Marvell Technology Group Ltd. Reports Second Quarter of Fiscal 2017 Financial Results
"We experienced a seasonally strong second quarter, driven by solid demand from customers across storage, networking, and wireless end markets," said
Matt Murphy, President and CEO. "We are also beginning to see the benefits of improved focus on product cost as well as a more disciplined approach to spending, which resulted in better than expected earnings per share."
In the second quarter of fiscal 2017, storage revenue increased 13 percent sequentially, reflecting higher HDD and SSD demand. Networking revenue in the second quarter of fiscal 2017 grew 12 percent sequentially due to continued strength in enterprise networking demand. Mobile and wireless revenue grew 21 percent sequentially, mainly driven by seasonal game console production ramps. Mobile handset-related revenues in the second quarter of fiscal 2017 were
Net income on a GAAP basis for the second quarter of fiscal 2017 was
Third Quarter of Fiscal 2017 Financial Outlook
- Revenue is expected to be flat to down 4 percent from the second quarter.
- GAAP and Non-GAAP Gross Margins are expected to be in the range of 52 percent to 54 percent.
- GAAP and Non-GAAP Operating Expenses are expected to be approximately flat from the second quarter.
- GAAP Diluted EPS are expected to be in the range of
\\$0.03 to \\$0.08 . - Non-GAAP Diluted EPS are expected to be in the range of
\\$0.08 to \\$0.13 .
Adjustments to Reported Non-GAAP EPS for Q1 FY2017
In the first quarter of fiscal 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
Externally, management believes that investors may find
- 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
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:
About Marvell
As used in this release, the term "
Marvell® and the
Marvell Technology Group Ltd. |
||||||||||||||
Condensed Consolidated Statements of Operations |
||||||||||||||
(Unaudited) |
||||||||||||||
(In thousands, except per share amounts) |
||||||||||||||
Three Months Ended |
Six Months Ended |
|||||||||||||
July 30, |
April 30, |
August 1, |
July 30, |
August 1, |
||||||||||
2016 |
2016 |
2015 |
2016 |
2015 |
||||||||||
Net revenue |
\\$ 626,404 |
\\$ 540,822 |
\\$ 710,492 |
\\$ 1,167,226 |
\\$ 1,434,780 |
|||||||||
Cost of goods sold |
287,608 |
259,210 |
461,719 |
546,818 |
812,872 |
|||||||||
Gross profit |
338,796 |
281,612 |
248,773 |
620,408 |
621,908 |
|||||||||
Operating expenses: |
||||||||||||||
Research and development |
228,562 |
241,271 |
297,321 |
469,833 |
577,435 |
|||||||||
Selling and marketing |
31,094 |
31,379 |
30,841 |
62,473 |
67,015 |
|||||||||
General and administrative |
37,173 |
35,623 |
691,230 |
72,796 |
732,257 |
|||||||||
Amortization of acquired intangible assets |
2,461 |
2,461 |
2,568 |
4,922 |
5,136 |
|||||||||
Total operating expenses |
299,290 |
310,734 |
1,021,960 |
610,024 |
1,381,843 |
|||||||||
Operating income (loss) |
39,506 |
(29,122) |
(773,187) |
10,384 |
(759,935) |
|||||||||
Interest and other income, net |
6,284 |
1,488 |
6,790 |
7,772 |
11,957 |
|||||||||
Income (loss) before income taxes |
45,790 |
(27,634) |
(766,397) |
18,156 |
(747,978) |
|||||||||
Provision (benefit) for income taxes |
(5,515) |
(4,955) |
5,543 |
(10,470) |
9,872 |
|||||||||
Net income (loss) |
