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8-K - Q410 FORM 8K - NVIDIA CORP | form8k.htm |
EX-99.1 - Q410 EARNINGS RELEASE - NVIDIA CORP | q410pressrelease.htm |
EXHIBIT 99.2
CFO
Commentary on Fourth Quarter FY 2010 Results
Commencing
with the fourth quarter, non-GAAP is now defined to include stock based
compensation. As a result, stock-based compensation will no longer be
a reconciling item between GAAP and non-GAAP measures. All historical non-GAAP
measures presented below have been prepared on this basis.
Summary
Results
Revenue
for the fourth quarter of fiscal 2010 was $982.5 million, up nearly 9 percent
from $903.2 million in the prior quarter and higher than our guidance of around
2 percent growth. Revenue more than doubled from that of a year ago, and
represented our fourth consecutive quarter of strong revenue
growth.
GAAP
gross margin for the quarter was 44.7 percent, up 1.3 points over the prior
quarter’s GAAP gross margin of 43.4 percent and also above our guidance of 40 to
42 percent. The company’s third quarter results included a $25.1
million credit for insurance proceeds, of which $24.1 million was recorded as a
benefit to cost of revenue. Excluding this benefit, non-GAAP gross
margin improved 4.0 points from the third to fourth quarters.
GAAP net
income for the quarter was $131.1 million, or $0.23 per diluted share, compared
with a GAAP net income of $107.6 million, or $0.19 per share, in the prior
quarter. Excluding the aforementioned insurance benefit and the
associated tax impact, third quarter non-GAAP net income was $77.4 million, or
$0.13 share.
Revenue
(in
millions)
|
Q4’10
|
Q3’10
|
Q/Q%
|
GPU
|
$572.9
|
$464.5
|
+23%
|
MCP
|
199.9
|
247.9
|
-19%
|
Professional
|
157.8
|
129.6
|
+22%
|
Consumer/Other
|
51.9
|
61.2
|
-15%
|
Total
|
$982.5
|
$903.2
|
8.8%
|
Our GPU
business, which includes desktop, notebook and memory, was up 23 percent
sequentially. Demand was strong in both the desktop and
notebook segments, with many customers experiencing periods of allocation during
the quarter. While the availability of 40nm products remained in
tight supply throughout the quarter, 40nm process yield continued to
improve. As a result, 40nm revenues were up 178 percent over the
prior quarter.
The
desktop segment of our GPU business was up approximately 19 percent quarter over
quarter, primarily due to increases in high-end and mainstream
sales. While channel inventories remained lean throughout the
quarter, they recovered slightly to about five weeks of supply, up approximately
one week from last quarter’s record low of four weeks.
The
notebook segment of our GPU business was up approximately 27 percent quarter
over quarter. Notebook demand was particularly strong as our 40nm
design wins on Calpella notebooks started to ramp.
Our MCP
business represented 20 percent of total revenue and was down 19 percent
sequentially. Two main factors contributed to this decline: typical
seasonality in the desktop channel, and inventory management ahead of a first
quarter product transition. We expect this business to be up in the
first quarter as this product ramps.
Revenue
for our Professional business, which includes workstation graphics and
computing, represented 16 percent of total revenue. Our
workstation business continued to experience strong recovery in demand with
revenue up 25 percent sequentially. Improved product mix helped lift
ASPs and gross margins for this segment as well. The computing
segment of this business was down slightly quarter over quarter as customers
anticipated the availability of our newest GPU computing architecture, called
Fermi, which is currently in volume production and will commence shipping later
this quarter.
Our
Consumer and Other business, which includes cell phone products, as well as
embedded entertainment, represented 5 percent of total revenue.
Gross
Margin
GAAP
gross margin for the fourth quarter was 44.7 percent and was up 1.3 points
sequentially. Non-GAAP gross margin was also 44.7 percent and was up
4.0 points sequentially. This was the fourth consecutive quarterly
increase. The major components of this 4.0 point increase
are:
·
|
Cost
reductions from yield improvements and reduced waste: 1.9
points
|
·
|
Favorable
mix from our Professional business: 0.8
points
|
·
|
Increased
revenues of $79 million: 0.5
points
|
·
|
Other
mix benefits: 0.8 points
|
Expenses and
Other
GAAP
operating expenses for the fourth quarter were $304.4 million, in line with
guidance. Sequentially, operating expenses were up $20.5 million,
largely due to bring-ups of various new products, some salary reinstatements
following company-wide reductions last year, and the fact that it was a 14 week
quarter.
NVIDIA’s
worldwide employment at the end of the quarter stood at 5,706.
Balance
Sheet
Accounts
receivable at the end of the quarter were down $22.9 million sequentially,
notwithstanding $79.3 million of higher revenues. DSO at quarter-end
was 37 days, a 3-day improvement over the prior quarter.
Inventories
at the end of the quarter, which amounted to $330.7 million, were 19 percent
higher than the previous quarter. Inventory days on hand at
quarter-end was 60, versus 49 at the end of the third
quarter. Substantially all of the inventory increase in the fourth
quarter related to 40nm products that we ramped to meet Q4 demand and position
us for increased Q1 demand.
