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Marvell Technology Group Ltd. Reports First Quarter of Fiscal Year 2019 Financial Results
- Q1 Revenue: $605 million
- Q1 Gross Margin: 62.1% GAAP gross margin; 62.5% non-GAAP gross margin
- Q1 Diluted earnings per share: $0.25 GAAP diluted earnings per share from continuing operations; $0.32 non-GAAP diluted earnings per share from continuing operations
- Cash and short-term investments: $1.9 billion

SANTA CLARA, Calif., May 31, 2018 /PRNewswire/ -- Marvell Technology Group Ltd. (NASDAQ: MRVL), a leader in storage, networking and connectivity semiconductor solutions, today reported financial results for the first fiscal quarter of fiscal year 2019. Revenue for the first quarter of fiscal 2019 was $605 million, which exceeded the midpoint of the Company's guidance provided on March 8, 2018.

GAAP net income from continuing operations for the first quarter of fiscal 2019 was $129 million, or $0.25 per diluted share. Non-GAAP net income from continuing operations for the first quarter of fiscal 2019 was $165 million, or $0.32 per diluted share. Cash flow from operations for the first quarter was $129 million.

"Fiscal 2019 is off to a strong start, driven by the performance of our storage, networking and connectivity businesses which grew 7% year over year in Q1. Marvell's R&D engine is executing well, and our newly announced products are fueling a growing design win pipeline," said Marvell President and CEO Matt Murphy. "Overall, I'm pleased with the results and thank the entire Marvell team for their effort and contribution."

Second Quarter of Fiscal 2019 Financial Outlook

  • Revenue is expected to be $600 million to $630 million. The guidance range excludes approximately $7 million in revenue from a Chinese OEM due to the trade restrictions imposed by the U.S. government.
  • GAAP and non-GAAP gross margins are expected to be approximately 63% to 64%.
  • GAAP operating expenses are expected to be $260 million to $270 million.
  • Non-GAAP operating expenses are expected to be approximately $210 million.
  • GAAP diluted EPS from continuing operations is expected to be in the range of $0.22 to $0.26 per share.
  • Non-GAAP diluted EPS from continuing operations is expected to be in the range of $0.32 to $0.36 per share.

Conference Call

Marvell will conduct a conference call on Thursday, May 31, 2018 at 1:45 p.m. Pacific Time to discuss results for the first quarter of fiscal 2019. Interested parties may join the conference call by dialing 1-844-647-5488 or 1-615-247-0258, pass-code 1449837. 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 Friday, June 8, 2018.

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 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 2019, 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: the impact on future performance of Marvell's newly announced products; Marvell's expectations regarding its second quarter of fiscal 2019 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: the risk that the Cavium transaction may not be completed in a timely manner or at all, which may adversely affect Cavium's business and the price of its common stock and/or Marvell's business and the price of its common shares; the failure to satisfy the conditions to the consummation of the transaction, including receipt of certain governmental and regulatory approvals; the failure of Marvell to obtain the necessary financing pursuant to the arrangements set forth in the debt commitment letters delivered pursuant to the merger agreement or otherwise; the occurrence of any event, change or other circumstance that could give rise to the termination of the merger agreement; the effect of the announcement or pendency of the transaction on Cavium's business relationships, operating results, and business generally; risks that the proposed transaction disrupts current plans and operations of Cavium or Marvell and potential difficulties in Cavium employee retention as a result of the transaction; risks related to diverting management's attention from Cavium's ongoing business operations; the outcome of any legal proceedings that may be instituted against Marvell or against Cavium related to the merger agreement or the transaction; the ability of Marvell to successfully integrate Cavium's operations and product lines; the ability of Marvell to implement its plans, forecasts, and other expectations with respect to Cavium's business after the completion of the proposed merger and realize the anticipated synergies and cost savings in the time frame anticipated or at all, and identify and realize additional opportunities; the risk of downturns in the highly cyclical semiconductor industry; 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 Annual Report on Form 10-K for the fiscal year ended February 3, 2018 as filed with the SEC on March 29, 2018, 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



May 5,
2018


February 3,
2018


April 29,
2017

Net revenue


$

604,631



$

615,409



$

572,709


Cost of goods sold


228,938



241,927



227,198


Gross profit


375,693



373,482



345,511









Operating expenses:







Research and development


176,734



180,000



188,096


Selling, general and administrative


72,313



68,291



55,104


Litigation settlement (a)




74,385




Restructuring related charges (gain)


1,567



(3,205)



886


Total operating expenses


250,614



319,471



244,086


Operating income from continuing operations


125,079



54,011



101,425


Interest and other income, net


7,296



4,788



3,333


Income from continuing operations before income taxes


132,375



58,799



104,758


Provision for income taxes


3,763



10,036



5,166


Income from continuing operations, net of tax


128,612



48,763



99,592


Income from discontinued operations, net of tax






7,029


Net income


$

128,612



$

48,763



$

106,621









Net income per share — Basic:







Continuing operations


$

0.26



$

0.10



$

0.20


Discontinued operations


$



$



$

0.01


Net income per share - Basic


$

0.26



$

0.10



$

0.21









Net income per share — Diluted:







Continuing operations


$

0.25



$

0.10



$

0.20


Discontinued operations


$



$



$

0.01


Net income per share - Diluted


$

0.25



$

0.10



$

0.21









Weighted average shares:







Basic


497,335



493,663



503,790


Diluted


508,716



506,197



517,592



(a)     

Represents legal settlement and associated costs related to Luna shareholder litigation matter.