\\$ 51,305 |
\\$ (22,679) |
\\$ (771,940) |
\\$ 28,626 |
\\$ (757,850) |
|||||||||
Basic net income (loss) per share |
\\$ 0.10 |
\\$ (0.04) |
\\$ (1.49) |
\\$ 0.06 |
\\$ (1.47) |
|||||||||
Diluted net income (loss) per share |
\\$ 0.10 |
\\$ (0.04) |
\\$ (1.49) |
\\$ 0.06 |
\\$ (1.47) |
|||||||||
Shares used in computing basic earnings (loss) per share |
511,235 |
508,794 |
516,368 |
510,014 |
516,298 |
|||||||||
Shares used in computing diluted earnings (loss) per share |
514,314 |
508,794 |
516,368 |
513,669 |
516,298 |
Marvell Technology Group Ltd. |
||||||||||
Condensed Consolidated Balance Sheets |
||||||||||
(Unaudited) |
||||||||||
(In thousands) |
||||||||||
July 30, |
January 30, |
|||||||||
Assets |
2016 |
2016 |
||||||||
Current assets: |
||||||||||
Cash, cash equivalents and short-term investments |
\\$ 1,624,009 |
\\$ 2,282,749 |
||||||||
Accounts receivable, net |
348,683 |
323,300 |
||||||||
Inventories |
202,717 |
210,017 |
||||||||
Prepaid expenses and other current assets |
54,870 |
102,560 |
||||||||
Total current assets |
2,230,279 |
2,918,626 |
||||||||
Property and equipment, net |
274,774 |
299,540 |
||||||||
Long-term investments |
8,974 |
11,296 |
||||||||
Goodwill and acquired intangible assets, net |
2,042,063 |
2,047,955 |
||||||||
Other non-current assets |
160,586 |
164,710 |
||||||||
Total assets |
\\$ 4,716,676 |
\\$ 5,442,127 |
||||||||
Liabilities and Shareholders' Equity |
||||||||||
Current liabilities: |
||||||||||
Accounts payable |
\\$ 212,950 |
\\$ 180,372 |
||||||||
Accrued liabilities |
219,489 |
253,691 |
||||||||
Carnige Mellon University accrued litigation settlement |
- |
736,000 |
||||||||
Deferred income |
72,049 |
55,722 |
||||||||
Total current liabilities |
504,488 |
1,225,785 |
||||||||
Other non-current liabilities |
53,100 |
76,219 |
||||||||
Total liabilities |
557,588 |
1,302,004 |
||||||||
Shareholders' equity: |
||||||||||
Common stock |
1,022 |
1,015 |
||||||||
Additional paid-in capital |
3,075,579 |
3,028,921 |
||||||||
Accumulated other comprehensive income |
4,015 |
(795) |
||||||||
Retained earnings |
1,078,472 |
1,110,982 |
||||||||
Total shareholders' equity |
4,159,088 |
4,140,123 |
||||||||
Total liabilities and shareholders' equity |
\\$ 4,716,676 |
\\$ 5,442,127 |
Marvell Technology Group Ltd. |
|||||||||||
Condensed Consolidated Statements of Cash Flows |
|||||||||||
(Unaudited) |
|||||||||||
(in thousands) |
|||||||||||
Three Months Ended |
Six Months Ended |
||||||||||
July 30, |
August 1, |
July 30, |
August 1, |
||||||||
2016 |
2015 |
2016 |
2015 |
||||||||
Cash flows from operating activities: |
|||||||||||
Net income (loss) |
\\$ 51,305 |
\\$ (771,940) |
\\$ 28,626 |
\\$ (757,850) |
|||||||
Adjustments to reconcile net income (loss) to net cash provided |
|||||||||||
by operating activities: |
|||||||||||
Depreciation and amortization |
26,866 |
25,191 |
53,980 |
51,811 |
|||||||
Share-based compensation |
37,196 |
36,674 |
61,649 |
69,895 |
|||||||
Amortization of acquired intangible assets |
2,946 |
3,053 |
5,892 |
6,106 |
|||||||
Non-cash restructuring and other related charges |
129 |
900 |
1,025 |
1,473 |
|||||||
Other non-cash expense, net |
589 |
2,282 |
1,950 |
1,721 |
|||||||
Excess tax benefits from share-based compensation |
(5) |
(7) |
(5) |
(25) |
|||||||
