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Mellanox Technologies, Ltd. Announces Fourth Quarter 2012 and Record Fiscal Year Financial Results

  Mellanox Technologies, Ltd. Announces Fourth Quarter 2012 and Record Fiscal
  Year Financial Results

             68.0 Percent Quarterly Year-over-Year Revenue Growth
              93.2 Percent Annual Year-over-Year Revenue Growth
Annual Cash Flow from Operations of $182.5 Million, Representing 36 Percent of
                                   Revenues
      Increased Silicon Unit Shipments 95 Percent Annual Year-over-Year

Business Wire

SUNNYVALE, Calif. & YOKNEAM, Israel -- January 23, 2013

Mellanox® Technologies, Ltd. (NASDAQ: MLNX) (TASE: MLNX), a leading supplier
of end-to-end connectivity solutions for servers and storage systems, today
announced financial results for its fourth quarter and record results for the
fiscal year 2012.

Fourth Quarter and 2012 Fiscal Year Highlights

  *Revenues were $122.1 million in the fourth quarter, and $500.8 million in
    2012
  *GAAP gross margins were 68.1 percent in the fourth quarter, and 68.5
    percent in 2012
  *Non-GAAP gross margins were 70.0 percent in the fourth quarter, and 70.3
    percent in 2012
  *GAAP fourth quarter operating income was $23.9 million, and $118.3 million
    in 2012
  *Non-GAAP operating income was $36.2 million in the fourth quarter, and
    $162.6 million in 2012
  *GAAP net income was $18.4 million in the fourth quarter, and $111.4
    million in 2012
  *Non-GAAP net income was $30.7 million in the fourth quarter, and $155.7
    million in 2012
  *GAAP net income per diluted share was $0.41 in the fourth quarter, and
    $2.54 in 2012
  *Non-GAAP net income per diluted share was $0.69 in the fourth quarter, and
    was $3.60 in 2012
  *$25.4 million in cash was provided by operating activities during the
    fourth quarter
  *Annual cash flow from operations of $182.5 million, representing 36.4
    percent of revenues
  *Cash and investments totaled $426.3 million at December 31, 2012
  *1.1 million silicon units shipped in 2012

Financial Results

In accordance with U.S. generally accepted accounting principles (GAAP), the
company reported revenue of $122.1 million for the fourth quarter, down 22.0
percent from $156.5 million in the third quarter of 2012, and up 68.0 percent
from $72.7 million in the fourth quarter of 2011. For the year ended December
31, 2012, revenue was a record $500.8 million, an increase of 93.2 percent
from revenue of $259.3 million reported in 2011.

GAAP gross margins in the fourth quarter of 2012 were 68.1 percent, compared
with 69.1 percent in the third quarter of 2012 and 64.0 percent in the fourth
quarter of 2011. GAAP gross margins in 2012 were 68.5 percent, compared with
64.5 percent in 2011.

Non-GAAP gross margins in the fourth quarter of 2012 were 70.0 percent,
compared with 70.5 percent in the third quarter of 2012 and 67.0 percent in
the fourth quarter of 2011. Non-GAAP gross margins in 2012 were 70.3 percent,
compared with 68.1 percent in 2011.

GAAP net income in the fourth quarter of 2012 was $18.4 million or $0.41 per
diluted share, compared with net income of $48.4 million or $1.09 per diluted
share in the third quarter of 2012 and net income of $4.7 million or $0.11 per
diluted share in the fourth quarter of 2011.

Non-GAAP net income in the fourth quarter of 2012 was $30.7 million, or $0.69
per diluted share, compared with $60.1 million or $1.37 per diluted share in
the third quarter of 2012, and $13.1 million, or $0.31 per diluted share in
the fourth quarter of 2011. The fourth quarter 2012 non-GAAP net income
excludes $10.0 million of share-based compensation expenses compared to $9.4
million in the third quarter of 2012, and $6.1 million in the fourth quarter
of 2011. The fourth quarter 2012 non-GAAP net income also excludes
amortization of acquired intangible assets of $2.3 million associated with the
acquisition of Voltaire, Ltd. on February 7, 2011 consistent with such
amortization expenses in the third quarter of 2012, and compared to $2.4
million in the fourth quarter of 2011.

