Marvell Technology Group Ltd. Reports Second Quarter of Fiscal Year 2020 Financial Results
SANTA CLARA, Calif., Aug. 29, 2019 /PRNewswire/ -- Marvell Technology Group Ltd. (NASDAQ: MRVL), a leader in infrastructure semiconductor solutions, today reported financial results for the second quarter of fiscal year 2020. Revenue for the second quarter of fiscal 2020 was $657 million, which exceeded the midpoint of the Company's guidance provided on May 30, 2019.
GAAP net loss for the second quarter of fiscal 2020 was $(57) million, or $(0.09) per diluted share. Non-GAAP net income for the second quarter of fiscal 2020 was $110 million, or $0.16 per diluted share. Cash flow from operations for the second quarter was $73 million.
"Marvell delivered solid second quarter results with revenue above the mid-point of our guidance and we fully achieved the operating expense reductions we had outlined last year, two quarters ahead of schedule," said Matt Murphy, Marvell's President and CEO. "In our third quarter, we face a worsening macro environment along with the ongoing impact from the current restrictions on shipments to Huawei, offset by a stabilizing storage business and the earlier than expected first production shipments of our 5G solutions."
Marvell's third quarter guidance takes into account the U.S. Government's export restriction on Huawei.
Third Quarter of Fiscal 2020 Financial Outlook
-- Revenue is expected to be $660 million +/- 3%.
-- GAAP gross margin is expected to be 53.5% to 54.5%.
-- Non-GAAP gross margin is expected to be 63% to 64%.
-- GAAP operating expenses are expected to be $380 million to $390 million.
-- Non-GAAP operating expenses are expected to be $280 million +/- $2.5
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 $0.15 to $0.19 per
share.
Conference Call
Marvell will conduct a conference call on Thursday, August 29, 2019 at 1:45 p.m. Pacific Time to discuss results for the second quarter of fiscal 2020. Interested parties may join the conference call by dialing 1-844-647-5488 or 1-615-247-0258, pass-code 1183687. 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 Thursday, September 5, 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 of acquired intangible assets, acquisition and divestiture-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 second 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 impact of international conflict and economic volatility in either domestic or foreign markets including risks related to trade conflicts, bans and tariffs; the risks associated with manufacturing and selling products and customers' products outside of the United States; 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; the effects of transitioning to smaller geometry process technologies; 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 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; the impact and costs associated with changes in international financial and regulatory conditions; 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; risks associated with acquisition and consolidation activity in the semiconductor industry; the effects of any other potential acquisitions, divestitures or investments; Marvell's ability to protect its intellectual property; Marvell's maintenance of an effective system of internal controls; severe financial hardship or bankruptcy of one or more of Marvell's major customers; 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 publicly update 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
Six Months Ended
August 3, May 4, August 4, August 3, August 4,
2019 2019 2018 2019 2018
Net revenue $
656,568 $
662,452 $
665,310 $
1,319,020 $
1,269,941
Cost of goods sold 305,866 301,024 288,200 606,890 517,138
Gross profit 350,702 361,428 377,110 712,130 752,803
Operating expenses:
Research and development 266,354 266,867 216,285 533,221 393,019
Selling, general and administrative 113,990 110,005 133,701 223,995 206,014
Restructuring related charges 16,586 5,682 35,415 22,268 36,982
Total operating expenses 396,930 382,554 385,401 779,484 636,015
Operating income (loss) (46,228) (21,126) (8,291) (67,354) 116,788
Interest income 1,077 1,268 3,575 2,345 9,644
Interest expense (20,531) (21,203) (15,795) (41,734) (16,039)
Other income (loss), net (2,197) (116) (2,701) (2,313) (1,230)
Interest and other income (loss), net (21,651) (20,051) (14,921) (41,702) (7,625)
Income (loss) before income taxes (67,879) (41,177) (23,212) (109,056) 109,163
Provision (benefit) for income taxes (10,548) 7,273 (29,971) (3,275) (26,208)
Net income (loss) (57,331) (48,450) 6,759 (105,781) 135,371
Net income (loss) per share - Basic: $
(0.09) $
(0.07) $
0.01 $
(0.16) $
0.26
Net income (loss) per share -Diluted: $
(0.09) $
(0.07) $
0.01 $
(0.16) $
0.25
Weighted average shares:
Basic 663,603 658,963 552,238 661,280 524,787
Diluted 663,603 658,963 562,149 661,280 535,433
Marvell Technology Group Ltd.