 

Marvell Technology Group Ltd.

Condensed Consolidated Balance Sheets (Unaudited)

(In thousands)








May 5, 2018


February 3, 2018

Assets





Current assets:





Cash and cash equivalents


$

1,167,258



$

888,482

Short-term investments


712,053



952,790

Accounts receivable, net


329,650



280,395

Inventories


169,556



170,039

Prepaid expenses and other current assets


38,868



41,482

Assets held for sale


30,707



30,767

Total current assets


2,448,092



2,363,955

Property and equipment, net


213,656



202,222

Goodwill


1,993,310



1,993,310

Other non-current assets


209,261



148,800

Total assets


$

4,864,319



$

4,708,287






Liabilities and Shareholders' Equity





Current liabilities:





Accounts payable


$

157,043



$

145,236

Accrued liabilities


180,117



86,958

Accrued employee compensation


105,601



127,711

Deferred income


1,880



61,237

Total current liabilities


444,641



421,142

Non-current income taxes payable


56,606



56,976

Other non-current liabilities


77,561



88,756

Total liabilities


578,808



566,874






Shareholders' equity:





Common stock


1,000



991

Additional paid-in capital


2,744,478



2,733,292

Accumulated other comprehensive loss


(2,404)



(2,322)

Retained earnings


1,542,437



1,409,452

Total shareholders' equity


4,285,511



4,141,413

Total liabilities and shareholders' equity


$

4,864,319



$

4,708,287

 

Marvell Technology Group Ltd.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)



Three Months Ended



May 5, 2018


April 29, 2017

Cash flows from operating activities:





Net income


$

128,612



$

106,621


Adjustments to reconcile net income to net cash provided by (used in) operating activities:





Depreciation and amortization


20,343



20,742


Share-based compensation


23,852



24,017


Amortization and write-off of acquired intangible assets




1,071


Restructuring related impairment charges (gain)




(516)


Gain from investments in privately-held companies


(1,100)




Amortization of premium /discount on available-for-sale securities


1,161



206


Other non-cash expense (income), net


813



(25)


Deferred income taxes


824



783


Loss on sale of property and equipment


17



58


Gain on sale of discontinued operations




(8,155)


Changes in assets and liabilities:





Accounts receivable


(47,393)



(21,763)


Inventories


2,680



(11,542)


Prepaid expenses and other assets


(14,108)



5,394


Accounts payable


14,744



31,423


Accrued liabilities and other non-current liabilities


21,236



(11,625)


Accrued employee compensation


(22,110)



(7,529)


Deferred income


(797)



5,016


Net cash provided by operating activities


128,774



134,176


Cash flows from investing activities:





Purchases of available-for-sale securities


(13,457)



(198,416)


Sales of available-for-sale securities


70,273



78,764


Maturities of available-for-sale securities


128,820



82,235


Purchases of time deposits


(25,000)



(75,000)


Maturities of time deposits


75,000



75,000


Purchases of technology licenses


(360)



(1,093)


Purchases of property and equipment


(13,588)



(9,741)


Proceeds from sales of property and equipment


11



685


Net proceeds from sale of discontinued operations




22,954


Other


(5,000)



7,275


Net cash provided by (used in) investing activities


216,699



(17,337)


Cash flows from financing activities:





Repurchases of common stock




(166,293)


Proceeds from employee stock plans


11,055



19,939


Minimum tax withholding paid on behalf of employees for net share settlement


(23,893)



(21,809)


Dividend payments to shareholders


(29,798)



(29,991)


Payments on technology license obligations


(20,461)



(6,815)


Payment of equity and debt financing costs


(3,600)




Net cash used in financing activities


(66,697)



(204,969)


Net increase (decrease) in cash and cash equivalents


278,776



(88,130)


Cash and cash equivalents at beginning of period


888,482



814,092


Cash and cash equivalents at end of period


$

1,167,258



$

725,962


 

Marvell Technology Group Ltd.

