MARVELL TECHNOLOGY GROUP LTD SANTA CLARA, Calif., Aug. 24, 2017 /PRNewswire/ -- Marvell Technology Group Ltd. (NASDAQ: MRVL), a leader in storage, networking and connectivity semiconductor solutions, today reported financial results for the second fiscal quarter of fiscal year 2018. Revenue for the second quarter of fiscal 2018 was $605 million, which exceeded the midpoint of the Company's guidance provided on May 25, 2017.
GAAP net income from continuing operations for the second quarter of fiscal 2018 was $135 million, or $0.26 per share. Non-GAAP net income from continuing operations for the second quarter of fiscal 2018 was $153 million, or $0.30 per diluted share. Cash flow from operations for the second quarter was $101 million.
"I am pleased to report that our second quarter results demonstrated Marvell's continued transformation as a company, achieving revenue above the midpoint of our guidance, improved profitability and continued return of capital to shareholders," said Matt Murphy, Marvell's President and CEO. "I'm proud of our team -- in a competitive environment, we are delivering innovative solutions that our customers clearly value."
Third Quarter of Fiscal 2018 Financial Outlook
-- Revenue is expected to be $595 million to $625 million.
-- GAAP and non-GAAP gross margins are expected to be approximately 61% to
62%.
-- GAAP operating expenses are expected to be $230 million to $240 million.
-- Non-GAAP operating expenses are expected to be $205 million to $210
million.
-- GAAP diluted EPS from continuing operations is expected to be in the
range of $0.25 to $0.31 per share.
-- Non-GAAP diluted EPS from continuing operations is expected to be in the
range of $0.30 to $0.34 per share.
Discontinued Operations
The Company's financial results for prior periods presented herein have been recast to reflect certain businesses that were classified as discontinued operations during the fourth quarter of fiscal year 2017 and second quarter of fiscal year 2018.
Conference Call
Marvell will conduct a conference call on Thursday, August 24, 2017 at 1:45 p.m. Pacific Time to discuss results for the second quarter of fiscal 2018. Interested parties may join the conference call by dialing 1-844-647-5488 or 1-615-247-0258, pass-code 57564938. The call will be webcast by Thomson Reuters and can be accessed at the Marvell Investor Relations website at http://investor.marvell.com/ with a replay available following the call until September 1, 2017.
Discussion of Non-GAAP Financial Measures
Non-GAAP financial measures exclude the effect of share-based compensation expense, 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 operating performance.
In fiscal 2018, Marvell began using 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 2018, 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 non-GAAP weighted average shares outstanding (diluted). For purposes of calculating non-GAAP diluted net income per share, the GAAP weighted average shares outstanding (diluted) is adjusted to exclude the potential benefits of share-based compensation expected to be incurred in future periods but not yet recognized in the financial statements. The expected compensation costs are treated as additional proceeds assumed to be used to repurchase shares under the GAAP treasury stock method.
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: Marvell's expectations regarding its third quarter of fiscal 2018 financial outlook; 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: Marvell's ability to successfully restructure its operations within its anticipated timeframe announced in November 2016 and with the anticipated amounts of costs and savings; Marvell's dependence upon the storage, networking and connectivity 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 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 April 29, 2017 as filed with the SEC on June 5, 2017, 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, networking 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
July 29, 2017 April 29, 2017 July 30, 2016 July 29, 2017 July 30, 2016
------------- -------------- ------------- ------------- -------------
Net revenue $604,750 $572,709 $597,346 $1,177,459 $1,110,979
Cost of goods sold 239,572 227,198 270,427 466,770 510,360