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands)
August 3, February 2,
2019 2019
Assets
Current assets:
Cash and cash equivalents $
573,496 $
582,410
Accounts receivable, net 452,746 493,122
Inventories 240,421 276,005
Prepaid expenses and other current assets 37,069 43,721
Assets held for sale 597,675
Total current assets 1,901,407 1,395,258
Property and equipment, net 319,761 318,978
Goodwill 4,933,719 5,494,505
Acquired intangible assets, net 2,399,975 2,560,682
Other non-current assets 426,278 247,329
Total assets $
9,981,140 $
10,016,752
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $
211,422 $
185,362
Accrued liabilities 312,987 335,509
Accrued employee compensation 90,659 115,925
Liabilities held for sale 5,604
Total current liabilities 620,672 636,796
Long-term debt 1,685,359 1,732,699
Non-current income taxes payable 49,881 59,221
Deferred tax liabilities 242,957 246,252
Other non-current liabilities 178,459 35,374
Total liabilities 2,777,328 2,710,342
Shareholders' equity:
Common shares 1,334 1,317
Additional paid-in capital 6,271,120 6,188,598
Retained earnings 931,358 1,116,495
Total shareholders' equity 7,203,812 7,306,410
Total liabilities and shareholders' equity $
9,981,140 $
10,016,752
Marvell Technology Group Ltd.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Three Months Ended Six Months Ended
August 3, August 4, August 3, August 4,
2019 2018 2019 2018
Cash flows from operating activities:
Net income (loss) $
(57,331) $
6,759 $
(105,781) $
135,371
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 41,941 26,754 86,239 47,097
Share-based compensation 63,676 59,392 122,274 83,244
Amortization of acquired intangible assets 80,967 25,939 160,707 25,939
Amortization of inventory fair value adjustment associated
with acquisition of Cavium 22,933 22,933
Amortization of deferred debt issuance costs and debt
discounts 1,178 7,073 2,859 7,073
Restructuring related impairment charges (gain) 6,281 1,993 10,097 1,993
Other expense, net 580 2,740 2,016 3,631
Deferred income taxes (1,982) (22,238) 2,374 (21,414)
Changes in assets and liabilities:
Accounts receivable 17,601 (1,356) 40,376 (48,749)
Inventories (7,174) 4,186 8,674 6,866
Prepaid expenses and other assets (15,997) (5,396) (7,993) (19,504)
Accounts payable 24,370 (15,015) 22,497 (271)
Accrued liabilities and other non-current liabilities (49,188) (32,400) (80,117) (11,961)
Accrued employee compensation (31,782) (19,429) (25,266) (41,539)
Net cash provided by operating activities 73,140 61,935 238,956 190,709
Cash flows from investing activities:
Purchases of available-for-sale securities (1,499) (14,956)
Sales of available-for-sale securities 553,623 623,896
Maturities of available-for-sale securities 59,165 187,985
Purchases of time deposits (25,000)
Maturities of time deposits 75,000 150,000
Purchases of technology licenses (38) (903) (1,522) (1,263)
Purchases of property and equipment (23,010) (20,801) (42,193) (34,389)
Cash payment for acquisition of Cavium, net of cash and
cash equivalents acquired (2,649,465) (2,649,465)
Other, net (47) 1,462 (389) (3,527)
Net cash used in investing activities (23,095) (1,983,418) (44,104) (1,766,719)
Cash flows from financing activities:
Repurchases of common stock (16,250) (64,272)
Proceeds from employee stock plans 50,230 33,525 81,314 44,580
Tax withholding paid on behalf of employees for net share
settlement (32,884) (12,883) (61,642) (36,776)
Dividend payments to shareholders (39,889) (39,383) (79,356) (69,181)
Payments on technology license obligations (13,056) (9,017) (28,324) (29,478)
Proceeds from issuance of debt 1,892,605 1,892,605
Principal payments of debt (606,128) (50,000) (606,128)
Payment of equity and debt financing costs (5,835) (9,435)
Other, net 3,407 (1,486)
Net cash provided by (used in) in financing activities (48,442) 1,252,884 (203,766) 1,186,187
Net increase (decrease) in cash and cash equivalents 1,603 (668,599) (8,914) (389,823)
Cash and cash equivalents at beginning of period 571,893 1,167,258 582,410 888,482
Cash and cash equivalents at end of period $
573,496 $
498,659 $
573,496 $
498,659
Marvell Technology Group Ltd.
