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Marvell Technology Group Ltd.$21.62($.03)(.14%)

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 Marvell Technology Group Ltd. Reports Second Quarter of Fiscal Year 2018 Financial Results
   Thursday, August 24, 2017 4:05:00 PM ET

Marvell Technology Group Ltd. (MRVL ), a leader in storage, networking and connectivity semiconductor solutions, today reported financial results for the second fiscal quarter of fiscal year 2018. Revenue for the second quarter of fiscal 2018 was $605 million, which exceeded the midpoint of the Company’s guidance provided on May 25, 2017.

GAAP net income from continuing operations for the second quarter of fiscal 2018 was $135 million, or $0.26 per share. Non-GAAP net income from continuing operations for the second quarter of fiscal 2018 was $153 million, or $0.30 per diluted share. Cash flow from operations for the second quarter was $101 million.

"I am pleased to report that our second quarter results demonstrated Marvell’s continued transformation as a company, achieving revenue above the midpoint of our guidance, improved profitability and continued return of capital to shareholders," said Matt Murphy, Marvell’s President and CEO. "I’m proud of our team -- in a competitive environment, we are delivering innovative solutions that our customers clearly value."

Third Quarter of Fiscal 2018 Financial Outlook

-- Revenue is expected to be $595 million to $625 million.

-- GAAP and non-GAAP gross margins are expected to be approximately 61% to 62%.

-- GAAP operating expenses are expected to be $230 million to $240 million.

-- Non-GAAP operating expenses are expected to be $205 million to $210 million.

-- GAAP diluted EPS from continuing operations is expected to be in the range of $0.25 to $0.31 per share.

-- Non-GAAP diluted EPS from continuing operations is expected to be in the range of $0.30 to $0.34 per share.

Discontinued Operations

The Company’s financial results for prior periods presented herein have been recast to reflect certain businesses that were classified as discontinued operations during the fourth quarter of fiscal year 2017 and second quarter of fiscal year 2018.

Conference Call

Marvell will conduct a conference call on Thursday, August 24, 2017 at 1:45 p.m. Pacific Time to discuss results for the second quarter of fiscal 2018. Interested parties may join the conference call by dialing 1-844-647-5488 or 1-615-247-0258, pass-code 57564938. The call will be webcast by Thomson Reuters and can be accessed at the Marvell Investor Relations website at http://investor.marvell.com/ with a replay available following the call until September 1, 2017.

Discussion of Non-GAAP Financial Measures

Non-GAAP financial measures exclude the effect of share-based compensation expense, amortization and write-off of acquired intangible assets, acquisition-related costs, restructuring and other related charges, litigation settlement, and certain expenses and benefits that are driven primarily by discrete events that management does not consider to be directly related to Marvell’s core operating performance.

In fiscal 2018, Marvell began using a non-GAAP tax rate to compute the non-GAAP tax provision. This non-GAAP tax rate is based on Marvell’s estimated annual GAAP income tax forecast, adjusted to account for items excluded from GAAP income in calculating Marvell’s non-GAAP income, as well as the effects of significant non-recurring and period specific tax items which vary in size and frequency. Marvell’s non-GAAP tax rate is determined on an annual basis and may be adjusted during the year to take into account events that may materially affect the non-GAAP tax rate such as tax law changes; significant changes in Marvell’s geographic mix of revenue and expenses; or changes to Marvell’s corporate structure. For the second quarter of fiscal 2018, a non-GAAP tax rate of 4% has been applied to the non-GAAP financial results.

Non-GAAP diluted net income per share from continuing operations is calculated by dividing non-GAAP net income from continuing operations by non-GAAP weighted average shares outstanding (diluted). For purposes of calculating non-GAAP diluted net income per share, the GAAP weighted average shares outstanding (diluted) is adjusted to exclude the potential benefits of share-based compensation expected to be incurred in future periods but not yet recognized in the financial statements. The expected compensation costs are treated as additional proceeds assumed to be used to repurchase shares under the GAAP treasury stock method.

Marvell believes that the presentation of non-GAAP financial measures provide important supplemental information to management and investors regarding financial and business trends relating to Marvell’s financial condition and results of operations. While Marvell uses non-GAAP financial measures as a tool to enhance its understanding of certain aspects of its financial performance, Marvell does not consider these measures to be a substitute for, or superior to, financial measures calculated in accordance with GAAP. Consistent with this approach, Marvell believes that disclosing non-GAAP financial measures to the readers of its financial statements provides such readers with useful supplemental data that, while not a substitute for GAAP financial measures, allows for greater transparency in the review of its financial and operational performance.

