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Marvell Technology Group Ltd. Reports Second Quarter of Fiscal 2017 Financial Results
- Revenue: $626 Million
- GAAP Gross Margin 54.1 percent; Non-GAAP Gross Margin 54.6 percent
- GAAP Net Income $51 Million; Non-GAAP Net Income: $92 Million
- GAAP Diluted EPS: $0.10; Non-GAAP Diluted EPS $0.18
- Cash and ST Investments: $1.6 Billion

SANTA CLARA, Calif., Sept. 6, 2016 /PRNewswire/ -- Marvell (NASDAQ:MRVL), a world leader in storage, cloud infrastructure, Internet of Things (IoT), connectivity and multimedia semiconductor solutions, today reported financial results for the second quarter of fiscal year 2017, ended July 30, 2016.  Revenues for the second quarter of fiscal 2017 were $626 million, up approximately 16 percent from $541 million in the prior quarter and down approximately 12 percent from the same quarter of last year.

"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 $9 million, down from $22 million in the first quarter, reflecting the anticipated declines due to the restructuring actions announced on September 24, 2015. 

Net income on a GAAP basis for the second quarter of fiscal 2017 was $51 million, or $0.10 per diluted share. On a non-GAAP basis, net income for the second fiscal quarter of 2017 was $92 million, or $0.18 per diluted share.

Third Quarter of Fiscal 2017 Financial Outlook
Marvell's financial outlook does not include the potential impact of future share repurchases, pending litigation matters, business combinations, asset acquisitions or other investments that may be completed after September 5, 2016.

  • 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, Marvell reported Non-GAAP diluted net income per share of $0.01.  Subsequent to our earnings release on July 27, 2016, the Company discovered an error in the calculation of reported Non-GAAP tax benefit for income tax for the first quarter of fiscal 2017 which resulted in an understatement of our Non-GAAP net income and Non-GAAP EPS (diluted).  After correction of this error, Non-GAAP net income increased from $6.5 million, as reported, to $9.3 million, as adjusted, and Non-GAAP EPS (diluted) increased from $0.01 to $0.02 per share.  This error had no effect on the Company's reported GAAP results for the first quarter of fiscal 2017.  Refer to the Reconciliation from GAAP to Non-GAAP table and related footnotes at the end of the press release for more details.

Conference Call
Marvell will conduct a conference call on Tuesday, September 6, 2016 at 8:15 a.m. Eastern Time (5:15 a.m. Pacific Time) to discuss results for the second quarter of fiscal year 2017. Interested parties may join the conference call by dialing 1-844-647-5488 or 1-615-247-0258, pass-code 63627351.  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 October 6, 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 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. 

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 third 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: 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 hire a Chief Accounting Officer and Controller in a timely manner; Marvell's ability to compete in products and prices in an intensely competitive industry; Marvell's reliance on the hard disk drive and mobile 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'sSEC 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 30, 2016 as filed with the SEC on August 10, 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 (NASDAQ: MRVL) is a global leader in providing complete silicon solutions. From storage to cloud infrastructure, Internet of Things (IoT), connectivity and multimedia, Marvell's diverse product portfolio aligns complete platform designs with industry-leading performance, security, reliability and efficiency. At the core of the world's most powerful consumer, network and enterprise systems, Marvell empowers partners and their customers to always stand at the forefront of innovation, performance and mass appeal. By providing people around the world with mobility and ease of access to services, adding value to their social, personal and work lives, Marvell is committed to enhancing the human experience.

As used in this release, the term "Marvell" refers to Marvell Technology Group Ltd. and its subsidiaries. For more information, please 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 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.

 

 

 

For further information, contact:

John Spencer Ahn

Sue Kim

Investor Relations

Media Relations

408-222-7544

408-222-1942

johnahn@marvell.com

suekim@marvell.com

 

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

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