GAAP net income in 2012 was a record $111.4 million or $2.54 per diluted
share, compared to $10.0 million or $0.26 per diluted share in 2011.

Non-GAAP net income in 2012 was a record $155.7 million, or $3.60 per diluted
share, compared to $45.6 million or $1.16 per diluted share in 2011. 2012
non-GAAP net income excludes $35.0 million of share-based compensation
expenses and amortization of acquired intangible assets of $9.3 million
associated with the acquisition of Voltaire, Ltd. on February 7, 2011. 2011
non-GAAP net income excludes $21.4 million of share-based compensation
expenses, amortization of acquired intangible assets of $9.8 million
associated with the acquisition of Voltaire, Ltd. on February 7, 2011 and
acquisition related expenses of $4.4 million.

Total cash and investments increased $184.9 million to $426.3 million at
December 31, 2012 compared to $241.4 million at year-end 2011. The company
generated $25.4 million in cash from operating activities in the fourth
quarter, and a record $182.5 million for the year.

“We are proud of our results for 2012, which was an outstanding year. Mellanox
achieved record levels of revenue, cash flow and profitability, driven by
growth in our strong product offerings and penetration into new and existing
markets. We doubled the volume of silicon unit devices shipped from 2011 to
2012 to a record 1.1 million, highlighting our increased market share growth,”
said Eyal Waldman, chairman, president and CEO of Mellanox Technologies. “We
are disappointed we did not meet our revenue guidance for the fourth quarter.
Our results were impacted by a weaker demand environment, challenging
macroeconomic conditions, a build-up of inventory at an OEM customer, and a
technical issue which was resolved during the quarter.”

Recent Mellanox Press Release Highlights

  *Jan. 21 - OrionVM Enterprise Selects Mellanox InfiniBand for their Private
    and Public Clouds
  *Dec. 10 - Mellanox InfiniBand Helps Accelerate Teradata Aster Big
    Analytics Appliance
  *Nov. 13 - InfiniBand Leadership Continues to Grow; Now Connecting 224
    Systems on the TOP500, Nearly 20 Percent More than Ethernet
  *Nov. 12 - Mellanox Connect-IB InfiniBand Adapter Achieves World Record
    Performance Results
  *Nov. 12 - Mellanox Introduces MetroX - Long Haul InfiniBand Switch
    Solutions
  *Nov. 12 - Mellanox InfiniBand Solutions Enable New Levels of Research at
    Brookhaven National Laboratory
  *Nov. 12 - Mellanox Expands Line of FDR 56Gb/s InfiniBand Switch Solutions
    with 12-port Switch System for Small Scale, Storage and Embedded
    Applications
  *Nov. 12 - Mellanox Announces Unified Fabric Manager (UFM-SDN) Data Center
    Appliance and UFM Software Version 4.0
  *Oct. 31- Sakura Internet Selects Mellanox InfiniBand for New Public Cloud
    Infrastructure
  *Oct. 22 - Mellanox Announces Creation of Federal Government Subsidiary to
    Expand Mellanox's Engagements with U.S. Government

Conference Calls

Mellanox will broadcast its fourth quarter and fiscal year 2012 financial
results conference call today at 2 p.m. Pacific Time to discuss the company’s
fourth quarter 2012 financial results. To listen to the call, dial
+1-785-424-1834 approximately 10 minutes prior to the start time.

Mellanox also plans to conduct a conference call on Thursday, January 24 at 9
a.m. Israel Time to discuss the company’s fourth quarter and fiscal year 2012
financial results in Hebrew. To listen to the call, dial +972-3-9180609
approximately 10 minutes prior to the start of the call.