Externally, management believes that investors may find Marvell’s non-GAAP financial measures useful in their assessment of Marvell’s operating performance and the valuation of Marvell. Internally, Marvell’s non-GAAP financial measures are used in the following areas:

-- Management’s evaluation of Marvell’s operating performance;

-- Management’s establishment of internal operating budgets;

-- Management’s performance comparisons with internal forecasts and targeted business models; and

-- Management’s determination of the achievement and measurement of certain performance-based equity awards (adjustments may vary from award to award).

Non-GAAP financial measures have limitations in that they do not reflect all of the costs associated with the operations of Marvell’s business as determined in accordance with GAAP. As a result, you should not consider these measures in isolation or as a substitute for analysis of Marvell’s results as reported under GAAP. Marvell expects to continue to incur expenses similar to the non-GAAP adjustments described above, and exclusion of these items from Marvell’s non-GAAP net income should not be construed as an inference that these costs are unusual, infrequent or non-recurring.

Forward-Looking Statements under the Private Securities Litigation Reform Act of 1995

This press release contains forward-looking statements within the meaning of the federal securities laws that involve risks and uncertainties, including: Marvell’s expectations regarding its third quarter of fiscal 2018 financial outlook; and Marvell’s use of non-GAAP financial measures as important supplemental information. Words such as "anticipates," "expects," "intends," "plans," "projects," "believes," "seeks," "estimates," "can," "may," "will," "would" and similar expressions identify such forward-looking statements. These statements are not guarantees of results and should not be considered as an indication of future activity or future performance. Actual events or results may differ materially from those described in this press release due to a number of risks and uncertainties, including, but not limited to: Marvell’s ability to successfully restructure its operations within its anticipated timeframe announced in November 2016 and with the anticipated amounts of costs and savings; Marvell’s dependence upon the storage, networking and connectivity markets, which are highly cyclical and intensely competitive; the outcome of pending or future litigation and legal and regulatory proceedings; Marvell’s dependence on a small number of customers; severe financial hardship or bankruptcy of one or more of Marvell’s major customers; Marvell’s ability and the ability of its customers to successfully compete in the markets in which it serves; Marvell’s reliance on independent foundries and subcontractors for the manufacture, assembly and testing of its products; Marvell’s ability and its customers’ ability to develop new and enhanced products and the adoption of those products in the market; decreases in gross margin and results of operations in the future due to a number of factors; Marvell’s ability to estimate customer demand and future sales accurately; Marvell’s ability to scale its operations in response to changes in demand for existing or new products and services; the impact of international conflict and continued economic volatility in either domestic or foreign markets; the effects of transitioning to smaller geometry process technologies; the risks associated with manufacturing and selling a majority of products and customers’ products outside of the United States; risks associated with acquisition and consolidation activity in the semiconductor industry; the impact of any change in the income tax laws in jurisdictions where Marvell operates and the loss of any beneficial tax treatment that Marvell currently enjoys; the effects of any potential acquisitions or investments; Marvell’s ability to protect its intellectual property; the impact and costs associated with changes in international financial and regulatory conditions; Marvell’s maintenance of an effective system of internal controls; and other risks detailed in Marvell’s SEC filings from time to time. For other factors that could cause Marvell’s results to vary from expectations, please see the risk factors identified in Marvell’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 29, 2017 as filed with the SEC on June 5, 2017, and other factors detailed from time to time in Marvell’s filings with the SEC. Marvell undertakes no obligation to revise or update publicly any forward-looking statements.

About Marvell

Marvell first revolutionized the digital storage industry by moving information at speeds never thought possible. Today, that same breakthrough innovation remains at the heart of the Company’s storage, networking and connectivity solutions. With leading intellectual property and deep system-level knowledge, Marvell’s semiconductor solutions continue to transform the enterprise, cloud, automotive, industrial, and consumer markets. To learn more, visit: www.marvell.com.

Marvell? and the Marvell logo are registered trademarks of Marvell and/or its affiliates.

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

For further information, contact:T. Peter AndrewVice President, Investor Relations408-222-0777ir@marvell.com

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