Mellanox Technologies, Ltd. Announces First Quarter 2013 Financial Results

  Mellanox Technologies, Ltd. Announces First Quarter 2013 Financial Results

Business Wire

SUNNYVALE, Calif. & YOKNEAM, Israel -- April 24, 2013

Mellanox® Technologies, Ltd. (NASDAQ: MLNX) (TASE: MLNX), a leading supplier
of end-to-end interconnect solutions for servers and storage systems, today
announced financial results for its first quarter 2013, ended March 31, 2013.

First Quarter 2013 Highlights

  *Revenues were $83.1 million
  *GAAP gross margins were 65.2 percent
  *Non-GAAP gross margins were 68.1 percent
  *GAAP operating loss was $7.9 million
  *Non-GAAP operating income was $4.9 million
  *GAAP net loss was $8.5 million
  *Non-GAAP net income was $4.3 million
  *GAAP net loss per diluted share was $0.20
  *Non-GAAP net income per diluted share was $0.10
  *Cash and investments totaled $402.9 million at March 31, 2013

Financial Results

In accordance with U.S. generally accepted accounting principles (GAAP), the
company reported revenue of $83.1 million for the first quarter, down 32.0
percent from $122.1 million for the fourth quarter 2012, and down 6.4 percent
from $88.7 million for the first quarter of 2012.

GAAP gross margins in the first quarter of 2013 were 65.2 percent, compared
with 68.1 percent in the fourth quarter of 2012 and 67.4 percent in the first
quarter of 2012.

Non-GAAP gross margins in the first quarter of 2013 were 68.1 percent,
compared with 70.0 percent in the fourth and first quarters of 2012.

GAAP net loss in the first quarter of 2013 was $8.5 million or $0.20 per
diluted share, compared with net income of $18.4 million or $0.41 per diluted
share in the fourth quarter of 2012 and net income of $12.4 million or $0.29
per diluted share in the first quarter of 2012.

Non-GAAP net income in the first quarter of 2013 was $4.3 million, or $0.10
per diluted share, compared with $30.7 million, or $0.69 per diluted share in
the fourth quarter of 2012, and $22.0 million, or $0.51 per diluted share in
the first quarter of 2012. The first quarter 2013 non-GAAP net income excludes
$10.4 million of share-based compensation expenses compared to $10.0 million
in the fourth quarter of 2012 and to $7.2 million in the first quarter of
2012. The first quarter 2013 non-GAAP net income also excludes amortization of
acquired intangible assets of $2.4 million associated with the acquisition of
Voltaire, Ltd. on February 7, 2011 compared to $2.3 million of such
amortization expenses in the fourth quarter of 2012 and to $2.4 million in the
first quarter of 2012.

Total cash and investments decreased by $23.4 million to $402.9 million at
March 31, 2013 compared to $426.3 million at December 31, 2012.

“Despite the decline in our financial results over the past two quarters, we
believe increased demand will restore growth in coming quarters,” said Eyal
Waldman, president, CEO and chairman of Mellanox Technologies. “In the first
quarter, our FDR InfiniBand revenue share increased from 39 percent to 50
percent, demonstrating the continued demand for our highest performing
InfiniBand products. We expect that our future growth will be driven by the
increased adoption of FDR InfiniBand as well our 10/40/56Gb/s Ethernet
products.”

Recent Mellanox Press Release Highlights

  *April 17 - Mellanox Introduces ConnectX-3 Pro Adapter, Enabling New Levels
    of Performance and Scalability for Cloud Computing
  *April 2 - Mellanox FDR 56Gb/s InfiniBand Powers Stampede Supercomputer,
    Now Fully Deployed at Texas Advanced Computing Center
  *March 6 - Mellanox FDR 56Gb/s InfiniBand Accelerates the Next Generation
    Microsoft SQL Server 2012 Parallel Data Warehouse Appliance
  *March 4 - Mellanox Introduces the “Generation of Open Ethernet” First Open
    Switch Initiative
  *February 25 - Mellanox and 6WIND Announce 40 Gigabit Ethernet Packet
    Processing Solution for Telecom Data Centers
  *February 25 - Mellanox Rapidly Grows Ethernet Market Share to Reach 19
    Percent of Total 10GbE NIC, LOM, and Controller Market
  *February 19 - Mellanox FDR 56Gb/s InfiniBand Accelerates the Fastest
    Supercomputer in India
  *February 14 - NASDAQ OMX NLX Selects Mellanox’s InfiniBand Solutions for
    Core Trading Interconnect
  *February 13 - Mellanox 10/40Gb/s Ethernet Solutions Boost OpenStack
    Performance by 5 to 20X
  *February 11 - Mellanox Expands Line of MetroX™ Long-Haul Interconnect
    Solutions and Introduces MetroDX™ for Inter Data Center Connectivity

Conference Calls

Mellanox will broadcast its first quarter 2013 financial results conference
call today at 2 p.m. Pacific Time to discuss the company’s first quarter 2013
financial results. To listen to the call, dial +1-785-424-1835 approximately
10 minutes prior to the start time.

