Mellanox Technologies, Ltd. Announces Second Quarter 2013 Financial Results

  Mellanox Technologies, Ltd. Announces Second Quarter 2013 Financial Results

                       Record Ethernet Product Revenue

Business Wire

SUNNYVALE, Calif. & YOKNEAM, Israel -- July 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 second quarter 2013, ended June 30, 2013.

Second Quarter 2013 Highlights

  *Revenues were $98.2 million
  *GAAP gross margins were 67.2 percent
  *Non-GAAP gross margins were 69.4 percent
  *GAAP operating income was $0.3 million
  *Non-GAAP operating income was $15.8 million
  *GAAP net loss was $1.7 million
  *Non-GAAP net income was $13.8 million
  *GAAP net loss per diluted share was $0.04
  *Non-GAAP net income per diluted share was $0.30
  *$11.5 million in cash was provided by operating activities
  *Total cash and investments increased $8.4 million to $411.3 million at
    June 30, 2013

Financial Results

In accordance with U.S. generally accepted accounting principles (GAAP), the
company reported revenue of $98.2 million for the second quarter of 2013, up
18.2 percent from $83.1 million in the first quarter of 2013, and down 26.5
percent from $133.5 million in the second quarter of 2012.

GAAP gross margins in the second quarter of 2013 were 67.2 percent, compared
with 65.2 percent in the first quarter of 2013, and 68.8 percent in the second
quarter of 2012.

Non-GAAP gross margins in the second quarter of 2013 were 69.4 percent,
compared with 68.1 percent in the first quarter of 2013, and 70.5 percent in
the second quarter of 2012.

GAAP net loss in the second quarter of 2013 was $1.7 million, or $0.04 per
diluted share, compared with GAAP net loss of $8.5 million, or $0.20 per
diluted share in the first quarter of 2013, and GAAP net income of $32.1
million, or $0.74 per diluted share in the second quarter of 2012.

Non-GAAP net income in the second quarter of 2013 was $13.8 million, or $0.30
per diluted share, compared with $4.3 million, or $0.10 per diluted share in
the first quarter of 2013, and $42.9 million, or $0.99 per diluted share in
the second quarter of 2012. The second quarter 2013 non-GAAP net income
excludes $11.2 million of share-based compensation expenses compared to $10.4
million in the first quarter of 2013, and compared to $8.4 million in the
second quarter of 2012. The second quarter 2013 non-GAAP net income also
excludes amortization of acquired intangible assets of $2.5 million and $1.8
million of acquisition related charges associated with the acquisition of
Kotura, Inc. and IPtronics A/S, compared to $2.4 million of amortization
expenses for acquired intangible assets in the first quarter of 2013, and
compared to $2.3 million in the second quarter of 2012.

Total cash and investments increased by $8.4 million to $411.3 million at June
30, 2013, compared to $402.9 million at March 31, 2013. The company generated
$11.5 million in cash from operating activities in the second quarter.

“We are pleased with our Q2 results. We see growth in the demand of our
InfiniBand and Ethernet products. We increased our Ethernet top-of-rack switch
system revenue by 81 percent sequentially, and, although off of a small base,
we believe this indicates our growth opportunity once we have all the building
blocks required for the various markets we serve,” said Eyal Waldman,
president and CEO of Mellanox Technologies. “Our acquisitions of Kotura and
IPtronics solidify our strategy to provide full end-to-end 100Gb/s server and
storage interconnect solutions to the high-performance computing, cloud, Web
2.0, storage and data center markets.”

Recent Mellanox Press Release Highlights

  *July 1 - Mellanox Technologies, Ltd. Completes Acquisition of IPtronics
    A/S
  *June 18 - Mellanox FDR InfiniBand Demonstrates 2X Growth over a 6 Month
    Period for Petascale-Capable Systems on the TOP500
  *June 17 - Mellanox’s FDR InfiniBand Solution with NVIDIA GPUDirect RDMA
    Technology Provides Superior GPU-based Cluster Performance
  *June 17 - Mellanox Demonstrates World’s First InfiniBand Connectivity with
    NVIDIA Tegra ARM Processor
  *June 17 - Mellanox FDR 56Gb/s InfiniBand Solutions Deliver Leading
    Application Performance and Scalability
  *June 3 - Mellanox Announces Virtual Modular Switch, The Most Efficient
    Ethernet Aggregation Switch Network Solution
  *June 3 - Mellanox 10GbE with NVGRE Adapter Delivers 65 Percent More
    Bandwidth in Windows Server Hyper-V Network Virtualization Environment
  *May 29 - Mellanox Announces SX1012 12-Port 40Gb/s Ethernet Switch Solution
  *May 20 - Cloud Provider Selects Mellanox’s InfiniBand as Their Private and
    Public Cloud Interconnect
  *May 15 - Mellanox Technologies Ltd. Announces Definitive Agreement to
    Acquire Kotura, Inc.