Reconciliations from GAAP to Non-GAAP (Unaudited)
(In thousands, except per share amounts)
Three Months Ended
Six Months Ended
August 3, May 4, August 4, August 3, August 4,
2019 2019 2018 2019 2018
GAAP gross profit: $
350,702 $
361,428 $
377,110 $
712,130 $
752,803
Special items:
Share-based compensation 3,662 2,926 4,748 6,588 6,653
Amortization of acquired intangible
assets 61,132 59,906 18,984 121,038 18,984
Other cost of goods sold (a) 450 22,933 450 22,933
Total special items 64,794 63,282 46,665 128,076 48,570
Non-GAAP gross profit $
415,496 $
424,710 $
423,775 $
840,206 $
801,373
GAAP gross margin 53.4 54.6
% 56.7
% 54.0
% 59.3
% %
Non-GAAP gross margin 63.3 64.1
% 63.7
% 63.7
% 63.1
% %
Total GAAP operating expenses $
396,930 $
382,554 $
385,401 $
779,484 $
636,015
Special items:
Share-based compensation (60,014) (55,672) (68,675) (115,686) (90,622)
Restructuring related charges (b) (16,585) (5,682) (35,415) (22,267) (36,982)
Amortization of acquired intangible
assets (19,835) (19,834) (6,955) (39,669) (6,955)
Other operating expenses (c) (20,676) (6,569) (28,229) (27,245) (43,481)
Total special items (117,110) (87,757) (139,274) (204,867) (178,040)
Total non-GAAP operating expenses $
279,820 $
294,797 $
246,127 $
574,617 $
457,975
GAAP operating margin (7.0) (3.2) (1.2) (5.1)
% % % % 9.2
%
Other cost of goods sold (a) % 0.1
% 3.5
% % 1.9
%
Share-based compensation 9.7
% 8.8
% 11.0
% 9.3
% 7.7
%
Restructuring related charges (b) 2.5
% 0.9
% 5.3
% 1.7
% 2.9
%
Amortization of acquired intangible 12.3
assets % 12.0
% 3.9
% 12.2
% 2.0
%
Other operating expenses (c) 3.2
% 1.0
% 4.2
% 2.0
% 3.3
%
Non-GAAP operating margin 20.7 19.6
% 26.7
% 20.1
% 27.0
% %
GAAP interest and other income (loss),
net $
(21,651) $
(20,051) $
(14,921) $
(41,702) $
(7,625)
Special items:
Restructuring related items (d) 75 (338) (121) (263) (1,633)
Write-off of debt issuance costs (e) 458 6,104 458 6,104
Deal costs (f) 1,009 1,009
Total special items 1,084 120 5,983 1,204 4,471
Total non-GAAP interest and other income
(loss), net $
(20,567) $
(19,931) $
(8,938) $
(40,498) $
(3,154)
GAAP net income (loss) $
(57,331) $
(48,450) $
6,759 $
(105,781) $
135,371
Special items:
Other cost of goods sold (a) 450 22,933 450 22,933
Share-based compensation 63,676 58,598 73,423 122,274 97,275
Restructuring related charges in
operating expenses (b) 16,585 5,682 35,415 22,267 36,982
Restructuring related items in interest
and other income, net (d) 75 (338) (121) (263) (1,633)
Amortization of acquired intangible
assets 80,967 79,740 25,939 160,707 25,939
Write-off of debt issuance costs (e) 458 6,104 458 6,104
Deal costs in interest and other income,
net (f) 1,009 1,009
Other operating expenses (c) 20,676 6,569 28,229 27,245 43,481
Pre-tax total special items 182,988 151,159 191,922 334,147 231,081
Other income tax effects and adjustments
(g) (15,728) 2,324 (36,720) (13,404) (39,818)
Non-GAAP net income $
109,929 $
105,033 $
161,961 $
214,962 $
326,634
Weighted average shares -basic 663,603 658,963 552,238 661,280 524,787
Weighted average shares -diluted 663,603 658,963 562,149 661,280 535,433
GAAP diluted net income (loss) per share $
(0.09) $
(0.07) $
0.01 $
(0.16) $
0.25
Non-GAAP diluted net income per share
(h) $
0.16 $
0.16 $
0.28 $
0.32 $
0.60
(a) Other costs of goods sold includes
amortization of the Cavium inventory
fair value step up in 2018 as well as
charges for past intellectual
property licensing matters in 2019.
