MARVELL TECHNOLOGY GROUP LTD SANTA CLARA, Calif., Nov. 17, 2016 /PRNewswire/ -- Marvell Technology Group Ltd. (NASDAQ: MRVL), a leader in storage, networking, and connectivity semiconductor solutions, today reported financial results for the third quarter of fiscal 2017, ended October 29, 2016. Revenues for the third quarter of fiscal 2017 were $654 million which exceeded the Company's guidance provided on September 6, 2016.
GAAP net income for the third quarter of fiscal 2017 was $73 million, or $0.14 per share (diluted). Non-GAAP net income for the third quarter of fiscal 2017 was $105 million, or $0.20 per share (diluted). Cash flow from operations for the quarter was $121 million.
"Marvell delivered strong financial performance in Q3," said Matt Murphy, President and Chief Executive Officer. "Our core businesses performed very well, with data storage and network infrastructure growing double digits year-over-year. I'm very pleased with the performance of our team."
Fourth Quarter of Fiscal 2017 Financial Outlook
On November 2, 2016, Marvell announced restructuring actions to drive growth and improve profitability. These actions are expected to be fully implemented by the end of October 2017 and are expected to lower annual operating expenses from a current annualized run rate of $1.08 billion to the $820-840 million range. As a result of these actions, the Company expects to incur charges of $90 million to $110 million over the next four quarters, including cash charges of $35 million to $50 million. Restructuring and restructuring-related charges include an estimate of severance, asset impairment, lease termination fees, and other costs. We expect to incur a portion of these charges in the fourth quarter of fiscal 2017.
Marvell's fourth quarter of fiscal 2017 financial outlook also excludes the estimated results of certain non-strategic businesses that have a first half of fiscal 2017 annualized run rate of approximately $100 million in revenue and $60 million in operating expenses. These businesses will be classified as discontinued operations beginning in the fourth quarter of fiscal 2017. In addition, Marvell's financial outlook does not include the potential impact of certain items such as share repurchases, acquisitions or divestitures, or further restructuring activities that may be completed after November 16, 2016.
-- Revenue is expected to be $565 million plus or minus 2%, excluding
discontinued operations and reflecting normal seasonality.
-- GAAP and Non-GAAP Gross Margins are expected to be in the range of 57%
to 58%.
-- GAAP Operating Expenses are expected to be $322 million to $332 million,
which includes part of the restructuring charges announced on November
2, 2016.
-- Non-GAAP Operating Expenses are expected to be $225 million to $235
million.
-- GAAP Diluted EPS from continuing operations are expected to be in the
range of ($0.01) to $0.03.
-- Non-GAAP Diluted EPS from continuing operations are expected to be in
the range of $0.17 to $0.21.
Conference Call
Marvell will conduct a conference call on Thursday, November 17, 2016 at 1:45 p.m. Pacific Time to discuss results for the third quarter of fiscal 2017. Interested parties may join the conference call by dialing 1-844-647-5488 or 1-615-247-0258, pass-code 11983150. 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 December 17, 2016.