Depreciation
and amortization expense for the fourth quarter amounted to approximately $47.9
million. Capital expenditures were $22.6 million.
Cash flow
from operating activities was $69.2 million during the fourth
quarter. Free cash flow for the fourth quarter of $46.6 million was
down from the prior quarter as a result of increased inventory and a higher than
normal payout of certain accruals.
Cash,
cash equivalents and marketable securities at the end of the quarter were
approximately $1.73 billion, up approximately $94.1 million from the third
quarter, with the principle contributors being cash earnings (net income after
adding back non-cash expenses) less increases in working capital due to higher
revenues and capital expenditures.
Reporting
segments
Effective
with the first quarter of fiscal 2011, we will no longer separate our MCP and
GPU segments as such segmentation no longer reflects the way we manage these
businesses. As we’ve indicated previously, as a result of our
on-going dispute with Intel over the terms of our cross licensing agreement we
have ceased development of all future MCP products. Furthermore, our
MCP and GPU products serve the same customer needs, brands cross both segments
and the teams now currently report into the same general manager. We
will, however, continue to give qualitative information about each
segment.
First Quarter
Outlook
Our
outlook for the first quarter of fiscal 2011 is as follows:
·
|
Revenue
is expected to be flat from the fourth
quarter.
|
·
|
GAAP
gross margin is expected to be in the range of 44 to 45
percent.
|
·
|
GAAP
operating expenses are expected to be flat at approximately $305
million.
|
·
|
Tax
rate of 12% to 14% assuming a renewal of the U.S. R&D tax credit, 14%
to 16% otherwise.
|
We
estimate stock-based compensation expense in the first quarter to be $25 million
and depreciation and amortization and capital expenditures to be relatively flat
when compared to the fourth quarter.
Diluted
shares for the first quarter are expected to be approximately 591 million.
______________
For
further information, contact:
Michael
Hara Robert
Sherbin
Investor
Relations Corporate
Communications
NVIDIA
Corporation NVIDIA
Corporation
(408)
486-2511 (408) 566-5150
mhara@nvidia.com rsherbin@nvidia.com
Non-GAAP
Measures
To
supplement NVIDIA’s Condensed Consolidated Statements of Operations and
Condensed Consolidated Balance Sheets presented in accordance with GAAP, the
company uses non-GAAP measures of certain components of financial performance.
These non-GAAP measures include non-GAAP gross profit, non-GAAP gross margin,
non-GAAP net income, non-GAAP net income per share and free cash flow. In order
for NVIDIA’s investors to be better able to compare its current results with
those of previous periods, the company has shown a reconciliation of GAAP to
non-GAAP financial measures. These reconciliations adjust the related GAAP
financial measures to exclude a charge related to the weak die/packaging
material set that was used in certain versions of NVIDIA’s previous
generation chips, net of insurance reimbursements, a non-recurring charge
related to a tender offer purchase, a non-recurring charge against cost of
revenue related to a royalty dispute, a non-recurring restructuring charge
against operating expenses, a non-recurring contract termination charge against
operating expenses, and the associated tax impact of these items, where
applicable. Free cash flow is calculated as GAAP net cash provided by
operating activities less purchases of property and equipment and intangible
assets. NVIDIA believes the presentation of its non-GAAP financial measures
enhances the user's overall understanding of the company’s historical financial
performance. The presentation of the company’s non-GAAP financial measures is
not meant to be considered in isolation or as a substitute for the company’s
financial results prepared in accordance with GAAP, and our non-GAAP measures
may be different from non-GAAP measures used by other companies.
Certain
statements in this document including, but not limited to, statements as to:
NVIDIA’s financial projections for the first quarter of fiscal 2011 are
forward-looking statements that are subject to risks and uncertainties that
could cause results to be materially different than expectations. Important
factors that could cause actual results to differ materially include: global
economic conditions; development of more efficient or faster technology; design,
manufacturing or software defects; the impact of technological development and
competition; changes in consumer preferences and demands; customer adoption of
different standards or our competitor's products; changes in industry standards
and interfaces; unexpected loss of performance of our products or technologies
when integrated into systems as well as other factors detailed from time to time
in the reports NVIDIA files with the Securities and Exchange Commission
including its Form 10-Q for the fiscal period ended October 25, 2009. Copies of
reports filed with the SEC are posted on our website and are available from
NVIDIA without charge. These forward-looking statements are not guarantees of
future performance and speak only as of the date hereof, and, except as required
by law, NVIDIA disclaims any obligation to update these forward-looking
statements to reflect future events or circumstances.
#
# #
© 2010
NVIDIA Corporation. All rights reserved. NVIDIA, the NVIDIA logo, Tesla, CUDA,
GeForce and Tegra are trademarks and/or
registered trademarks of NVIDIA Corporation in the U.S. and other countries.
Other company and product names may be trademarks of the respective companies
with which they are associated. Features, pricing, availability, and
specifications are subject to change without notice.