Gross profit 365,178 345,511 326,919 710,689 600,619
------- ------- ------- ------- -------
Operating expenses:
Research and development 180,871 188,096 207,943 368,967 427,351
Selling, general and administrative 55,659 55,104 67,896 110,763 131,964
Restructuring related charges 4,285 886 721 5,171 5,162
----- --- --- ----- -----
Total operating expenses 240,815 244,086 276,560 484,901 564,477
------- ------- ------- ------- -------
Operating income 124,363 101,425 50,359 225,788 36,142
Interest and other income, net 7,188 3,333 6,284 10,521 7,772
----- ------ -----
Income from continuing operations before
income taxes 131,551 104,758 56,643 236,309 43,914
Provision (benefit) for income taxes (3,899) 5,166 (5,823) 1,267 (11,260)
------ ----- -------
Income from continuing operations 135,450 99,592 62,466 235,042 55,174
------- ------ ------ ------- ------
Income (loss) from discontinued operations,
net of tax 29,809 7,029 (11,161) 36,838 (26,548)
Net income $165,259 $106,621 $51,305 $271,880 $28,626
======== ======== ======= ======== =======
Net income (loss) per share - Basic:
Continuing operations $0.27 $0.20 $0.12 $0.47 $0.11
===== ===== ===== ===== =====
Discontinued operations $0.06 $0.01 $(0.02) $0.07 $(0.05)
===== ===== ====== ===== ======
Net income per share - basic $0.33 $0.21 $0.10 $0.54 $0.06
=====
Net income (loss) per share - Diluted:
Continuing operations $0.26 $0.19 $0.12 $0.46 $0.11
===== ===== ===== ===== =====
Discontinued operations $0.06 $0.02 $(0.02) $0.07 $(0.05)
===== ===== ====== ===== ======
Net income per share - diluted $0.32 $0.21 $0.10 $0.53 $0.06
===== ===== ===== =====
Weighted average shares:
Basic 500,817 503,790 511,235 502,303 510,014
Diluted 510,309 517,592 514,314 513,951 513,669
Marvell Technology Group Ltd.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands)
July 29, January 28,
2017 2017
---- ----
Assets
Current assets:
Cash and cash equivalents $630,501 $814,092
Short-term investments 943,006 854,268
Accounts receivable, net 371,697 335,384
Inventories 175,355 170,842
Prepaid expenses and other current assets 46,491 58,771
Assets held for sale 41,896 57,077
------ ------
Total current assets 2,208,946 2,290,434
Property and equipment, net 235,354 243,397
Goodwill and acquired intangible assets, net 1,994,743 1,996,880
Other non-current assets 148,407 117,939
Total assets $4,587,450 $4,648,650
========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $153,862 $143,484
Accrued liabilities 106,351 143,491
Accrued employee compensation 131,272 139,647
Deferred income 70,063 63,976
Liabilities held for sale 1,015 5,818
----- -----
Total current liabilities 462,563 496,416
Non-current income taxes payable 55,714 60,646
Other non-current liabilities 95,076 63,937
------ ------
Total liabilities 613,353 620,999
Shareholders' equity:
Common stock 991 1,012
Additional paid-in capital 2,752,541 3,016,775
Accumulated other comprehensive income 899 23
Retained earnings 1,219,666 1,009,841
--------- ---------
Total shareholders' equity 3,974,097 4,027,651
---------
Total liabilities and shareholders' equity $4,587,450 $4,648,650
========== ==========
Marvell Technology Group Ltd.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Three Months Ended Six Months Ended
July 29, 2017 July 30, 2016 July 29, 2017 July 30, 2016
------------- ------------- ------------- -------------
Cash flows from operating activities:
Net income $165,259 $51,305 $271,880 $28,626
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 20,444 26,866 41,186 53,980
Share-based compensation 22,422 37,196 46,439 61,649
Amortization and write-off of acquired intangible assets 1,065 2,946 2,136 5,892
Deferred income taxes 2,008 53 2,791 (2,423)
Excess tax benefits from share-based compensation - (5) - (5)
Gain on sale of businesses (39,309) - (47,464) -
Other (1,551) 718 (1,886) 2,975
Changes in assets and liabilities:
Accounts receivable (14,550) (68,025) (36,313) (25,383)
Inventories (3,170) (6,364) (14,712) 7,234
Prepaid expenses and other assets 2,460 6,605 8,882 (6,612)
Accounts payable (27,455) 20,437 3,968 40,359
Accrued liabilities and other non-current liabilities (21,793) (7,741) (33,418) (30,243)
Carnegie Mellon University accrued litigation settlement (a) - - - (736,000)
Accrued employee compensation (846) (22,270) (8,375) (15,118)
Deferred income (3,732) 17,561 1,284 16,327