Changes in assets and liabilities: |
|||||||||||
Accounts receivable |
(68,025) |
(23,907) |
(25,383) |
3,234 |
|||||||
Inventories |
(6,364) |
12,903 |
7,234 |
(18,415) |
|||||||
Prepaid expenses and other assets(a) |
6,658 |
9,359 |
(9,035) |
11,328 |
|||||||
Accounts payable |
20,437 |
(5,167) |
40,359 |
11,958 |
|||||||
Accrued liabilities and other non-current liabilities (a) |
(7,741) |
753,191 |
(766,243) |
741,615 |
|||||||
Accrued employee compensation |
(22,270) |
(14,507) |
(15,118) |
(28,931) |
|||||||
Deferred income |
17,561 |
(1,441) |
16,327 |
(8,468) |
|||||||
Net cash provided by (used in) operating activities |
59,282 |
26,584 |
(598,742) |
85,452 |
|||||||
Cash flows from investing activities: |
|||||||||||
Purchases of available-for-sale securities |
(110,358) |
(173,465) |
(203,723) |
(566,365) |
|||||||
Sales and maturities of available-for-sale securities |
116,506 |
222,295 |
486,565 |
469,790 |
|||||||
Purchase of time deposits |
(75,000) |
- |
(125,000) |
- |
|||||||
Distribution from (investments in) privately-held companies |
- |
208 |
- |
208 |
|||||||
Purchases of technology licenses |
(3,995) |
(2,071) |
(8,045) |
(5,677) |
|||||||
Purchases of property and equipment |
(12,509) |
(16,986) |
(24,377) |
(24,320) |
|||||||
Purchase of equipment previously leased |
- |
- |
- |
(10,240) |
|||||||
Net cash provided by (used in) investing activities |
(85,356) |
29,981 |
125,420 |
(136,604) |
|||||||
Cash flows from financing activities: |
|||||||||||
Repurchase of common stock (b) |
- |
(175,311) |
- |
(195,584) |
|||||||
Proceeds from employee stock plans |
244 |
44,161 |
559 |
57,174 |
|||||||
Minimum tax withholding paid on behalf of employees |
|||||||||||
for net share settlement |
(112) |
(697) |
(15,382) |
(23,007) |
|||||||
Dividend payments to shareholders |
(30,675) |
(31,194) |
(61,136) |
(62,104) |
|||||||
Payments on technology license obligations |
(4,858) |
(4,732) |
(10,152) |
(8,799) |
|||||||
Excess tax benefits from share-based compensation |
5 |
7 |
5 |
25 |
|||||||
Net cash used in financing activities |
(35,396) |
(167,766) |
(86,106) |
(232,295) |
|||||||
Net increase (decrease) in cash and cash equivalents |
(61,470) |
(111,201) |
(559,428) |
(283,447) |
|||||||
Cash and cash equivalents at beginning of period |
780,222 |
1,038,731 |
1,278,180 |
1,210,977 |
|||||||
Cash and cash equivalents at end of period |
\\$ 718,752 |
\\$ 927,530 |
\\$ 718,752 |
\\$ 927,530 |
(a) |
In the six months ended July 30, 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 good 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 April 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. In the three and six months ended August 1, 2015, cash paid for repurchase of Marvell common shares was adjusted for repurchases of \\$19.7 million made within the final three days of the quarter that are accrued but not yet paid due to the standard settlement period that normally takes up to three days. |
Reconciliations from GAAP to Non-GAAP |
||||||||||
(Unaudited) |
||||||||||
(In thousands, except per share amounts) |
||||||||||
Three Months Ended |
Six Months Ended |
|||||||||
July 30, |
April 30, |
August 1, |
July 30, |
August 1, |
||||||
2016 |
2016(d) |
2015 |
2016 |
2015 |
||||||
GAAP net income (loss) |
\\$ 51,305 |