Conference Calls

Mellanox will broadcast its second quarter 2013 financial results conference
call today at 2 p.m. Pacific Time (5 p.m. Eastern Time). To listen to the
call, dial +1-785-424-1825 approximately ten minutes prior to the start time.

Mellanox will also conduct a conference call on Thursday, July 25, 2013, at 9
a.m. Israel Time to discuss the company’s second 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 May 3,
2013, 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        Six Months Ended
                          June 30,                   June 30,
                           2013      2012        2013       2012    
                                                     
Total revenues            $ 98,168     $ 133,472     $ 181,248     $ 222,210
Cost of revenues           32,168     41,700      61,116      70,588  
Gross profit                66,000       91,772        120,132       151,622
Operating expenses:
Research and                38,869       37,658        77,018        66,616
development
Sales and marketing         16,797       15,810        33,211        28,615
General and                10,047     6,336       17,532      11,193  
administrative
Total operating             65,713       59,804        127,761       106,424
expenses
Income (loss) from          287          31,968        (7,629  )     45,198
operations
Other income, net          232        221         445         405     
Income (loss) before        519          32,189        (7,184  )     45,603
taxes
Provision for taxes on     (2,258 )    (100    )    (3,012  )    (1,068  )
income
Net income (loss)         $ (1,739 )   $ 32,089     $ (10,196 )   $ 44,535  
Net income (loss) per     $ (0.04  )   $ 0.79       $ (0.24   )   $ 1.11    
share — basic
Net income (loss) per     $ (0.04  )   $ 0.74       $ (0.24   )   $ 1.04    
share — diluted
Shares used in
computing income per
share:
Basic                       43,284       40,860        43,093        40,165
Diluted                     43,284       43,468        43,093        42,676
                                                                             

Mellanox Technologies, Ltd.

Reconciliation of Non-GAAP Adjustments

(in thousands, percentages, unaudited)

                        Three Months Ended         Six Months Ended
                         June 30,                    June 30,
                          2013       2012        2013       2012    
                                                     
Reconciliation of GAAP
net income (loss) to
non-GAAP net income:
GAAP net income (loss)   $ (1,739  )   $ 32,089      $ (10,196 )   $ 44,535
Adjustments:
Share-based
compensation expense:
Cost of revenues           434           441           898           770
Research and               6,442         4,519         12,250        8,700
development
Sales and marketing        2,342         2,061         4,466         3,703
General and               1,947       1,424       3,926       2,514   
administrative
Total share-based          11,165        8,445         21,540        15,687
compensation expense
Amortization of
acquired intangibles:
Cost of revenues           1,703         1,879         3,660         3,792
Research and               175           —             175           —
development
Sales and marketing       636         439         1,075       878     
Total amortization of      2,514         2,318         4,910         4,670
acquired intangibles
Acquisition related
charges:
General and               1,828       —           1,828       —       
administrative
Non-GAAP net income      $ 13,768     $ 42,852     $ 18,082     $ 64,892  
                                                                   
                                                                   
Reconciliation of GAAP
gross profit to
non-GAAP:
Revenues                 $ 98,168      $ 133,472     $ 181,248     $ 222,210
GAAP gross profit          66,000        91,772        120,132       151,622
GAAP gross margin          67.2    %     68.8    %     66.3    %     68.2    %
Share-based                434           441           898           770
compensation expense
Amortization of           1,703       1,879       3,660       3,792   
acquired intangibles
Non-GAAP gross profit    $ 68,137     $ 94,092     $ 124,690    $ 156,184 
Non-GAAP gross margin      69.4    %     70.5    %     68.8    %     70.3    %
                                                                   
                                       
Reconciliation of GAAP
operating expenses to
non-GAAP:
GAAP operating           $ 65,713      $ 59,804      $ 127,761     $ 106,424
expenses
Share-based                (10,731 )     (8,004  )     (20,642 )     (14,917 )
compensation expense
Amortization of            (811    )     (439    )     (1,250  )     (878    )
acquired intangibles
Acquisition related       (1,828  )    —           (1,828  )    —       
charges
Non-GAAP operating       $ 52,343     $ 51,361     $ 104,041    $ 90,629  
expenses
                                                                   
                                                                   
Reconciliation of GAAP
income (loss) from
operations to
non-GAAP:
GAAP income (loss)       $ 287         $ 31,968      $ (7,629  )   $ 45,198
from operations
Share-based                11,165        8,445         21,540        15,687
compensation expense
Amortization of            2,514         2,318         4,910         4,670
acquired intangibles
Acquisition related       1,828       —           1,828       —       
charges
Non-GAAP income from     $ 15,794     $ 42,731     $ 20,649     $ 65,555  
operations
                                                                             

Mellanox Technologies, Ltd.

