NVIDIA Reports Financial Results for Second Quarter Fiscal 2014

SANTA CLARA, CA--(Marketwired - Aug 8, 2013) - NVIDIA ( NASDAQ : NVDA )

  • Revenue of $977.2 million.

  • GAAP net income of $96.4 million, or $0.16 per diluted share. Non-GAAP net income of $133.3 million, or $0.23 per diluted share.

  • Record GAAP and non-GAAP gross margins of 55.8 percent and 56.3 percent, respectively.

NVIDIA ( NASDAQ : NVDA ) today reported revenue for the second quarter of fiscal 2014, ended July 28, 2013, of $977.2 million, up 2.4 percent from $954.7 million in the previous quarter.

GAAP earnings per diluted share were $0.16, up 23.1 percent from $0.13 in the previous quarter. Non-GAAP earnings per diluted share were $0.23, up 27.8 percent from $0.18 in the previous quarter.

"The GPU business continued to grow, driving our fourth consecutive quarter of record margins," said Jen-Hsun Huang, president and chief executive officer of NVIDIA. "We also began shipping GRID virtualized graphics, which puts the power of NVIDIA GPUs into the datacenter. We look forward to a strong second half, with new Tegra 4 devices coming to market, SHIELD moving beyond the U.S. and broader sampling of Project Logan, our next-generation Tegra processor, which brings Kepler, the world's most advanced GPU, to mobile."

On May 14, 2013, NVIDIA executed an accelerated share repurchase (ASR) agreement with Goldman, Sachs & Co. such that NVIDIA paid Goldman Sachs $750 million and Goldman Sachs delivered 36.9 million shares on May 16, 2013. These shares were accounted for as treasury share repurchases that reduced the outstanding common shares used to calculate EPS. Upon final settlement of the ASR, Goldman Sachs may be required to deliver additional shares of common stock to NVIDIA or NVIDIA may be required to deliver shares of its common stock, or elect to make a cash payment, to Goldman Sachs, based on the terms and conditions under the ASR. NVIDIA currently expects that, at the time of settlement, Goldman Sachs will be required to deliver additional shares of common stock to NVIDIA.

 
GAAP Quarterly Financial Comparison
(in millions except per share data) Q2 FY14 Q1 FY14 Q2 FY13 Q/Q Y/Y
Revenue $977.2 $954.7 $1,044.3 up 2.4% down 6.4%
Gross margin 55.8% 54.3% 51.8% up 1.5 p.p. up 4.0 p.p.
Operating expenses $440.0 $435.8 $401.1 up 1.0% up 9.7%
Net income $96.4 $77.9 $119.0 up 23.8% down 19.0%
Earnings per share $0.16 $0.13 $0.19 up 23.1% down 15.8%
 
 
 
Non-GAAP* Quarterly Financial Comparison
(in millions except per share data) Q2 FY14 Q1 FY14 Q2 FY13 Q/Q Y/Y
Revenue $977.2 $954.7 $1,044.3 up 2.4% down 6.4%
Gross margin 56.3% 54.6% 52.0% up 1.7 p.p. up 4.3 p.p.
Operating expenses $400.8 $396.2 $342.5 up 1.2% up 17.0%
Net income $133.3 $113.8 $170.4 up 17.2% down 21.8%
Earnings per share $0.23 $0.18 $0.27 up 27.8% down 14.8%
           

*Non-GAAP earnings excluded stock-based compensation, amortization of acquisition-related intangible assets, other acquisition-related costs, a legal settlement charge in the second quarter of fiscal 2014, a contribution expense in the second quarter of fiscal 2013, and the tax impact associated with such items.

NVIDIA's outlook for the third quarter of fiscal 2014 is as follows:

  • Revenue is expected to be $1.050 billion, plus or minus two percent.

  • GAAP and non-GAAP gross margins are expected to be approximately flat relative to the prior quarter at 56.0 percent and 56.3 percent, respectively.

  • GAAP operating expenses are expected to be approximately $460 million. Non-GAAP operating expenses are expected to be approximately $418 million.

  • GAAP and non-GAAP tax rates for the remaining half of fiscal 2014 are expected to be 16 percent, plus or minus one percent. This estimate excludes any discrete tax events that may occur during a quarter, which, if realized, may increase or decrease our actual effective tax rates in such quarter.

NVIDIA estimates depreciation and amortization for the third quarter to be approximately $62 million to $64 million. Capital expenditures are expected to be in the range of $60 million to $70 million.

Diluted shares for the third quarter are expected to be approximately 589 million.

Among highlights of the second quarter of fiscal 2014, NVIDIA:

  • Demonstrated the capabilities of the Kepler™-based GPU in Project Logan, its next-generation mobile processor, and announced an IP licensing initiative that will bring this technology to new markets.

  • Shipped NVIDIA® SHIELD™, its open-platform gaming and entertainment portable (July 31, after quarter end).

  • Demonstrated NVIDIA® Tegra® 4i phone calls on AT&T's network, and showed support of LTE Cat 4 data rates.

  • Launched a new family of high-end gaming GPUs, the GeForce® GTX™ 760, GeForce GTX 770 and GeForce GTX 780.

  • Appeared on stage with the CEO of Citrix to announce that XenDesktop 7 has now fully integrated NVIDIA GRID™ vGPU™ technology to share GPUs across virtual machines.

  • Appointed Dawn Hudson, former CEO of PepsiCo's North American operations, to its board of directors.

Dividend
NVIDIA will pay its next quarterly cash dividend of $0.075 cents per share on September 13, 2013, to all stockholders of record on August 22, 2013.

CFO Commentary and Earnings Presentation
Commentary on the quarter by Karen Burns, NVIDIA interim chief financial officer, and a presentation, are available at www.nvidia.com/ir.