\\$ (22,679) |
\\$ (771,940) |
\\$ 28,626 |
\\$ (757,850) |
|||||
Share-based compensation |
37,196 |
24,453 |
36,674 |
61,649 |
69,895 |
|||||
Restructuring and other related charges (a) |
721 |
4,441 |
13,000 |
5,162 |
13,592 |
|||||
Amortization of acquired intangible assets |
2,946 |
2,946 |
3,346 |
5,892 |
6,839 |
|||||
Litigation matters (b) |
(115) |
100 |
748,117 |
(15) |
746,417 |
|||||
Other (c) |
103 |
(2,743) |
10,205 |
173 |
31,587 |
|||||
Non-GAAP net income, as reported |
\\$ 92,156 |
\\$ 6,518 |
\\$ 39,402 |
\\$ 101,487 |
\\$ 110,480 |
|||||
Non-GAAP net income, as adjusted (d) |
\\$ 9,331 |
|||||||||
GAAP weighted average shares - diluted |
514,314 |
508,794 |
516,368 |
513,669 |
516,298 |
|||||
Non-GAAP adjustment |
12,139 |
13,569 |
16,574 |
10,739 |
17,753 |
|||||
Non-GAAP weighted average shares diluted (e) |
526,453 |
522,363 |
532,942 |
524,408 |
534,051 |
|||||
GAAP diluted net income per share |
\\$ 0.10 |
\\$ (0.04) |
\\$ (1.49) |
\\$ 0.06 |
\\$ (1.47) |
|||||
Non-GAAP diluted net income per share, as reported |
\\$ 0.18 |
\\$ 0.01 |
\\$ 0.07 |
\\$ 0.19 |
\\$ 0.21 |
|||||
Non-GAAP diluted net income per share, as adjusted (d) |
\\$ 0.02 |
|||||||||
GAAP gross profit: |
\\$ 338,796 |
\\$ 281,612 |
\\$ 248,773 |
\\$ 620,408 |
\\$ 621,908 |
|||||
Share-based compensation |
2,832 |
1,802 |
2,012 |
4,634 |
3,559 |
|||||
Restructuring and other related charges (a) |
- |
- |
- |
- |
- |
|||||
Amortization of acquired intangible assets |
485 |
485 |
778 |
970 |
1,703 |
|||||
Litigation matters (b) |
- |
- |
81,390 |
- |
79,690 |
|||||
Non-GAAP gross profit |
\\$ 342,113 |
\\$ 283,899 |
\\$ 332,953 |
\\$ 626,012 |
\\$ 706,860 |
|||||
GAAP gross margin |
54.1% |
52.1% |
35.0% |
53.2% |
43.3% |
|||||
Share-based compensation |
0.4% |
0.3% |
0.3% |
0.3% |
0.3% |
|||||
Restructuring and other related charges (a) |
0.0% |
0.0% |
0.0% |
0.0% |
0.0% |
|||||
Amortization of acquired intangible assets |
0.1% |
0.1% |
0.1% |
0.1% |
0.1% |
|||||
Litigation matters (b) |
0.0% |
0.0% |
11.5% |
0.0% |
5.6% |
|||||
Non-GAAP gross margin |
54.6% |
52.5% |
46.9% |
53.6% |
49.3% |
|||||
GAAP research and development: |
\\$ 228,562 |
\\$ 241,271 |
\\$ 297,321 |
\\$ 469,833 |
\\$ 577,435 |
|||||
Share-based compensation |
(28,581) |
(24,396) |
(27,807) |
(52,977) |
(52,588) |
|||||
Restructuring and other related charges (a) |
329 |
(813) |
(11,680) |
(484) |
(11,680) |
|||||
Litigation matters (b) |
- |
- |
(5,000) |
- |
(5,000) |
|||||
Other (c) |
(174) |
49 |
(134) |
(125) |
(134) |
|||||
Non-GAAP research and development |
\\$ 200,136 |
\\$ 216,111 |
\\$ 252,700 |
\\$ 416,247 |
\\$ 508,033 |
|||||
GAAP selling and marketing: |
\\$ 31,094 |
\\$ 31,379 |
\\$ 30,841 |
\\$ 62,473 |
\\$ 67,015 |
|||||
Share-based compensation |
(3,315) |
(2,942) |
(2,707) |
(6,257) |
(5,284) |
|||||
Restructuring and other related charges (a) |
(27) |
1 |
- |
(26) |
- |
|||||
Other (c) |
71 |
(304) |
- |
(233) |
- |
|||||
Non-GAAP selling and marketing |
\\$ 27,823 |
\\$ 28,134 |
\\$ 28,134 |
\\$ 55,957 |
\\$ 61,731 |
|||||
GAAP general and administrative: |
\\$ 37,173 |
\\$ 35,623 |
\\$ 36,563 |
\\$ 72,796 |
\\$ 77,590 |
|||||
Share-based compensation |
(2,468) |
4,687 |
(4,148) |
2,219 |
(8,464) |
|||||
Restructuring and other related charges (a) |
(1,023) |
(3,629) |
