Marvell Technology Group Ltd. Reports Second Quarter of Fiscal Year 2015 Financial Results

SANTA CLARA, Calif., Aug. 21, 2014 /PRNewswire/ -- Marvell Technology Group Ltd. (NASDAQ: MRVL), a global leader in integrated silicon solutions, today reported financial results for the second quarter of fiscal year 2015, ended August 2, 2014.

Key Second Quarter of Fiscal 2015 Financial Highlights

  • Revenue: Q2 FY 2015, $962 Million
  • GAAP Net Income: Q2 FY 2015, $139 Million
  • GAAP Diluted EPS: Q2 FY 2015, $0.27
  • Non-GAAP Net Income: Q2 FY 2015, $181 Million
  • Non-GAAP Diluted EPS: Q2 FY 2015, $0.34
  • Free Cash Flow: Q2 FY 2015, $137 Million

Third Quarter of Fiscal 2015 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 August 20, 2014.

  • Revenue is expected to be in the range of $960 Million to $1 Billion.
  • GAAP Gross Margin is expected to be in the range of 49.7% +/- 100 bps. Non-GAAP Gross Margin is expected to be in the range of 50.0% +/- 100 bps.
  • GAAP Operating Expenses are expected to be in the range of $370 Million +/- $10 Million. Non-GAAP Operating Expenses to be in the range of $330 Million +/- $10 Million.
  • GAAP Diluted EPS expected to be in the range of $0.21 +/- $0.02. Non-GAAP Diluted EPS expected to be in the range of $0.29 +/- $0.02.

Second Quarter of Fiscal 2015 Summary

Revenue for the second quarter of fiscal 2015 was $962 million, approximately flat from $958 million in the first quarter of fiscal 2015, ended May 3, 2014, and a 19 percent increase from revenue of $807 million in the second quarter of fiscal 2014, ended August 3, 2013.  

GAAP net income for the second quarter of fiscal 2015 was $139 million, or $0.27 per share (diluted), compared with GAAP net income of $99 million, or $0.19 per share (diluted), for the first quarter of fiscal 2015, and $62 million, or $0.12 per share (diluted), for the second quarter of fiscal 2014.   

Non-GAAP net income was $181 million, or $0.34 per share (diluted), for the second quarter of fiscal 2015, compared with non-GAAP net income of $144 million, or $0.27 per share (diluted), for the first quarter of fiscal 2015 and $118 million, or $0.23 per share (diluted), for the second quarter of fiscal 2014.

Marvell reports net income, basic and diluted net income per share, in accordance with U.S. generally accepted accounting principles (GAAP) and on a non-GAAP basis as outlined below. Reconciliations of GAAP net income to non-GAAP net income for the three months ended August 2, 2014, May 3, 2014 and August 3, 2013 appear in the financial statements below. Non-GAAP net income, where applicable, excludes the effect of share-based compensation, amortization and write-off of acquired intangible assets, acquisition-related costs, restructuring and other exit related costs, and certain one-time expenses and benefits. 

GAAP gross margin for the second quarter of fiscal 2015 was 50.3 percent, compared to 48.4 percent for the first quarter of fiscal 2015 and 52.2 percent for the second quarter of fiscal 2014.  

Non-GAAP gross margin for the second quarter of fiscal 2015 was 50.6 percent, compared to 48.8 percent for the first quarter of fiscal 2015 and 53.0 percent for the second quarter of fiscal 2014.

Shares used to compute GAAP net income per diluted share for the second quarter of fiscal 2015 were 520 million shares, compared with 521 million shares in the first quarter of fiscal 2015         and 501 million shares in the second quarter of fiscal 2014.

Shares used to compute non-GAAP net income per diluted share for the second quarter of fiscal 2015 were 533 million shares, compared with 530 million shares for the first quarter of fiscal 2015 and 516 million shares for the second quarter of fiscal 2014.

Cash flow from operations for the second quarter of fiscal 2015 was $157 million, compared to the $235 million reported in the first quarter of fiscal 2015 and the $86 million reported in the second quarter of fiscal 2014. Free cash flow for the second quarter of fiscal 2015 was $137 million, compared to the $211 million reported in the first quarter of fiscal 2015 and the $65 million reported in the second quarter of fiscal 2014. Free cash flow as presented above is defined as cash flow from operations, less capital expenditures and purchases of technology licenses reported under investing and financing activities in the consolidated statement of cash flows.  

Marvell paid a quarterly dividend of $0.06 per share on July 2, 2014 to all shareholders of record as of June 12, 2014. Marvell intends to pay its next quarterly dividend of $0.06 per share on October 2, 2014 to all shareholders of record as of September 11, 2014.

