non-GAAP operating margin 19.6
% 26.0
% 27.4
%
GAAP interest and other income (loss), net $
(20,051) $
(16,340) $
7,296
Special items:
Restructuring related items (d) (338) 157 (1,512)
Write-off of debt issuance costs (e) 458 782
Gain on sale of intellectual property (3,500)
Total special items 120 (2,561) (1,512)
Total non-GAAP interest and other income
(loss), net $
(19,931) $
(18,901) $
5,784
GAAP net income (loss) $
(48,450) $
(260,698) $
128,612
Special items:
Other cost of goods sold (a) 450 97,598
Share-based compensation 58,598 50,580 23,852
Restructuring related charges in operating
expenses (b) 5,682 12,740 1,567
Restructuring related items in interest
and other income, net (d) (338) 157 (1,512)
Amortization of acquired intangible assets 79,740 78,688
Gain on sale of intellectual property (3,500)
Write-off of debt issuance costs (e) 458 782
Other operating expenses (c) 6,569 7,392 15,252
Pre-tax total special items 151,159 244,437 39,159
Other income tax effects and adjustments
(f) 2,324 184,348 (3,098)
Non-GAAP net income $
105,033 $
168,087 $
164,673
Weighted average shares - basic 658,963 657,835 497,335
Weighted average shares -diluted 658,963 657,835 508,716
GAAP diluted net income (loss) per share $
(0.07) $
(0.40) $
0.25
Non-GAAP diluted net income per share (g) $
0.16 $
0.25 $
0.32
(a) Other costs of goods sold for the
quarter ended May 4, 2019 includes
charges for legal claim settlement.
Other costs of goods sold for the
quarter ended February 2, 2019
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.
Restructuring related charges in the
three months ended February 2, 2019
include gain on sale of a building
that was a direct result of
restructuring.
(c) Other operating expenses include
Cavium and Aquantia merger costs.
(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 May 4, 2019 and February 2,
2019.
(f) Other income tax effects and
adjustments relate to tax provision
based on a non-GAAP income tax rate
of 4.5% for the three months ended
May 4, 2019 and based on a non-GAAP
income tax rate of 4% for the three
months ended February 2, 2019 and
three months ended May 5, 2018.
(g) Non-GAAP diluted net income per share
for the three months ended May 4,
2019 and February 2, 2019 was
calculated by dividing non-GAAP net
income by weighted average shares
outstanding (diluted) of 671,048
shares and 663,580 shares,
respectively, due to the non-GAAP
net income reported in the respective
period.
Marvell Technology Group Ltd.
Outlook for the Second Quarter of Fiscal Year 2020
Reconciliations from GAAP to Non-GAAP (Unaudited)
(In millions, except per share amounts)
Outlook for Three Months Ended
August 3, 2019
GAAP revenue $650 +/- 3%
Special items: -
Non-GAAP revenue $650 +/- 3%
GAAP gross margin 53% to 54%
Special items:
Share-based compensation 0.3%
Amortization of acquired
intangible assets 9.4%
Non-GAAP gross margin 63% to 64%
Total GAAP operating expenses
$370 - $380
Special items:
Share-based compensation 64
Restructuring related charges 1
Amortization of acquired
intangible assets 20
Other operating expenses 2
Total non-GAAP operating
expenses
$285 - $290
GAAP diluted net loss per
share
$(0.09) - $(0.05)
Special items:
Share-based compensation 0.10
Amortization of acquired
intangible assets 0.12
Other operating expenses 0.01
Other income tax effects and
adjustments (0.01)
Non-GAAP diluted net income
per share
$0.13 - $0.17
Quarterly Revenue Trend (Unaudited)
(In thousands)
Three Months Ended % Change
May 4, February 2, May 5, YoY QoQ
2019 2019 2018
---
Storage (1) $
278,667 $
317,042 $
317,069 (12) (12)
% %
Networking (2) 341,344 387,457 244,228 40 (12)
% %
---
Total Core 620,011 704,499 561,297 10 (12)
% %
Other (3) 42,441 40,300 43,334 (2)
%
% 5
Total Revenue $
662,452 $
744,799 $
604,631 10 (11)
% %
===
Three Months Ended
% of Total May 4, February
2, May 5,
2019 2019 2018
Storage (1) 42 43 52
%
% %
Networking (2) 52 52 41
%
% %
Total Core 94 95 93
%
% %
Other (3) 6 5 7
%
% %
Total Revenue 100 100 100
% % %
(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
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SOURCE Marvell Technology Group Ltd.