Both of the Mellanox financial results conference calls will be available via
live webcasts on the investor relations section of the Mellanox website at
http://ir.mellanox.com. Access the webcast 15 minutes prior to the start of
the call to download and install any necessary audio software. Replays of the
webcasts will also be available on the Mellanox website.

About Mellanox

Mellanox Technologies is a leading supplier of end-to-end InfiniBand and
Ethernet interconnect solutions and services for servers and storage. Mellanox
interconnect solutions increase data center efficiency by providing the
highest throughput and lowest latency, delivering data faster to applications
and unlocking system performance capability. Mellanox offers a choice of fast
interconnect products: adapters, switches, software and silicon that
accelerate application runtime and maximize business results for a wide range
of markets including high performance computing, enterprise data centers, Web
2.0, cloud, storage and financial services. More information is available at
www.mellanox.com.

GAAP to Non-GAAP Reconciliation

To supplement our consolidated financial statements presented in accordance
with generally accepted accounting principles (GAAP), Mellanox uses non-GAAP
measures of net income which are adjusted from results based on GAAP to
exclude share-based compensation expenses, changes in certain deferred tax
assets and acquisition related expenses. The company believes the non-GAAP
results provide useful information to both management and investors, as these
non-GAAP results exclude expenses that are not indicative of our core
operating results. Management believes it is useful to exclude share-based
compensation expenses, changes in deferred tax assets and acquisition related
expenses because it enhances investors' ability to understand our business
from the same perspective as management, which believes that such items are
not directly attributable to nor reflect the underlying performance of the
company's business operations. Further, management believes certain non-cash
charges such as share-based compensation and changes in certain deferred tax
assets do not reflect the cash operating results of the business. These
measures should be considered in addition to results prepared in accordance
with GAAP, but should not be considered a substitute for or superior to GAAP
results. These non-GAAP measures may be different than the non-GAAP measures
used by other companies. A reconciliation of GAAP to non-GAAP condensed
consolidated statements of operations is also presented in the financial
statements portion of this release and is posted under the “Investors” section
at our web site.

Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995:

All statements included or incorporated by reference in this release, other
than statements or characterizations of historical fact, are forward-looking
statements. These forward-looking statements are based on our current
expectations, estimates and projections about our industry and business,
management's beliefs and certain assumptions made by us, all of which are
subject to change.

Forward-looking statements can often be identified by words such as
"projects," "anticipates," "expects," "intends," "plans," "predicts,"
"believes," "seeks," "estimates," "may," "will," "should," "would," "could,"
"potential," "continue," "ongoing," similar expressions and variations or
negatives of these words. These forward-looking statements are not guarantees
of future results and are subject to risks, uncertainties and assumptions that
could cause our actual results to differ materially and adversely from those
expressed in any forward-looking statement.

The risks and uncertainties that could cause our results to differ materially
from those expressed or implied by such forward-looking statements include the
continued expansion of our product line, customer base and the total available
market of our products, the continued growth in demand for our products, the
continued, increased demand for industry standards-based technology, our
ability to react to trends and challenges in our business and the markets in
which we operate, our ability to anticipate market needs or develop new or
enhanced products to meet those needs, the adoption rate of our products, our
ability to establish and maintain successful relationships with our OEM
partners, our ability to effectively compete in our industry, fluctuations in
demand, sales cycles and prices for our products and services, our success
converting design wins to revenue-generating product shipments, the continued
launch and volume ramp of large customer sales opportunities, and our ability
to protect our intellectual property rights. Furthermore, the majority of our
quarterly revenues are derived from customer orders received and fulfilled in
the same quarterly period. We have limited visibility into actual end-user
demand as such demand impacts us and our OEM customer inventory balances in
any given quarter. Consequently, this introduces risk and uncertainty into our
revenue and production forecasts and business planning and could negatively
impact our financial results.  In addition, current uncertainty in the global
economic environment poses a risk to the overall economy as businesses may
defer purchases in response to tighter credit conditions, changing overall
demand for our products, and negative financial news. Consequently, our
results could differ materially from our prior results due to these general
economic and market conditions, political events and other risks and
uncertainties described more fully in our documents filed with or furnished to
the Securities and Exchange Commission.