(1,320) |
(4,652) |
(1,912) |
|||||
Litigation matters (b) |
115 |
(100) |
(7,060) |
15 |
(7,060) |
|||||
Other (c) |
- |
(886) |
(2,748) |
(886) |
(21,050) |
|||||
Non-GAAP general and administrative |
\\$ 33,797 |
\\$ 35,695 |
\\$ 21,287 |
\\$ 69,492 |
\\$ 39,104 |
|||||
GAAP Carnegie Mellon University litigation settlement |
\\$ - |
\\$ - |
\\$ 654,667 |
\\$ - |
\\$ 654,667 |
|||||
Litigation matters (b) |
- |
- |
(654,667) |
- |
(654,667) |
|||||
Non-GAAP Carnegie Mellon University litigation settlement |
\\$ - |
\\$ - |
\\$ - |
\\$ - |
\\$ - |
|||||
GAAP provision (benefit) for income taxes |
\\$ (5,515) |
\\$ (4,955) |
\\$ 5,543 |
\\$ (10,470) |
\\$ 9,872 |
|||||
Other (c) |
- |
3,884 |
(7,323) |
1,071 |
(10,403) |
|||||
Non-GAAP provision (benefit) for income taxes, as reported |
\\$ (5,515) |
\\$ (1,071) |
\\$ (1,780) |
\\$ (9,399) |
\\$ (531) |
|||||
Non-GAAP provision (benefit) for income taxes, as adjusted (d) |
\\$ (3,884) |
(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. |
|||||||||||||
(b) |
The amounts recorded represent charges recognized for pending litigation proceedings. |
|||||||||||||
(c) |
Other costs for each of the three months ended July 30, 2016, April 30, 2016 and August 1, 2015, and the six months ended July 30, 2016 and August 1, 2015 include expenses 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. Other costs for the three months ended April 30, 2016 and August 1, 2015, and the six months ended July 30, 2016 and August 1, 2015 also include costs for the surety bonds related to the litigation with CMU that was settled in February 2016. In addition, other costs for the six months ended August 1, 2015 include a payment of \\$15.4 million due to Dr. Sehat Sutardja, the Company's 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). The related tax effect of the payment to Dr. Sutardja is also included in other costs for the three months ended April 30, 2016, and the six months ended July 30, 2016 and August 1, 2015. The tax effect of certain restructuring charges in the three and six months ended August 1, 2015 is also included in other costs for those periods. |
|||||||||||||
(d) |
For the three months ended April 30, 2016, the Company made a correction to the non-GAAP benefit for income taxes of \\$1,071 thousand that it previously reported in its fiscal 2017 first quarter earnings announcement on Wednesday, July 27, 2016. As a result, the Company now reports non-GAAP net income, as adjusted of \\$9,331 thousand, non-GAAP earnings per share, as adjusted of \\$0.02 per share, and non-GAAP benefit for income taxes, as adjusted of \\$3,884 thousand for the three months ended April 30, 2016. |
|||||||||||||
(e) |
For purposes of calculating non-GAAP diluted net income per share, the GAAP diluted weighted average shares outstanding is adjusted to exclude the potential benefits of share-based compensation costs expected to be incurred in future periods but not yet recognized in the financial statements and to also include the dilutive/anti-dilutive effects of common stock options and restricted stock units, as applicable. The expected compensation costs are treated as proceeds assumed to be used to repurchase shares under the GAAP treasury stock method. |
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