The payment of future quarterly cash dividends on Marvell's common shares is subject to, among other things, the best interests of its shareholders, its results of operations, cash balances and future cash requirements, financial condition, developments in ongoing litigation, statutory requirements of Bermuda law, and other factors that the board of directors may deem relevant.

Conference Call

Marvell will be conducting a conference call on Thursday, August 21, 2014 at 1:45 p.m. Pacific Time to discuss results for the second quarter of fiscal year 2015. Interested parties may join the conference call by dialing 1- 866-318-8619 or 1-617-399-5138, pass-code 56522168.  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 21, 2014.    

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 exit-related costs, litigation settlement, and certain one-time 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 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 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 proceeds assumed to be used to repurchase shares under the GAAP treasury stock method and also include the dilutive/anti-dilutive effects of common stock options and restricted stock units. 

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, the information provided by GAAP financial measures. 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. For further information regarding why Marvell believes that these non-GAAP measures provide useful information to investors, the specific manner in which management uses these measures, and some of the limitations associated with the use of these measures, please refer to Marvell's Current Report on Form 8-K filed today with the SEC. The Form 8-K is available on the SEC's website at www.sec.gov as well as on the Marvell website in the Investor Relations section at www.marvell.com.

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 and statements regarding its financial outlook for the third quarter of fiscal 2015; its dividend program including the declaration of, timing of, funding of, payment of and quarterly amount of dividends; and its use of non-GAAP financial measures as important supplemental information. Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," "can," "will" 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, among others: Marvell's reliance on a few customers for a significant portion of its revenue; costs and liabilities relating to current and future litigation; 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; Marvell's ability to compete in products and prices in an intensely competitive industry; uncertainty in the worldwide economic conditions; Marvell's ability to recruit and retain skilled personnel; and other risks detailed in Marvell's SEC filings from time to time. When Marvell files its Quarterly Report on Form 10-Q for the second quarter of fiscal 2015, the financial statements may differ from the results disclosed in this press release because judgments and estimates that management used in preparing the financial results reported in this press release may need to be updated to the date of the filing. For other factors that could cause Marvell's results to vary from expectations, please see the risk factors identified in the Marvell's latest Quarterly Report on Form 10-Q for the quarter ended May 3, 2014 as filed with the SEC, 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 and Kinoma® software enabling the "Smart Life and Smart Lifestyle." From mobile communications to storage, Internet of Things (IoT), cloud infrastructure, digital entertainment and in-home content delivery, 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, private 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.

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 Technology Group Ltd.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except per share amounts)
















Three Months Ended


Six Months Ended




August 2,


May 3,


August 3,


August 2,


August 3,




2014


2014


2013


2014


2013













Net revenue

$ 961,545


$ 957,830


$ 807,056


$ 1,919,375


$ 1,541,425

Cost of goods sold

477,741


493,860


386,059


971,601


721,497

Gross profit

483,804


463,970


420,997


947,774


819,928

Operating expenses:











Research and development

294,764


295,363


292,642


590,127


571,694


Selling and marketing

33,949


38,358


38,548


72,307


78,537


General and administrative

31,333


30,573


27,192


61,906


53,515


Amortization and write-off of acquired intangible assets

3,304


6,689


10,638


9,993


21,324



Total operating expenses

363,350


370,983


369,020


734,333


725,070

Operating income

120,454


92,987


51,977


213,441


94,858

Interest and other income, net

12,263


1,925


8,253


14,188


11,413

Income before income taxes

132,717


94,912


60,230


227,629


106,271

Benefit for income taxes

(6,153)


(4,567)


(1,596)


(10,720)


(8,764)

Net income

$ 138,870


$   99,479


$   61,826


$    238,349


$    115,035













Basic net income per share

$       0.27


$       0.20


$       0.13


$          0.47


$          0.23

Diluted net income per share

$       0.27


$       0.19


$       0.12


$          0.46


$          0.23













Shares used in computing basic earnings per share

511,821


505,105


494,293


508,463


498,237

Shares used in computing diluted earnings per share

520,269


520,751


500,625


520,510


503,006













 

Marvell Technology Group Ltd.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands)






















August 2,


February 1,

Assets

2014


2014

Current assets:





Cash, cash equivalents and short-term investments

$ 2,300,004


$ 1,969,405


Accounts receivable, net

498,484


453,496


Inventories

393,957


347,861


Prepaid expenses and other current assets

96,561


68,458



Total current assets

3,289,006


2,839,220

Property and equipment, net

344,836


356,165

Long-term investments

13,422


16,279

Goodwill and acquired intangible assets, net

2,068,017


2,078,980

Other non-current assets

150,413


160,366



Total assets

$ 5,865,694


$ 5,451,010







Liabilities and Shareholders' Equity




Current liabilities:





Accounts payable

$    415,718


$    316,389


Accrued liabilities

293,378


273,170


Deferred income

82,887


61,747



Total current liabilities

791,983


651,306

Other non-current liabilities

112,177


123,794



Total liabilities

904,160


775,100







Shareholders' equity:





Common stock

1,028


1,005


Additional paid-in capital

3,049,864


2,941,650


Accumulated other comprehensive income

627


597


Retained earnings

1,910,015


1,732,658



Total shareholders' equity

4,961,534


4,675,910



Total liabilities and shareholders' equity

$ 5,865,694


$ 5,451,010







 


Marvell Technology Group Ltd.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

















Three Months Ended



Six Months Ended





August 2,


August 3,



August 2,


August 3,





2014


2013



2014


2013

Cash flows from operating activities:









Net income

$    138,870


$   61,826



$    238,349


$ 115,035

Adjustments to reconcile net income to net cash provided by operating activities:










Depreciation and amortization

26,263


25,697



53,269


50,663


Share-based compensation

35,020


41,091



64,989


74,604


Amortization and write-off of acquired intangible assets

3,789


10,638



10,963


21,324


Other expense (income), net

(7,596)


1,816



(6,126)


4,339


Excess tax benefits from share-based compensation

(32)


(25)



(76)


(32)


Changes in assets and liabilities:











Accounts receivable

33,419


(60,524)



(30,159)


(100,636)



Inventories

(43,194)


(64,170)



(46,299)


(84,293)



Prepaid expenses and other assets

(24,996)


12,503



(27,157)


19,305



Accounts payable

2,558


54,933



87,686


83,869



Accrued liabilities and other non-current liabilities

10,096


(13,013)



2,962


(33,094)



Accrued employee compensation

(7,451)


(471)



22,550


3,952



Deferred income

(9,792)


16,195



21,140


15,315




Net cash provided by operating activities

156,954


86,496



392,091


170,351

Cash flows from investing activities:










Purchases of available-for-sale securities

(153,881)


(164,631)



(335,770)


(471,469)


Sales and maturities of available-for-sale securities

190,099


162,909



372,410


498,680


Investments in privately-held companies


(750)



(441)


(750)


Cash paid for acquisitions, net





(2,551)


Purchases of technology licenses

(1,298)


(1,750)



(9,409)


(7,610)


Purchases of property and equipment

(15,823)


(18,981)



(31,954)


(39,061)




Net cash provided by (used in) investing activities

19,097


(23,203)



(5,164)


(22,761)

Cash flows from financing activities:










Repurchase of common stock (a)


(88,114)




(304,808)


Proceeds from employee stock plans

49,282


53,316



68,374


73,121


Minimum tax withholding paid on behalf of employees 










 for net share settlement

(637)


(510)



(24,923)


(9,888)


Dividend payments to shareholders

(30,820)


(29,791)



(60,992)


(60,044)


Payments on technology license obligations

(2,677)


(984)



(2,677)


(6,301)


Excess tax benefits from share-based compensation

32


25



76


32




Net cash provided by (used in) financing activities

15,180


(66,058)



(20,142)


(307,888)

Net increase (decrease) in cash and cash equivalents

191,231


(2,765)



366,785


(160,298)

Cash and cash equivalents at beginning of period

1,141,304


594,420



965,750


751,953

Cash and cash equivalents at end of period

$ 1,332,535


$ 591,655



$ 1,332,535


$ 591,655













(a)

Marvell records all repurchases as well as investment purchases and sales, based on trade date in accordance with U.S. GAAP. There were no repurchases of common stock in the three and six months ended August 2, 2014.

 


Marvell Technology Group Ltd.