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. Non-GAAP diluted net income per share is calculated by dividing Non-GAAP net income 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 provides 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 fourth quarter of fiscal 2017 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: adverse impacts of litigation or regulatory activities; Marvell's ability to implement its restructuring in a timely manner; the amount and timing of anticipated charges associated with the restructuring; Marvell's ability to increase its operational efficiency and decrease its operating expenses to the anticipated level; its ability to divest certain non-strategic businesses within the anticipated timeframes and with the anticipated cost savings; actions that may be taken by Marvell as a result of the Audit Committee's investigation; adverse impacts of litigation or regulatory activities; Marvell's ability to compete in products and prices in an intensely competitive industry; Marvell's reliance on the hard disk drive and wireless markets, which are highly cyclical and intensely competitive; costs and liabilities relating to current and future litigation; Marvell's reliance on a few customers for a significant portion of its revenue; Marvell's ability to develop and introduce new and enhanced products in a timely and cost effective manner and the adoption of those products in the market; seasonality in sales of consumer devices in which Marvell's products are incorporated; uncertainty in the worldwide economic conditions; risks associated with manufacturing and selling a majority of Marvell's products and Marvell's customers' products outside of the United States; 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 July 30, 2016 as filed with the SEC on September 8, 2016, 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, network infrastructure, and wireless 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
------------------ -----------------
October 29, July 30, October 31, October 29, October 31,
2016 2016 2015 2016 2015
---- ---- ---- ---- ----
Net revenue $654,422 $626,404 $674,890 $1,821,648 $2,109,670
Cost of goods sold 286,063 287,608 379,254 832,881 1,192,126
------- ------- ------- ------- ---------
Gross profit 368,359 338,796 295,636 988,767 917,544
Operating expenses:
Research and
development 223,519 228,562 284,308 693,352 861,743
Selling and
marketing 30,576 31,094 32,481 93,049 99,496
General and
administrative 29,012 37,173 34,771 101,808 767,028
Amortization and
write-off of
acquired
intangible assets 2,299 2,461 3,150 7,221 8,286
Total
operating
expenses 285,406 299,290 354,710 895,430 1,736,553
------- ------- ------- ------- ---------
Operating income (loss) 82,953 39,506 (59,074) 93,337 (819,009)
Interest and other income, net 5,470 6,284 4,644 13,242 16,601
----- ----- ----- ------ ------
Income (loss) before income taxes 88,423 45,790 (54,430) 106,579 (802,408)
Provision (benefit) for income taxes 15,807 (5,515) 3,320 5,337 13,192
------ ------ ----- ----- ------
Net income (loss) $72,616 $51,305 $(57,750) $101,242 $(815,600)
======= ======= ======== ======== =========
Basic net income (loss) per share $0.14 $0.10 $(0.11) $0.20 $(1.59)
===== ===== ====== ===== ======
Diluted net income (loss) per share $0.14 $0.10 $(0.11) $0.20 $(1.59)
===== ===== ====== ===== ======
Shares used in computing basic earnings
(loss) per share 511,090 511,235 504,831 510,373 512,476
Shares used in computing diluted
earnings (loss) per share 522,091 514,314 504,831 516,476 512,476
Marvell Technology Group Ltd.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands)
October 29, January 30,
Assets 2016 2016
---- ----
Current assets:
Cash, cash equivalents
and short-term
investments $1,650,372 $2,282,749
Accounts
receivable, net 362,195 323,300
Inventories 198,843 210,017
Prepaid expenses and
other current assets 49,731 102,560
Total
current
assets 2,261,141 2,918,626
Property and equipment, net 265,984 299,540
Long-term investments 8,974 11,296
Goodwill and acquired intangible assets, net 2,039,279 2,047,955
Other non-current assets 179,068 164,710
------- -------
Total
assets $4,754,446 $5,442,127
========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts
payable $183,252 $180,372
Accrued
liabilities 256,339 253,691
Carnegie Mellon University
accrued litigation
settlement - 736,000