NVIDIA
CORPORATION
|
||||||||||||||||||||
RECONCILIATION
OF GAAP TO NON-GAAP FINANCIAL MEASURES
|
||||||||||||||||||||
(In
thousands, except per share data)
|
||||||||||||||||||||
Three
Months Ended
|
Twelve
Months Ended
|
|||||||||||||||||||
January
31,
|
October
25,
|
January
25,
|
January
31,
|
January
25,
|
||||||||||||||||
2010
|
2009
|
2009
|
2010
|
2009
|
||||||||||||||||
GAAP
gross profit
|
$ | 438,721 | $ | 391,783 | $ | 141,666 | $ | 1,176,923 | $ | 1,174,269 | ||||||||||
GAAP
gross margin
|
44.7 | % | 43.4 | % | 29.4 | % | 35.4 | % | 34.3 | % | ||||||||||
Net
warranty charge against cost of revenue arising from a weak die/packaging
material set (A)
|
- | (24,115 | ) | (6,665 | ) | 95,878 | 189,289 | |||||||||||||
Non-recurring
charge related to a royalty dispute
|
- | - | - | - | 4,500 | |||||||||||||||
Stock
option purchase charge related to cost of revenue (B)
|
- | - | - | 11,412 | - | |||||||||||||||
Non-GAAP
gross profit
|
$ | 438,721 | $ | 367,668 | $ | 135,001 | $ | 1,284,213 | $ | 1,368,058 | ||||||||||
Non-GAAP
gross margin
|
44.7 | % | 40.7 | % | 28.1 | % | 38.6 | % | 39.9 | % | ||||||||||
GAAP
net income (loss)
|
$ | 131,076 | $ | 107,577 | $ | (147,665 | ) | $ | (67,987 | ) | $ | (30,041 | ) | |||||||
Net
warranty charge against cost of revenue arising from a weak die/packaging
material set (A)
|
- | (25,105 | ) | (8,000 | ) | 93,949 | 187,954 | |||||||||||||
Restructuring
charges
|
- | - | (382 | ) | - | 7,956 | ||||||||||||||
Stock
option purchase charge (B)
|
- | - | - | 140,241 | - | |||||||||||||||
Non-recurring
charge related to a royalty dispute
|
- | - | - | - | 4,500 | |||||||||||||||
Non-recurring
charge related to contract termination (C)
|
- | - | 18,912 | - | 18,912 | |||||||||||||||
Income
tax impact of non-GAAP adjustments (D)
|
- | (5,072 | ) | (8,132 | ) | (24,820 | ) | (28,997 | ) | |||||||||||
Non-GAAP
net income
|
$ | 131,076 | $ | 77,400 | $ | (145,267 | ) | $ | 141,383 | $ | 160,284 | |||||||||
Diluted
net income (loss) per share
|
||||||||||||||||||||
GAAP
|
$ | 0.23 | $ | 0.19 | $ | (0.27 | ) | $ | (0.12 | ) | $ | (0.05 | ) | |||||||
Non-GAAP
|
$ | 0.23 | $ | 0.13 | $ | (0.27 | ) | $ | 0.26 | $ | 0.29 | |||||||||
Shares
used in diluted net income (loss) per share computation
|
582,081 | 574,381 | 537,595 | 549,574 | 548,126 | |||||||||||||||
Metrics:
|
||||||||||||||||||||
GAAP
net cash flow provided by / (used in) operating activities
|
$ | 69,245 | $ | 141,317 | $ | (19,845 | ) | $ | 487,807 | $ | 249,360 | |||||||||
Purchase
of property and equipment and intangible assets
|
(22,575 | ) | (16,593 | ) | (42,975 | ) | (77,601 | ) | (407,670 | ) | ||||||||||
Free
cash flow
|
$ | 46,670 | $ | 124,724 | $ | (62,820 | ) | $ | 410,206 | $ | (158,310 | ) |
(A) Excludes a net charge related to the weak die/packaging material set that was used in certain versions of our previous generation chips, net of insurance reimbursement. |
(B) During the three months ended April 26, 2009, the Company completed a tender offer to purchase an aggregate of 28.5 million outstanding stock options for a total cash payment of $78.1 million. As a result of the tender offer the Company incurred a charge of $140.2 million, consisting of the remaining unamortized stock-based compensation expenses associated with the unvested portion of the options tendered in the offer, stock-based compensation expense resulting from amounts paid in excess of the fair value of the underlying options, plus associated payroll taxes and professional fees. The $140.2 million stock option purchase charge for the three months ended April 26, 2009 relates to personnel associated with cost of revenue (for manufacturing personnel), research and development, and sales, general and administrative of $11.4 million, $90.5 million, and $38.3 million, respectively. |
(C) Excludes $18.9 million for the three months ended January 25,
2009, towards a non recurring charge related to termination of a
development contract for a new campus construction project we have put on
hold.
|
(D) The income tax impact of non-GAAP adjustments has only been
reported during fiscal quarters that include other GAAP to non-GAAP
reconciling items, as well as in the full fiscal year results during which
the GAAP to non-GAAP reconciling items occur. As such, any effective tax
rate differences between GAAP and non-GAAP results that result from such
adjustments have not been reported separately in the non-GAAP results for
a fiscal quarter that does not contain other GAAP to non-GAAP reconciling
items.
|