More information about the risks, uncertainties and assumptions that may
impact our business is set forth in our form 10-Q filed with the SEC on August
3, 2012, and our form 10-K filed with the SEC on February 28, 2012. All
forward-looking statements in this press release are based on information
available to us as of the date hereof, and we assume no obligation to update
these forward-looking statements.

Mellanox, BridgeX, ConnectX, CORE-Direct, InfiniBridge, InfiniHost,
InfiniScale, PhyX, SwitchX, Virtual Protocol Interconnect and Voltaire are
registered trademarks of Mellanox Technologies, Ltd. Connect-IB, FabricIT,
MLNX-OS, ScalableHPC, Unbreakable-Link, UFM and Unified Fabric Manager are
trademarks of Mellanox Technologies, Ltd. All other trademarks are property of
their respective owners.

                                              
Mellanox Technologies, Ltd.
Condensed Consolidated Statements of Operations
(in thousands, except per share data, unaudited)
                                                    
                     Three Months Ended             Twelve Months Ended
                     December 31,                   December 31,
                     2012          2011           2012          2011
                                                    
Total revenues       $ 122,118       $ 72,689       $ 500,799       $ 259,251
Cost of               38,973        26,186       157,936       92,015  
revenues
Gross profit           83,145          46,503         342,863         167,236
Operating
expenses:
Research and           36,101          25,142         138,946         92,508
development
Sales and              16,002          11,338         61,068          40,366
marketing
General and           7,136         4,140        24,541        21,769  
administrative
Total
operating              59,239          40,620         224,555         154,643
expenses
Income from            23,906          5,883          118,308         12,593
operations
Other income,         269           207          1,259         759     
net
Income before          24,175          6,090          119,567         13,352
taxes
Provision for
taxes on              (5,733  )      (1,427 )      (8,187  )      (3,375  )
income
Net income           $ 18,442       $ 4,663       $ 111,380      $ 9,977   
Net income per       $ 0.43         $ 0.12        $ 2.70         $ 0.28    
share — basic
Net income per
share —              $ 0.41         $ 0.11        $ 2.54         $ 0.26    
diluted
Shares used in
computing
income per
share:
Basic                  42,451          39,542         41,308          36,263
Diluted                44,614          41,800         43,901          38,562
                                                                    

                                              
Mellanox Technologies, Ltd.
Reconciliation of Non-GAAP Adjustments
(in thousands, percentages, unaudited)
                                                    
                     Three Months Ended             Twelve Months Ended
                     December 31,                   December 31,
                     2012          2011           2012          2011
                                                    
Reconciliation
of GAAP net
income to
non-GAAP net
income:
GAAP net             $ 18,442        $ 4,663        $ 111,380       $ 9,977
income
Adjustments:
Share-based
compensation
expense:
Cost of                445             259            1,621           980
revenues
Research and           5,773           3,491          19,356          11,906
development
Sales and              1,876           1,322          8,055           4,894
marketing
General and           1,869         987          5,987         3,632   
administrative
Total
share-based            9,963           6,059          35,019          21,412
compensation
expense
Amortization
of acquired
intangibles:
Cost of                1,849           1,923          7,520           8,246
revenue
Sales and             440           438          1,757         1,569   
marketing
Total
amortization           2,289           2,361          9,277           9,815
of acquired
intangibles
Other
acquisition           —             —            —             4,394   
related
charges
Non-GAAP net         $ 30,694       $ 13,083      $ 155,676      $ 45,598  
income
                                                                    