Mellanox also plans to conduct a conference call on Thursday, April 25 at 9
a.m. Israel Time to discuss the company’s first quarter 2013 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, cables 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 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 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 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
November 2, 2012, and our form 10-K filed with the SEC on February 25, 2013.
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, MLNX-OS, PhyX, SwitchX, Virtual Protocol Interconnect and
Voltaire are registered trademarks of Mellanox Technologies, Ltd. Connect-IB,
CoolBox, FabricIT, Mellanox Federal Systems, Mellanox Software Defined
Storage, MetroX, MetroDX, Mellanox Open Ethernet, Open Ethernet, 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
                                             March 31,
                                              2013      2012   
                                             
Total revenues                               $ 83,080     $ 88,738
Cost of revenues                              28,948     28,888 
Gross profit                                   54,132       59,850
Operating expenses:
Research and development                       38,149       28,958
Sales and marketing                            16,414       12,805
General and administrative                    7,485      4,857  
Total operating expenses                       62,048       46,620
Income (loss) from operations                  (7,916 )     13,230
Other income, net                             213        184    
Income (loss) before taxes                     (7,703 )     13,414
Provision for taxes on income                 (754   )    (968   )
Net income (loss)                            $ (8,457 )   $ 12,446 
Net income (loss) per share — basic          $ (0.20  )   $ 0.31   
Net income (loss) per share — diluted        $ (0.20  )   $ 0.29   
Shares used in computing income per share:
Basic                                          42,901       40,014
Diluted                                        42,901       42,427
                                                                   

Mellanox Technologies, Ltd.

Reconciliation of Non-GAAP Adjustments

(in thousands, percentages, unaudited)
                                                     
                                                       Three Months Ended
                                                       March 31,
                                                        2013      2012   
                                                       
Reconciliation of GAAP net income (loss) to non-GAAP
net income:
GAAP net income (loss)                                 $ (8,457 )   $ 12,446
Adjustments:
Share-based compensation expense:
Cost of revenues                                         464          329
Research and development                                 5,808        4,181
Sales and marketing                                      2,124        1,642
General and administrative                              1,979      1,090  
Total share-based compensation expense                   10,375       7,242
Amortization of acquired intangibles:
Cost of revenues                                         1,957        1,913
Sales and marketing                                     439        439    
Total amortization of acquired intangibles              2,396      2,352  
Non-GAAP net income                                    $ 4,314     $ 22,040 
                                                                    
                                                                    
Reconciliation of GAAP gross profit to non-GAAP:
Revenues                                               $ 83,080     $ 88,738
GAAP gross profit                                        54,132       59,850
GAAP gross margin                                        65.2   %     67.4   %
Share-based compensation expense                         464          329
Acquisition related charges                             1,957      1,913  
Non-GAAP gross profit                                  $ 56,553    $ 62,092 
Non-GAAP gross margin                                    68.1   %     70.0   %
                                                                    
                                                                    
Reconciliation of GAAP operating expenses to
non-GAAP:
GAAP operating expenses                                $ 62,048     $ 46,620
Share-based compensation expense                         (9,911 )     (6,913 )
Acquisition related charges                             (439   )    (439   )
Non-GAAP operating expenses                            $ 51,698    $ 39,268 
                                                                    
                                                                    
Reconciliation of GAAP income (loss) from operations
to non-GAAP:
GAAP income (loss) from operations                     $ (7,916 )   $ 13,230
Share-based compensation expense                         10,375       7,242
Acquisition related charges                             2,396      2,352  
Non-GAAP income from operations                        $ 4,855     $ 22,824 
                                                                             

Mellanox Technologies, Ltd.