Reconciliation of Non-GAAP Adjustments

(in thousands, except per share data, unaudited)

                            Three Months Ended       Six Months Ended
                             June 30,                  June 30,
                              2013      2012       2013      2012   
                                                                    
Shares used in computing
GAAP diluted earnings per      43,284       43,468       43,093       42,676
share
Adjustments:
Effect of dilutive             —            (2,608 )     —            (2,511 )
securities under GAAP*
Total options vested and      1,897      2,491      1,897      2,491  
exercisable
Shares used in computing
non-GAAP diluted earnings     45,181     43,351     44,990     42,656 
per share
                                                                    
GAAP diluted net income      $ (0.04  )   $ 0.74       $ (0.24  )   $ 1.04
(loss) per share
Adjustments:
Share-based compensation       0.26         0.19         0.50         0.37
expense
Amortization of acquired       0.05         0.05         0.11         0.11
intangibles
Acquisition related            0.04         0.00         0.04         0.00
charges
Effect of dilutive             0.00         0.06         0.00         0.09
securities under GAAP*
Total options vested and      (0.01  )    (0.05  )    (0.01  )    (0.09  )
exercisable
Non-GAAP diluted income      $ 0.30      $ 0.99      $ 0.40      $ 1.52   
per 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.

Mellanox Technologies, Ltd.

Condensed Consolidated Balance Sheets

(in thousands, unaudited)

                                            June 30,   December 31,
                                              2013         2012
ASSETS
Current assets:
Cash and cash equivalents                    $ 126,480   $   117,054
Short-term investments                         231,062       302,593
Restricted cash                                50,356        3,229
Accounts receivable, net                       67,602        58,516
Inventories                                    36,485        43,318
Deferred taxes and other current assets       13,291       15,616
Total current assets                           525,276       540,326
Property and equipment, net                    68,244        62,375
Severance assets                               9,845         8,907
Intangible assets, net                         17,344        16,134
Goodwill                                       132,885       132,885
Deferred taxes and other long-term assets     15,349       10,419
Total assets                                 $ 768,943   $   771,046
                                                         
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable                             $ 25,968    $   37,431
Accrued liabilities                            43,544        57,879
Deferred revenue                               12,724        12,018
Capital lease obligations                     1,109        1,253
Total current liabilities                      83,345        108,581
Accrued severance                              12,796        11,821
Deferred revenue                               9,170         8,366
Capital lease obligations                      2,284         2,835
Other long-term liabilities                   13,833       11,635
Total liabilities                              121,428       143,238
Shareholders’ equity:
Ordinary shares                                182           178
Additional paid-in capital                     518,893       488,365
Accumulated other comprehensive income         2,165         2,794
Retained earnings                             126,275      136,471
Total shareholders’ equity                    647,515      627,808
Total liabilities and shareholders’ equity   $ 768,943   $   771,046
                                                             

Mellanox Technologies, Ltd.

Condensed Consolidated Statement of Cash Flows

(in thousands, unaudited)

                                                   Six Months Ended June 30,
                                                     2013       2012     
Cash flows from operating activities:
Net income (loss)                                   $ (10,196 )   $ 44,535
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization                         15,186        10,922
Deferred income taxes                                 (1,930  )     (2,113   )
Share-based compensation                              21,540        15,687
Gain on sale of investments                           (439    )     (229     )
Excess tax benefit from share-based compensation      (1,939  )     (1,794   )
Changes in assets and liabilities:
Accounts receivable, net                              (9,086  )     (6,404   )
Inventories                                           5,895         (6,928   )
Prepaid expenses and other assets                     2,990         691
Accounts payable                                      (7,514  )     4,432
Accrued liabilities and other payables               (9,652  )    23,950   
Net cash provided by operating activities            4,855       82,749   
                                                                  
Cash flows from investing activities:
Purchase of severance-related insurance policies      (412    )     (391     )
Purchases of short-term investments                   (81,823 )     (156,197 )
Proceeds from sale of short-term investments          103,339       3,382
Proceeds from maturities of short-term                50,447        8,863
investments
Decrease (increase) in restricted cash deposits       (47,001 )     94
Purchase of property and equipment                    (18,949 )     (10,457  )
Purchase of intangibles                               (6,327  )     —
Purchase of equity investment in a private           (3,000  )    (1,424   )
company
Net cash used in investing activities                (3,726  )    (156,130 )
                                                                  
Cash flows from financing activities:
Principal payments on capital lease obligations       (695    )     (158     )
Proceeds from exercise of share awards                7,053         14,295
Excess tax benefit from share-based compensation     1,939       1,794    
Net cash provided by financing activities            8,297       15,931   
                                                                  
Net increase (decrease) in cash and cash              9,426         (57,450  )
equivalents
Cash and cash equivalents at beginning of period     117,054     181,258  
Cash and cash equivalents at end of period          $ 126,480    $ 123,808  

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