                                                                    
Reconciliation
of GAAP gross
profit to
non-GAAP:
Revenues             $ 122,118       $ 72,689       $ 500,799       $ 259,251
GAAP gross             83,145          46,503         342,863         167,236
profit
GAAP gross             68.1    %       64.0   %       68.5    %       64.5    %
margin
Share-based
compensation           445             259            1,621           980
expense
Acquisition
related               1,849         1,923        7,520         8,246   
charges
Non-GAAP gross       $ 85,439       $ 48,685      $ 352,004      $ 176,462 
profit
Non-GAAP gross         70.0    %       67.0   %       70.3    %       68.1    %
margin
                                                                    
                                                                    
Reconciliation
of GAAP
operating
expenses to
non-GAAP:
GAAP operating       $ 59,239        $ 40,620       $ 224,555       $ 154,643
expenses
Share-based
compensation           (9,518  )       (5,800 )       (33,398 )       (20,432 )
expense
Acquisition
related               (440    )      (438   )      (1,757  )      (5,963  )
charges
Non-GAAP
operating            $ 49,281       $ 34,382      $ 189,400      $ 128,248 
expenses
                                                                    
                                                                    
Reconciliation
of GAAP income
from
operations to
non-GAAP:
GAAP income
from                 $ 23,906        $ 5,883        $ 118,308       $ 12,593
operations
Share-based
compensation           9,963           6,059          35,019          21,412
expense
Acquisition
related               2,289         2,361        9,277         14,209  
charges
Non-GAAP
income from          $ 36,158       $ 14,303      $ 162,604      $ 48,214  
operations
                                                                              

                                               
Mellanox Technologies, Ltd.
Reconciliation of Non-GAAP Adjustments
(in thousands, except per share data, unaudited)
                                                     
                       Three Months Ended            Twelve Months Ended
                       December 31,                  December 31,
                       2012         2011           2012         2011
                                                                    
                                                                    
Shares used in
computing GAAP           44,614         41,800         43,901         38,562
diluted earnings
per share
Adjustments:
Effect of
dilutive                 (2,163 )       (2,258 )       (2,593 )       (2,299 )
securities under
GAAP*
Total options
vested and              1,888        3,037        1,888        3,037  
exercisable
Shares used in
computing
non-GAAP diluted        44,339       42,579       43,196       39,300 
earnings per
share**
                                                                    
GAAP diluted net       $ 0.41         $ 0.11         $ 2.54         $ 0.26
income per share
Adjustments:
Share-based
compensation             0.22           0.14           0.79           0.56
expense
Amortization of
acquired                 0.05           0.06           0.21           0.25
intangibles
Other
acquisition              0.00           0.00           0.00           0.11
related charges
Effect of
dilutive                 0.04           0.02           0.22           0.07
securities under
GAAP*
Total options
vested and              (0.03  )      (0.02  )      (0.16  )      (0.09  )
exercisable
Non-GAAP diluted
income per             $ 0.69        $ 0.31        $ 3.60        $ 1.16   
share**

*This adjustment adds back the GAAP effect of additional ordinary shares that
would have been outstanding if the dilutive potential ordinary shares from
stock options had been issued under the Treasury method.

**Effective January 1, 2012, the Company uses weighted shares outstanding
method to calculate the non-GAAP share count. For comparison purposes, the
non-GAAP share count for the 2011 periods presented was calculated using this
new method.