Deferred
income 63,656 55,722
Total
current
liabilities 503,247 1,225,785
Other non-current liabilities 70,705 76,219
------ ------
Total
liabilities 573,952 1,302,004
------- ---------
Shareholders' equity:
Common stock 1,017 1,015
Additional paid-
in capital 3,057,535 3,028,921
Accumulated other
comprehensive income 1,553 (795)
Retained
earnings 1,120,389 1,110,982
Total
shareholders'
equity 4,180,494 4,140,123
Total liabilities
and shareholders'
equity $4,754,446 $5,442,127
========== ==========
Marvell Technology Group Ltd.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
Three Months Ended Nine Months Ended
------------------ -----------------
October 29, October 31, October 29, October 31,
2016 2015 2016 2015
---- ---- ---- ----
Cash flows from operating activities:
Net income (loss) $72,616 $(57,750) $101,242 $(815,600)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and
amortization 27,188 25,565 81,168 77,376
Share-based
compensation 28,263 31,465 89,912 101,360
Amortization and write-off
of acquired intangible
assets 2,784 3,635 8,676 9,741
Non-cash restructuring
and other related
charges 1,056 14,270 2,081 15,743
Other non-cash
expense (income),
net (930) 4,205 1,020 5,926
Excess tax benefits from
share-based
compensation (5) (2) (10) (27)
Changes in assets
and liabilities:
Accounts
receivable (13,512) 36,793 (38,895) 40,027
Inventories 3,710 39,457 10,944 21,042
Prepaid expenses and
other assets(a) 6,457 6,804 (2,578) 18,132
Accounts
payable (29,818) (55,693) 10,541 (43,735)
Accrued liabilities and
other non-current
liabilities (a) 6,508 5,116 (759,735) 746,731
Accrued employee
compensation 25,537 14,295 10,419 (14,636)
Deferred
income (8,393) (1,566) 7,934 (10,034)
------ ------ ----- -------
Net cash provided by
(used in) operating
activities 121,461 66,594 (477,281) 152,046
Cash flows from investing activities:
Purchases of available-
for-sale securities (140,087) (356,465) (343,810) (922,830)
Sales and maturities of
available-for-sale
securities 170,472 356,409 657,037 826,199
Purchase of time
deposits (75,000) - (200,000) -
Maturities of
time deposits 50,000 - 50,000 -
Distribution from
(investments in) privately-
held companies 274 (130) 274 78
Purchases of
technology licenses (394) (980) (8,439) (6,657)
Purchases of
property and
equipment (13,347) (9,041) (37,724) (33,361)
Purchase of equipment
previously leased - - - (10,240)
Net proceeds from sale
of equipment held for
sale - 10,007 - 10,007
Net cash provided by
(used in) investing
activities (8,082) (200) 117,338 (136,804)
Cash flows from financing activities:
Repurchase of common
stock (b) (56,531) (65,291) (56,531) (260,875)
Proceeds from
employee stock
plans 11,277 2,174 11,836 59,348
Minimum tax withholding paid
on behalf of employees
for net share
settlement (899) (869) (16,281) (23,876)
Dividend payments
to shareholders (30,699) (30,270) (91,835) (92,374)
Payments on
technology
license
obligations (3,696) (2,617) (13,848) (11,416)
Excess tax benefits from
share-based
compensation 5 2 10 27
Net cash used in
financing
activities (80,543) (96,871) (166,649) (329,166)
------- ------- -------- --------
Net increase (decrease) in cash and cash equivalents 32,836 (30,477) (526,592) (313,924)
Cash and cash equivalents at beginning of period 718,752 927,530 1,278,180 1,210,977
------- ------- --------- ---------
Cash and cash equivalents at end of period $751,588 $897,053 $751,588 $897,053
======== ======== ======== ========
(a) In the nine
months ended
October 29,
2016, the
Company paid
a total of
$750.0
million to
CMU in
connection
with the
settlement
agreement
that was
reached in
February
2016. Of
this
settlement,
the Company
recognized a
charge of
$736.0
million in
fiscal 2016.
The
remaining
$14.0
million was
recorded in
prepaid
expenses and
other
assets, to
be
recognized
in cost of
goods sold
over the
remaining
term of the
license from
February
2016 through
April 2018.
For further
detail of
the
accounting
for the
settlement,
see "Note 13
- Carnegie
Mellon
University
Settlement"
in the Notes
to the
Unaudited
Condensed
Consolidated
Financial
Statements
included in
the
Company's
Quarterly
Report on
Form 10-Q
for the
quarter
ended July
30, 2016.
(b) Marvell
records all
repurchases
of common
stock
consistent
with the way
it records
investment
purchases
and sales,
based on
trade date
in
accordance
with U.S.
GAAP.
Marvell Technology Group Ltd.