Reconciliation of Non-GAAP Adjustments

(in thousands, except per share data, unaudited)
                                                     
                                                       Three Months Ended
                                                       March 31,
                                                        2013      2012   
                                                                    
Shares used in computing GAAP diluted earnings per       42,901       42,427
share
Adjustments:
Effect of dilutive securities under GAAP*                —            (2,413 )
Total options vested and exercisable                    1,902      3,024  
Shares used in computing non-GAAP diluted earnings      44,803     43,038 
per share
                                                                    
GAAP diluted net income (loss) per share               $ (0.20  )   $ 0.29
Adjustments:
Share-based compensation expense                         0.24         0.17
Amortization of acquired intangibles                     0.06         0.05
Effect of dilutive securities under GAAP*                0.00         0.03
Total options vested and exercisable                    0.00       (0.03  )
Non-GAAP diluted income per share                      $ 0.10      $ 0.51   
                                                                             

*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.

                                                            
Mellanox Technologies, Ltd.

Condensed Consolidated Balance Sheets

(in thousands, unaudited)
                                                               
                                             March 31,   December 31,
                                             2013              2012
ASSETS
Current assets:
Cash and cash equivalents                    $    126,259      $   117,054
Short-term investments                            269,935          302,593
Restricted cash                                   3,316            3,229
Accounts receivable, net                          59,145           58,516
Inventories                                       45,672           43,318
Deferred taxes and other current assets          16,762          15,616
Total current assets                              521,089          540,326
Property and equipment, net                       67,229           62,375
Severance assets                                  9,402            8,907
Intangible assets, net                            20,006           16,134
Goodwill                                          132,885          132,885
Deferred taxes and other long-term assets        14,471          10,419
Total assets                                 $    765,082      $   771,046
                                                               
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable                             $    25,829       $   37,431
Accrued liabilities                               54,168           57,879
Deferred revenue                                  11,159           12,018
Capital lease obligations                        1,251           1,253
Total current liabilities                         92,407           108,581
Accrued severance                                 12,327           11,821
Deferred revenue                                  8,499            8,366
Capital lease obligations                         2,558            2,835
Other long-term liabilities                      12,471          11,635
Total liabilities                                 128,262          143,238
Shareholders’ equity:
Ordinary shares                                   181              178
Additional paid-in capital                        505,340          488,365
Accumulated other comprehensive income            3,285            2,794
Retained earnings                                128,014         136,471
Total shareholders’ equity                       636,820         627,808
Total liabilities and shareholders’ equity   $    765,082      $   771,046
                                                                   

Mellanox Technologies, Ltd.

Condensed Consolidated Statement of Cash Flows

(in thousands, unaudited)
                                                
                                                  Three Months Ended March 31,
                                                    2013        2012     
Cash flows from operating activities:
Net income (loss)                                 $  (8,457   )   $ 12,446
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization                        7,350          5,288
Deferred income taxes                                (1,051   )     (363     )
Share-based compensation                             10,375         7,242
Gain on sale of investments                          (223     )     (173     )
Excess tax benefit from share-based                  (932     )     (957     )
compensation
Changes in assets and liabilities:
Accounts receivable, net                             (629     )     1,106
Inventories                                          (2,866   )     (7,735   )
Prepaid expenses and other assets                    (178     )     434
Accounts payable                                     (6,898   )     2,061
Accrued liabilities and other payables              (3,095   )    4,246    
Net cash (used in) provided by operating            (6,604   )    23,595   
activities
                                                                  
Cash flows from investing activities:
Purchase of severance-related insurance              (186     )     (194     )
policies
Purchases of short-term investments                  (55,176  )     (100,239 )
Proceeds from sales of short-term investments        60,618         513
Proceeds from maturities of short-term               27,497         3,581
investments
Decrease in restricted cash deposit                  —              94
Purchase of property and equipment                   (13,941  )     (4,495   )
Purchase of intangible assets                        (6,327   )     —
Purchase of equity investment in a private          (3,000   )    —        
company
Net cash provided by (used in) investing            9,485        (100,740 )
activities
                                                                  
Cash flows from financing activities:
Principal payments on capital lease obligations      (279     )     (79      )
Proceeds from exercise of share awards               5,671          6,199
Excess tax benefit from share-based                 932          957      
compensation
Net cash provided by financing activities           6,324        7,077    
                                                                  
Net increase (decrease) in cash and cash             9,205          (70,068  )
equivalents
Cash and cash equivalents at beginning of           117,054      181,258  
period
Cash and cash equivalents at end of period        $  126,259     $ 111,190  

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