                                                            
Mellanox Technologies, Ltd.
Condensed Consolidated Balance Sheets
(in thousands, unaudited)
                                                                  
                                                 December 31,     December 31,
                                                 2012             2011
ASSETS
Current assets:
Cash and cash equivalents                        $   117,054      $  181,258
Short-term investments                               302,593         52,373
Restricted cash                                      3,229           4,452
Accounts receivable, net                             58,516          48,215
Inventories                                          43,318          24,955
Deferred taxes and other current assets             15,616         7,373   
Total current assets                                 540,326         318,626
Property and equipment, net                          62,375          36,806
Severance assets                                     8,907           7,767
Intangible assets, net                               16,134          25,657
Goodwill                                             132,885         132,885
Deferred taxes and other long-term assets           10,419         8,289   
Total assets                                     $   771,046      $  530,030 
                                                                  
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable                                 $   37,431       $  30,132
Accrued liabilities                                  57,879          31,091
Deferred revenue                                     12,018          5,571
Capital lease obligations                           1,253          299     
Total current liabilities                            108,581         67,093
Accrued severance                                    11,821          10,433
Deferred revenue                                     8,366           3,664
Capital lease obligations                            2,835           279
Other long-term liabilities                         11,635         6,214   
Total liabilities                                    143,238         87,683
Shareholders’ equity:
Ordinary shares                                      178             165
Additional paid-in capital                           488,365         418,255
Accumulated other comprehensive income               2,794           (1,164  )
(loss)
Retained earnings                                   136,471        25,091  
Total shareholders’ equity                          627,808        442,347 
Total liabilities and shareholders’ equity       $   771,046      $  530,030 
                                                                             

                                          
Mellanox Technologies, Ltd.
Condensed Consolidated Statement of Cash Flows
(in thousands, unaudited)
                                              
                                              Twelve Months Ended December 31,
                                              2012              2011
Cash flows from operating activities:
Net income                                    $  111,380          $ 9,977
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization                    23,868             19,745
Deferred income taxes                            (3,454    )        (228     )
Share-based compensation                         35,019             21,412
Gain on investments                              (896      )        (15      )
Excess tax benefit from share-based              (5,141    )        (2,411   )
compensation
Changes in assets and liabilities:
Accounts receivable, net                         (10,301   )        (15,899  )
Inventories                                      (19,436   )        (8,639   )
Prepaid expenses and other assets                (3,239    )        (513     )
Accounts payable                                 3,430              19,102
Accrued liabilities and other payables          51,259           18,645   
Net cash provided by operating                  182,489          61,176   
activities
                                                                  
Cash flows from investing activities:
Acquisition of Voltaire Ltd., net of             —                  (203,704 )
cash acquired of $3,961
Purchase of severance-related insurance          (783      )        (832     )
policies
Purchases of short-term investments              (328,998  )        (45,600  )
Proceeds from sale of short-term                 14,860             149,889
investments
Proceeds from maturities of short-term           64,683             12,128
investments
Decrease (increase) in restricted cash           1,327              (1,700   )
deposits
Purchase of property and equipment               (30,544   )        (22,717  )
Purchase of equity investment in a              (1,424    )       —        
private company
Net cash used in investing activities           (280,879  )       (112,536 )
                                                                  
Cash flows from financing activities:
Proceeds from public offering, net               —                  104,201
Principal payments on capital lease              (918      )        (459     )
obligations
Proceeds from issuance of ordinary               29,963             18,471
shares to employees
Excess tax benefit from share-based             5,141            2,411    
compensation
Net cash provided by financing                  34,186           124,624  
activities
                                                                  
Net (decrease) increase in cash and              (64,204   )        73,264
cash equivalents
Cash and cash equivalents at beginning          181,258          107,994  
of period
Cash and cash equivalents at end of           $  117,054         $ 181,258  
period
                                                                             

Contact:

Mellanox Technologies, Ltd.
Press/Media Contact:
Waggener Edstrom
Ashley Paula, +1-415-547-7024
apaula@waggeneredstrom.com
or
USA Investor Contact:
Mellanox Technologies
Gwyn Lauber, +1-408-916-0012
gwyn@mellanox.com
or
Israel Investor Contact:
Gelbart Kahana Investor Relations
Nava Ladin, +972-3-6074717
nava@gk-biz.com
 
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