------
Net cash provided by (used in) operating activities 101,252 59,282 236,398 (598,742)
------- ------ ------- --------
Cash flows from investing activities:
Purchases of available-for-sale securities (177,811) (110,358) (376,227) (203,723)
Sales of available-for-sale securities 37,936 67,824 116,700 340,095
Maturities of available-for-sale securities 87,376 48,682 169,611 146,470
Purchase of time deposits (75,000) (75,000) (150,000) (125,000)
Maturities of time deposits 75,000 - 150,000 -
Return of investment from privately-held companies 2,388 - 2,388 -
Purchases of technology licenses (608) (3,995) (1,701) (8,045)
Purchases of property and equipment (4,020) (12,509) (14,046) (24,377)
Net proceeds from sale of businesses 42,000 - 72,229 -
------ --- ------ ---
Net cash provided by (used in) investing activities (12,739) (85,356) (31,046) 125,420
------- ------- ------- -------
Cash flows from financing activities:
Repurchases of common stock (221,265) - (387,558) -
Proceeds from employee stock plans 77,872 244 97,811 559
Minimum tax withholding paid on behalf of employees for net
share settlement (3,005) (112) (24,814) (15,382)
Dividend payments to shareholders (30,095) (30,675) (60,086) (61,136)
Payments on technology license obligations (7,481) (4,858) (14,296) (10,152)
Excess tax benefits from share-based compensation - 5 - 5
--- ---
Net cash used in financing activities (183,974) (35,396) (388,943) (86,106)
-------- ------- -------- -------
Net decrease in cash and cash equivalents (95,461) (61,470) (183,591) (559,428)
Cash and cash equivalents at beginning of period 725,962 780,222 814,092 1,278,180
Cash and cash equivalents at end of period $630,501 $718,752 $630,501 $718,752
======== ======== ======== ========
(a) The Company paid $750.0 million to
Carnegie Mellon University in
connection with a litigation
settlement agreement reached in
February 2016.
Marvell Technology Group Ltd.
Reconciliations from GAAP to Non-GAAP
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
July 29, 2017 April 29, 2017 July 30, 2016 July 29, 2017 July 30, 2016
------------- -------------- ------------- ------------- -------------
GAAP gross profit: $365,178 $345,511 $326,919 $710,689 $600,619
Special items:
Share-based compensation 1,810 1,426 2,720 3,236 4,504
Other cost of goods sold (a) 3,000 - - 3,000 -
Total special items 4,810 1,426 2,720 6,236 4,504
Non-GAAP gross profit $369,988 $346,937 $329,639 $716,925 $605,123
======== ======== ======== ======== ========
GAAP gross margin 60.4% 60.3% 54.7% 60.4% 54.1%
==== ==== ==== ==== ====
Non-GAAP gross margin 61.2% 60.6% 55.2% 60.9% 54.5%
==== ==== ==== ==== ====
Total GAAP operating expenses $240,815 $244,086 $276,560 $484,901 $564,477
Special items:
Share-based compensation (19,557) (20,313) (30,359) (39,870) (50,003)
Restructuring related charges (b) (4,285) (886) (721) (5,171) (5,162)
Amortization of and write-off acquired
intangible assets (1,065) (1,071) (2,299) (2,136) (4,597)
Other operating expenses (c) (1,687) (2,303) 13 (3,990) (1,229)
Total special items (26,594) (24,573) (33,366) (51,167) (60,991)
------- -------
Total non-GAAP operating expenses $214,221 $219,513 $243,194 $433,734 $503,486
======== ======== ======== ======== ========
GAAP operating margin 20.6% 17.7% 8.4% 19.2% 3.3%
Other cost of goods sold (a) 0.5% - % - % 0.3% - %
Share-based compensation 3.5% 3.8% 5.5% 3.7% 4.9%
Restructuring related charges (b) 0.7% 0.2% 0.1% 0.4% 0.5%
Amortization and write-off of acquired
intangible assets 0.2% 0.2% 0.5% 0.2% 0.3%
Other operating expenses (c) 0.3% 0.3% - % 0.3% 0.1%
--- --- --- --- --- ---
Non-GAAP operating margin 25.8% 22.2% 14.5% 24.1% 9.1%
==== ==== ==== ==== ===
GAAP interest and other income, net $7,188 $3,333 $6,284 $10,521 $7,772
Special items:
Restructuring related items (d) (3,085) - - (3,085) -
Total special items (3,085) - - (3,085) -
------ --- --- ------ ---
Total non-GAAP interest and other income,
net $4,103 $3,333 $6,284 $7,436 $7,772
====== ====== ====== ====== ======
GAAP net income $165,259 $106,621 $51,305 $271,880 $28,626
Loss (income) from discontinued
operations, net of tax (29,809) (7,029) 11,161 (36,838) 26,548
GAAP net income from continuing operations 135,450 99,592 62,466 235,042 55,174
------- ------ ------ ------- ------
Special items:
Other cost of goods sold (a) 3,000 - - 3,000 -
Share-based compensation 21,367 21,739 33,079 43,106 54,507
Restructuring related charges (b) 1,200 886 721 2,086 5,162
Amortization of and write-off acquired
intangible assets 1,065 1,071 2,299 2,136 4,597
Other operating expenses (c) 1,687 2,303 (13) 3,990 1,229
Pre-tax total special items 28,319 25,999 36,086 54,318 65,495
------ ------ ------ ------ ------
Other income tax effects and
adjustments (e) (10,298) (64) - (10,362) (1,071)
------- ---
Non-GAAP net income from continuing
operations $153,471 $125,527 $98,552 $278,998 $119,598
======== ======== ======= ======== ========
Weighted average shares - basic 500,817 503,790 511,235 502,303 510,014
======= ======= ======= ======= =======
Weighted average shares - diluted 510,309 517,592 514,314 513,951 513,669
======= ======= ======= ======= =======
Non-GAAP weighted average shares -
diluted (f) 519,438 523,154 526,453 521,296 524,408
======= ======= ======= ======= =======
GAAP diluted net income (loss) per share
from continuing operations $0.26 $0.19 $0.12 $0.46 $0.11
===== ===== ===== ===== =====
Non-GAAP diluted net income per share
from continuing operations $0.30 $0.24 $0.19 $0.54 $0.23
===== ===== ===== ===== =====
(a) Other costs of goods sold in the
three and six months ended July
29, 2017 include charges for past
intellectual property licensing
matters.
(b) Restructuring related charges
include costs that are a direct
result of restructuring. Such
charges include employee
severance, facilities related
costs, contract cancellation
charges and impairment of
equipment.
(c) Other operating expenses in the
three and six months ended July
29, 2017 include costs of
retention bonuses offered to
employees who remained through the
ramp down of certain operations
due to the restructuring actions.
(d) Interest and other income, net
includes restructuring related
items such as gain on sale of a
business and foreign currency
losses related to restructuring
related accruals.
(e) Other income tax effects and
adjustments in the three months
ended July 29, 2017 and April 29,
2017 includes adjustment to the
tax provision based on a non-GAAP
tax rate of 4%. Other income tax
effects and adjustments in the six
months ended July 29, 2017
includes adjustment to the tax
provision based on a non-GAAP tax
rate of 4%.
(f) Non-GAAP diluted share count
excludes the impact of share-
based compensation expense
expected to be incurred in future
periods and not yet recognized in
the Company's financial
statements, which would otherwise
be assumed to be used to
repurchase shares under the GAAP
treasury stock method.
Quarterly Revenue Trend
(In thousands)
Three Months Ended % Change
July 29, 2017 April 29, 2017 July 30, 2016 YoY QoQ
------------- -------------- ------------- --- ---
Storage (1) $311,501 $303,808 $275,343 13% 3%
Networking (2) 147,250 144,815 156,614 (6)% 2%
Connectivity (3) 98,571 76,091 92,689 6% 30%
------ ------ ------ --- ---
Total Core 557,322 524,714 524,646 6% 6%
Other (4) 47,428 47,995 72,700 (35)% (1)%
------
Total Revenue (5) $604,750 $572,709 $597,346 1% 6%
======== ======== ======== === ===
Three Months Ended
% of Total July 29, 2017 April 29, 2017 July 30, 2016
------------- -------------- -------------
Storage (1) 52% 53% 46%
Networking
(2) 24% 25% 26%
Connectivity
(3) 16% 13% 16%
--- --- ---
Total Core 92% 91% 88%
Other (4) 8% 9% 12%
Total Revenue 100% 100% 100%
=== === ===
(1) Storage products are comprised
primarily of HDD, SSD Controllers
and Enterprise Storage Solutions.
(2) Networking products are
comprised primarily of Ethernet
Switches, Ethernet Transceivers,
Embedded ARM Processors and
Automotive Ethernet, as well as a
few legacy product lines in which
we no longer invest, but will
generate revenue for several years.
(3) Connectivity products are
comprised primarily of WiFi
solutions including WiFi only,
WiFi/Bluetooth combos and WiFi
Microcontroller combos.
(4) Other products are comprised
primarily of Printer Solutions,
Application Processors and others.
(5) Excludes the revenue of certain
non-strategic businesses that were
classified as discontinued
operations.
For further information, contact:
T. Peter Andrew
Vice President, Investor Relations
408-222-0777
ir@marvell.com
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SOURCE Marvell Technology Group Ltd.
