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

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 revenues					38,973					26,186					157,936					92,015
Gross profit					83,145					46,503					342,863					167,236
Operating expenses:
Research and development					36,101					25,142					138,946					92,508
Sales and marketing					16,002					11,338					61,068					40,366
General and administrative					7,136					4,140					24,541					21,769
Total operating expenses					59,239					40,620					224,555					154,643
Income from operations					23,906					5,883					118,308					12,593
Other income, net					269					207					1,259					759
Income before taxes					24,175					6,090					119,567					13,352
Provision for taxes on income					(5,733	)				(1,427	)				(8,187	)				(3,375	)
Net income				$	18,442				$	4,663				$	111,380				$	9,977
Net income per share — basic				$	0.43				$	0.12				$	2.70				$	0.28
Net income per share — diluted				$	0.41				$	0.11				$	2.54				$	0.26
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 income				$	18,442				$	4,663				$	111,380				$	9,977
Adjustments:
Share-based compensation expense:
Cost of revenues					445					259					1,621					980
Research and development					5,773					3,491					19,356					11,906
Sales and marketing					1,876					1,322					8,055					4,894
General and administrative					1,869					987					5,987					3,632
Total share-based compensation expense					9,963					6,059					35,019					21,412
Amortization of acquired intangibles:
Cost of revenue					1,849					1,923					7,520					8,246
Sales and marketing					440					438					1,757					1,569
Total amortization of acquired intangibles					2,289					2,361					9,277					9,815
Other acquisition related charges					—					—					—					4,394
Non-GAAP net income				$	30,694				$	13,083				$	155,676				$	45,598
Reconciliation of GAAP gross profit to non-GAAP:
Revenues				$	122,118				$	72,689				$	500,799				$	259,251
GAAP gross profit					83,145					46,503					342,863					167,236
GAAP gross margin					68.1	%				64.0	%				68.5	%				64.5	%
Share-based compensation expense					445					259					1,621					980
Acquisition related charges					1,849					1,923					7,520					8,246
Non-GAAP gross profit				$	85,439				$	48,685				$	352,004				$	176,462
Non-GAAP gross margin					70.0	%				67.0	%				70.3	%				68.1	%
Reconciliation of GAAP operating expenses to non-GAAP:
GAAP operating expenses				$	59,239				$	40,620				$	224,555				$	154,643
Share-based compensation expense					(9,518	)				(5,800	)				(33,398	)				(20,432	)
Acquisition related charges					(440	)				(438	)				(1,757	)				(5,963	)
Non-GAAP operating expenses				$	49,281				$	34,382				$	189,400				$	128,248
Reconciliation of GAAP income from operations to non-GAAP:
GAAP income from operations				$	23,906				$	5,883				$	118,308				$	12,593
Share-based compensation expense					9,963					6,059					35,019					21,412
Acquisition related charges					2,289					2,361					9,277					14,209
Non-GAAP income from operations				$	36,158				$	14,303				$	162,604				$	48,214

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

*  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 (loss)					2,794				(1,164	)
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 compensation					(5,141	)				(2,411	)
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 activities					182,489					61,176
Cash flows from investing activities:
Acquisition of Voltaire Ltd., net of cash acquired of $3,961					—					(203,704	)
Purchase of severance-related insurance policies					(783	)				(832	)
Purchases of short-term investments					(328,998	)				(45,600	)
Proceeds from sale of short-term investments					14,860					149,889
Proceeds from maturities of short-term investments					64,683					12,128
Decrease (increase) in restricted cash deposits					1,327					(1,700	)
Purchase of property and equipment					(30,544	)				(22,717	)
Purchase of equity investment in a private company					(1,424	)				—
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 obligations					(918	)				(459	)
Proceeds from issuance of ordinary shares to employees					29,963					18,471
Excess tax benefit from share-based compensation					5,141					2,411
Net cash provided by financing activities					34,186					124,624
Net (decrease) increase in cash and cash equivalents					(64,204	)				73,264
Cash and cash equivalents at beginning of period					181,258					107,994
Cash and cash equivalents at end of period				$	117,054				$	181,258

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