Reconciliations from GAAP to Non-GAAP (Unaudited)

(In thousands, except per share amounts)










Three Months Ended



May 5,

2018


February 3,
2018


April 29,
2017

GAAP gross profit:


$

375,693



$

373,482



$

345,511


Special items:







Share-based compensation


1,905



1,662



1,426


Other cost of goods sold (a)




8,000




Total special items


1,905



9,662



1,426


Non-GAAP gross profit


$

377,598



$

383,144



$

346,937









GAAP gross margin


62.1

%


60.7

%


60.3

%

Non-GAAP gross margin


62.5

%


62.3

%


60.6

%






















Total GAAP operating expenses


$

250,614



$

319,471



$

244,086


Special items:







Share-based compensation


(21,947)



(19,715)



(20,313)


Restructuring related (charges) gain (b)


(1,567)



3,205



(886)


Amortization of and write-off acquired intangible assets




(358)



(1,071)


Litigation settlement (c)




(74,385)




Other operating expenses (d)


(15,252)



(10,579)



(2,303)


Total special items


(38,766)



(101,832)



(24,573)


Total non-GAAP operating expenses


$

211,848



$

217,639



$

219,513























GAAP operating margin


20.7

%


8.8

%


17.7

%

Other cost of goods sold (a)


%


1.3

%


%

Share-based compensation


3.9

%


3.5

%


3.8

%

Restructuring related charges (gain) (b)


0.3

%


(0.5)

%


0.2

%

Amortization and write-off of acquired intangible assets


%


0.1

%


0.2

%

Litigation settlement (c)


%


12.1

%


%

Other operating expenses (d)


2.5

%


1.6

%


0.3

%

Non-GAAP operating margin


27.4

%


26.9

%


22.2

%






















GAAP interest and other income, net


$

7,296



$

4,788



$

3,333


Special items:







       Restructuring related items (e)


(1,512)



1,355




Total special items


(1,512)



1,355




Total non-GAAP interest and other income, net


$

5,784



$

6,143



$

3,333























GAAP net income


$

128,612



$

48,763



$

106,621


Less: Income from discontinued operations, net of tax






7,029


GAAP net income from continuing operations


128,612



48,763



99,592


Special items:







Other cost of goods sold (a)




8,000




Share-based compensation


23,852



21,377



21,739


Restructuring related charges (gain) in operating expenses (b)


1,567



(3,205)



886


Restructuring related items in interest and other income, net (e)


(1,512)



1,355




Amortization of and write-off acquired intangible assets




358



1,071


Litigation settlement (c)




74,385




Other operating expenses (d)


15,252



10,579



2,303


Pre-tax total special items


39,159



112,849



25,999


Other income tax effects and adjustments (f)


(3,098)



3,170



(64)


Non-GAAP net income from continuing operations


$

164,673



$

164,782



$

125,527























Weighted average shares — diluted


508,716



506,197



517,592


Non-GAAP adjustment


6,871



6,026



5,562


Non-GAAP weighted average shares — diluted (g)


515,587



512,223



523,154









GAAP diluted net income per share from continuing operations


$

0.25



$

0.10



$

0.20


Non-GAAP diluted net income per share from continuing operations


$

0.32



$

0.32



$

0.24




(a)

Other costs of goods sold in the three months ended February 3, 2018 include charges for past intellectual property licensing matters.



(b)

Restructuring related charges include employee severance, facilities related costs, and impairment of equipment.  Restructuring related charges in the three months ended February 3, 2018 includes the gain on sale of a building that was the direct result of restructuring.



(c)

Represents legal settlement and associated costs related to shareholder litigation matter.



(d)

Other operating expenses primarily include Cavium merger costs and costs of retention bonuses offered to employees who remained through the ramp down of certain operations due to restructuring actions.



(e)

Interest and other income, net includes restructuring related items such as foreign currency remeasurement associated with restructuring related accruals.



(f)

Other income tax effects and adjustments relate to tax provision based on a non-GAAP income tax rate of 4%.



(g)

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 (Unaudited)

(In thousands)





Three Months Ended


% Change


May 5, 2018


February 3, 2018


April 29, 2017


YoY


QoQ

Storage (1)

$

317,069



$

323,718



$

303,808



4

%


(2)

%

Networking (2)

153,734



155,340



144,815



6

%


(1)

%

Connectivity (3)

90,494



86,271



76,091



19

%


5

%

   Total Core

561,297



565,329



524,714



7

%


(1)

%

Other (4)

43,334



50,080



47,995



(10)

%


(13)

%

Total Revenue

$

604,631



$

615,409



$

572,709



6

%


(2)

%

 


Three Months Ended

% of Total

May 5, 2018


February 3, 2018


April 29, 2017

Storage (1)

52

%


53

%


53

%

Networking (2)

26

%


25

%


25

%

Connectivity (3)

15

%


14

%


13

%

   Total Core

93

%


92

%


91

%

Other (4)

7

%


8

%


9

%

Total Revenue

100

%


100

%


100

%


(1) Storage products are comprised primarily of HDD, SSD Controllers and Data Center 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.

For further information, contact:
T. Peter Andrew
Vice President, Treasury and Investor Relations
408-222-0777
ir@marvell.com

Marvell is a world leader in storage, cloud infrastructure, Internet of Things (IoT), connectivity and multimedia semiconductor solutions.

 

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SOURCE Marvell Technology Group Ltd.

Contact Us

T. Peter Andrew

Vice President, Treasury and Investor Relations

Phone: (408) 222-0777

E-mail: ir@marvell.com

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