(b) Restructuring related charges include
employee severance, facilities
related costs, and impairment of
equipment and other assets.
(c) Other operating expenses include
Cavium, Aquantia, and Avera 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, as well as during
the three and six months ended August
4, 2018.
(f) Deal costs include transaction costs
incurred in connection with the
divestiture of the Wi-Fi
Connectivity business.
(g) 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 the three and six
months ended August 3, 2019, and
based on a non-GAAP income tax rate
of 4% for the three and six months
ended August 4, 2018.
(h) Non-GAAP diluted net income per share
for the three months ended August 3,
2019 and May 4, 2019 was calculated
by dividing non-GAAP net income by
weighted average shares outstanding
(diluted) of 675,755 shares and
671,048 shares, respectively, due to
the non-GAAP net income reported in
the respective period. Non-GAAP
diluted net income per share for the
six months ended August 3, 2019 was
calculated by dividing non-GAAP net
income by weighted average shares
outstanding (diluted) of 673,399
shares due to the non-GAAP net
income reported in the period.
Marvell Technology Group Ltd.
Outlook for the Third Quarter of Fiscal Year
2020
Reconciliations from GAAP to Non-GAAP
(Unaudited)
(In millions, except per share amounts)
Outlook for Three Months
Ended
November 2, 2019
GAAP revenue $660 +/- 3%
Special items: -
Non-GAAP
revenue $660 +/- 3%
GAAP gross
margin 53.5% to 54.5%
Special items:
Share-based
compensation 0.3%
Amortization of
acquired
intangible
assets 9.2%
Non-GAAP gross
margin 63% to 64%
Total GAAP
operating
expenses
$380 - $390
Special items:
Share-based
compensation 65
Restructuring
related charges 2
Amortization of
acquired
intangible
assets 20
Other operating
expenses 18
Total non-GAAP
operating
expenses
$280 +/- $2.5
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 0.03
Other income tax
effects and
adjustments (0.01)
Non-GAAP
diluted net
income per
share
$0.15 - $0.19
Quarterly Revenue Trend (Unaudited)
(In thousands)
Three Months Ended % Change
August 3, May 4, August 4, YoY QoQ
2019 2019 2018
---
Storage (1) $
274,905 $
278,667 $
335,764 (18) (1)
% %
Networking (2) 329,605 341,344 283,330 16 (3)
%
%
---
Total Core 604,510 620,011 619,094 (2) (3)
% %
Other (3) 52,058 42,441 46,216 13 23
%
%
Total Revenue $
656,568 $
662,452 $
665,310 (1) (1)
% %
===
Three Months Ended
% of Total August 3, May 4, August 4,
2019 2019 2018
Storage (1) 42 42
% %
% 50
Networking (2) 50 52
% %
% 43
Total Core 92 94
% %
% 93
Other (3) 8 6
% %
% 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 Connectivity products. 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.