Reconciliations from GAAP to Non-GAAP
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
------------------ -----------------
October 29, July 30, October 31, October 29, October 31,
2016 2016(e) 2015 2016 2015
---- ------ ---- ---- ----
GAAP gross profit: $368,359 $338,796 $295,636 $988,767 $917,544
Special items:
Share-based
compensation 2,225 2,832 2,495 6,859 6,054
Restructuring and other related
charges (a) - - 10,285 - 10,285
Amortization of acquired
intangible assets 485 485 485 1,455 2,188
Other cost of good
sold (b) - - 1,158 - 80,848
Total special items 2,710 3,317 14,423 8,314 99,375
Non-GAAP gross profit $371,069 $342,113 $310,059 $997,081 $1,016,919
======== ======== ======== ======== ==========
GAAP gross margin 56.3% 54.1% 43.8% 54.3% 43.5%
==== ==== ==== ==== ====
Non-GAAP gross margin 56.7% 54.6% 45.9% 54.7% 48.2%
==== ==== ==== ==== ====
Total GAAP operating expenses $285,406 $299,290 $354,710 $895,430 $1,736,553
Special items:
Share-based
compensation (26,038) (34,364) (28,970) (83,053) (95,306)
Restructuring and
other related charges
(a) (1,164) (721) (35,270) (6,326) (48,862)
Amortization of and write-
off acquired intangible
assets (2,299) (2,461) (3,150) (7,221) (8,286)
Other operating
expenses (c) - 12 (3,834) (1,229) (691,745)
Total special items (29,501) (37,534) (71,224) (97,829) (844,199)
Total non-GAAP operating expenses $255,905 $261,756 $283,486 $797,601 $892,354
======== ======== ======== ======== ========
GAAP net income (loss) $72,616 $51,305 $(57,750) $101,242 $(815,600)
Special items:
Share-based
compensation 28,263 37,196 31,465 89,912 101,360
Restructuring and
other related charges
(a) 1,164 721 45,555 6,326 59,147
Amortization of and write-
off acquired intangible
assets 2,784 2,946 3,635 8,676 10,474
Other operating
expenses (c) - (12) 4,992 1,229 772,593
Pre-tax total special items 32,211 40,851 85,647 106,143 943,574
------ ------ ------ ------- -------
Non-GAAP income before income taxes 104,827 92,156 27,897 207,385 127,974
Tax effect of special items (d) - - 1,108 (1,071) 11,511
Non-GAAP net income $104,827 $92,156 $29,005 $206,314 $139,485
======== ======= ======= ======== ========
Weighted average shares - basic 511,090 511,235 504,831 510,373 512,476
======= ======= ======= ======= =======
Weighted average shares - diluted 522,091 514,314 504,831 516,476 512,476
======= ======= ======= ======= =======
Non-GAAP weighted average shares - diluted 531,831 526,453 518,505 526,883 528,869
======= ======= ======= ======= =======
GAAP diluted net income per share $0.14 $0.10 $(0.11) $0.20 $(1.59)
===== ===== ====== ===== ======
Non-GAAP diluted net income per share $0.20 $0.18 $0.06 $0.39 $0.26
===== ===== ===== ===== =====
(a) Restructuring
and other
related
charges
include costs
that qualify
under U.S.
GAAP as
restructuring
costs and
other
incremental
charges that
are a direct
result of
restructuring.
Examples of
other
incremental
charges
include
impairment of
equipment
specifically
identified as
part of the
restructuring
action and
the write
down of
inventories.
(b) Other COGS
include
charges
recognized
for pending
and settled
litigation
proceedings
in three and
nine months
ended
October 31,
2015.
(c) Other
operating
expenses
include
charges
recognized
for pending
and settled
litigation
proceedings
of $747.6
million
($666.7
million of
which was
reported in
operating
expenses) in
the nine
months ended
October 31,
2015. Other
operating
expenses for
the nine
months ended
October 29,
2016, and
the three
and nine
months ended
October 31,
2015 also
include
costs of
$0.9
million,
$2.9 million
and $8.5
million,
respectively,
for the
surety bonds
related to
the
litigation
with CMU
that was
settled in
February
2016. Other
operating
expenses for
the nine
months ended
October 29,
2016, and
the three
and nine
months ended
October 31,
2015 also
include
expenses of
$0.3
million,
$1.0 million
and $1.1
million,
respectively,
related to
retention
bonuses
offered to
employees
expected to
remain
through the
ramp down of
certain
operations
related to
the mobile
business, as
well as the
closure of
certain
design
center
operations
in Europe.
In addition,
other
operating
expenses for
the nine
months ended
October 31,
2015 include
a charge for
the payment
of $15.4
million due
to our
former Chief
Executive
Officer (see
"Note 14 -
Related
Party
Transactions"
in the Notes
to the
Consolidated
Financial
Statements
set forth in
the
Company's
Annual
Report on
Form 10-K
for fiscal
2016).
(d) Tax effect of
special
items
includes the
related tax
effect of
the payment
to our
former Chief
Executive
Officer in
the nine
months ended
October 29,
2016 and
October 31,
2015. Tax
effect of
special
items also
includes the
tax effect
of certain
restructuring
charges in
three and
nine months
ended
October 31,
2015.
For further information, contact:
John Spencer Ahn
Investor Relations
408-222-7544
johnahn@marvell.com
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SOURCE Marvell Technology Group Ltd.