Reconciliations from GAAP to Non-GAAP

(Unaudited)

(In thousands, except per share amounts)














Three Months Ended

Six Months Ended



August 2,


May 3,


August 3,


August 2,


August 3,



2014


2014


2013


2014


2013












GAAP net income

$ 138,870


$   99,479


$   61,826


$ 238,349


$ 115,035

Share-based compensation

35,020


29,969


41,091


64,989


74,604

Amortization and write-off of acquired intangible assets

4,229


7,614


10,638


11,843


21,324

Acquisition-related costs (a)

-


-


(1,081)


-


(616)

Restructuring and other exit-related costs (b)

735


5,088


178


5,823


406

Litigation settlement (c)

475


2,000


5,228


2,475


5,228

Other (d)

2,155


-


-


2,155



Non-GAAP net income

$ 181,484


$ 144,150


$ 117,880


$ 325,634


$ 215,981












GAAP weighted average shares - diluted

520,269


520,751


500,625


520,510


503,006


Non-GAAP adjustment

13,201


9,625


15,021


11,413


16,058

Non-GAAP weighted average shares diluted (e)

533,470


530,376


515,646


531,923


519,064












GAAP diluted net income per share

$       0.27


$       0.19


$       0.12


$       0.46


$       0.23

Non-GAAP diluted net income per share 

$       0.34


$       0.27


$       0.23


$       0.61


$       0.42












GAAP gross profit:

$ 483,804


$ 463,970


$ 420,997


$ 947,774


$ 819,928


Share-based compensation

1,733


2,299


1,868


4,032


3,735


Amortization of acquired intangible assets

925


925


-


1,850


-


Litigation settlement (c)

-


-


4,728


-


4,728

Non-GAAP gross profit

$ 486,462


$ 467,194


$ 427,593


$ 953,656


$ 828,391












GAAP gross margin

50.3%


48.4%


52.2%


49.4%


53.2%


Share-based compensation

0.2%


0.3%


0.2%


0.2%


0.2%


Amortization of acquired intangible assets

0.1%


0.1%


-


0.1%


-


Litigation settlement (c)

-


-


0.6%


-


0.3%

Non-GAAP gross margin

50.6%


48.8%


53.0%


49.7%


53.7%












GAAP research and development:

$ 294,764


$ 295,363


$ 292,642


$ 590,127


$ 571,694


Share-based compensation

(24,276)


(20,368)


(28,982)


(44,644)


(52,261)


Acquisition-related costs (a)

-


-


1,135


-


735


Restructuring and other exit-related costs (b)

(412)


(4,682)


-


(5,094)


-

Non-GAAP research and development

$ 270,076


$ 270,313


$ 264,795


$ 540,389


$ 520,168












GAAP selling and marketing:

$   33,949


$   38,358


$   38,548


$   72,307


$   78,537


Share-based compensation

(2,617)


(2,928)


(3,648)


(5,545)


(7,040)


Acquisition-related costs (a)

-


-


(34)


-


(79)


Restructuring and other exit-related costs (b)

48


(48)


-


-


-

Non-GAAP selling and marketing

$   31,380


$   35,382


$   34,866


$   66,762


$   71,418












GAAP general and administrative:

$   31,333


$   30,573


$   27,192


$   61,906


$   53,515


Share-based compensation

(6,394)


(4,374)


(6,593)


(10,768)


(11,568)


Acquisition-related costs (a)

-


-


(20)


-


(40)


Restructuring and other exit-related costs (b)

(371)


(358)


(178)


(729)


(406)


Litigation settlement (c)

(475)


(2,000)


(500)


(2,475)


(500)


Other (d)

(2,155)






(2,155)



Non-GAAP general and administrative

$   21,938


$   23,841


$   19,901


$   45,779


$   41,001












(a)

Acquisition-related costs include the amortization of retention bonuses required by the terms of an acquisition. 



(b)

Restructuring and other exit-related costs include costs that qualify under U.S. GAAP as restructuring costs, as well as operating expenses related to assets classified as held-for-sale that did not qualify as discontinued operations.



(c)

The amounts recorded do not relate to Marvell's litigation with Carnegie Mellon University. 



(d)

Costs associated with the surety bond to appeal the Carnegie Mellon University judgment.



(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.

 

Marvell Technology Group Ltd.

Reconciliations from GAAP to Non-GAAP Outlook

(Unaudited)

(In millions, except per share amounts)















Q3 FY2015


Note : Amounts represent the midpoint of the expected range

Outlook










GAAP gross margin

49.7%



Share-based compensation, amortization of intangible assets and other

0.3%


Non-GAAP gross margin

50.0%








Q3 FY2015




Outlook






GAAP operating expenses

$          370



Share-based compensation, restructuring,




amortization of intangible assets and other

(40)


Non-GAAP operating expenses

$          330








Q3 FY2015




Outlook






GAAP diluted earnings per share

$         0.21



Share-based compensation, restructuring,




amortization of intangible assets and other

0.08


Non-GAAP diluted earnings per share

$         0.29






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SOURCE Marvell Technology Group Ltd.



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