Conference Call and Webcast Information
NVIDIA will conduct a conference call with analysts and investors to discuss its second quarter fiscal 2014 financial results and current financial prospects today at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time). To listen to the call, please dial (706) 679-2572. A live webcast (listen-only mode) of the conference call will be accessible at the NVIDIA investor relations web site www.nvidia.com/ir and at www.streetevents.com. The webcast will be recorded and available for replay until the company's conference call to discuss its financial results for its third quarter fiscal 2014.

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 operating expenses, non-GAAP income tax expense, non-GAAP net income, non-GAAP net income, or earnings, 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 stock-based compensation, amortization of acquisition-related intangible assets, other acquisition-related costs, a legal settlement, a contribution expense, 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.

About NVIDIA
Since 1993, NVIDIA ( NASDAQ : NVDA ) has pioneered the art and science of visual computing. The company's technologies are transforming a world of displays into a world of interactive discovery -- for everyone from gamers to scientists, and consumers to enterprise customers. More information at http://nvidianews.nvidia.com and http://blogs.nvidia.com.

Certain statements in this press release including, but not limited to statements as to: expectations of a strong second half, Tegra 4 devices coming to market, SHIELD moving beyond the U.S. and broader sampling of Project Logan in the second half; the expectation that Goldman Sachs will be required to deliver additional shares of common stock to the company as part of our ASR; the company's financial outlook for the third quarter of fiscal 2014; the expectation that our IP licensing initiative will bring Project Logan to new markets; and the company's tax rate for the second half of fiscal year 2014 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; our reliance on third parties to manufacture, assemble, package and test our products; the impact of technological development and competition; development of new products and technologies or enhancements to our existing product and technologies; market acceptance of our products or our partners' products; design, manufacturing or software defects; changes in consumer preferences or demands; 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, or SEC, including its Form 10-Q for the fiscal period ended April 28, 2013. Copies of reports filed with the SEC are posted on the company's 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.

© 2013 NVIDIA Corporation. All rights reserved. NVIDIA, the NVIDIA logo, GeForce, GeForce GTX, Quadro, Tegra, NVIDIA GRID, GRID vGPU, Kepler and SHIELD are trademarks and/or registered trademarks of NVIDIA Corporation in the U.S. and/or 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
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
                       
    Three Months Ended     Six Months Ended
    July 28,     July 29,     July 28,     July 29,
    2013     2012     2013     2012
                               
Revenue   $ 977,238     $ 1,044,270     $ 1,931,977     $ 1,969,147
Cost of revenue     431,700       503,551       867,871       965,064
Gross profit     545,538       540,719       1,064,106       1,004,083
Operating expenses                              
  Research and development     331,738       281,193       658,899       565,095
  Sales, general and administrative     108,266       119,903       216,892       226,539
    Total operating expenses     440,004       401,096       875,791       791,634
Operating income     105,534       139,623       188,315       212,449
Interest and other income, net     6,286       5,585       11,567       9,854
Income before income tax expense     111,820       145,208       199,882       222,303
Income tax expense     15,372       26,162       25,543       42,820
Net income   $ 96,448     $ 119,046     $ 174,339     $ 179,483
                               
Basic net income per share   $ 0.16     $ 0.19     $ 0.29     $ 0.29
Diluted net income per share   $ 0.16     $ 0.19     $ 0.29     $ 0.29
                               
Shares used in basic per share computation     585,345       618,996       601,109       617,388
Shares used in diluted per share computation     592,006       623,143       606,051       623,397
                               
                               
                               
NVIDIA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
           
    July 28,     January 27,
    2013     2013
ASSETS              
               
Current assets:              
  Cash, cash equivalents and marketable securities   $ 2,935,893     $ 3,727,883
  Accounts receivable, net     418,123       454,252
  Inventories     378,280       412,467
  Prepaid expenses and other current assets     190,312       180,656
    Total current assets     3,922,608       4,775,258
               
Property and equipment, net     578,948       576,144
Goodwill     641,030       641,030
Intangible assets, net     322,520       312,332
Other assets     104,486       107,481
    Total assets   $ 5,569,592     $ 6,412,245
               
LIABILITIES AND STOCKHOLDERS' EQUITY              
               
Current liabilities:              
  Accounts payable   $ 310,271     $ 356,428
  Accrued liabilities and other current liabilities     625,520       619,795
    Total current liabilities     935,791       976,223
               
Other long-term liabilities     443,943       589,321
Capital lease obligations, long term     17,685       18,998
Stockholders' equity     4,172,173       4,827,703
    Total liabilities and stockholders' equity   $ 5,569,592     $ 6,412,245
                   
                   
                   
NVIDIA CORPORATION  
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES  
(In thousands, except per share data)  
(Unaudited)  
                             
  Three Months Ended     Six Months Ended  
  July 28,     April 28,     July 29,     July 28,     July 29,  
  2013     2013     2012     2013     2012  
                                       
GAAP gross profit $ 545,538     $ 518,568     $ 540,719     $ 1,064,106     $ 1,004,083  
  GAAP gross margin   55.8 %     54.3 %     51.8 %     55.1 %     51.0 %
    Stock-based compensation expense included in cost of revenue (A)   2,168       2,653       2,649       4,821       5,175  
    Legal settlement   2,290       -       -       2,290       -  
Non-GAAP gross profit $ 549,996     $ 521,221     $ 543,368     $ 1,071,217     $ 1,009,258  
  Non-GAAP gross margin   56.3 %     54.6 %     52.0 %     55.4 %     51.3 %
                                       
GAAP operating expenses $ 440,004     $ 435,787     $ 401,096     $ 875,791     $ 791,634  
    Stock-based compensation expense included in operating expense (A)   (30,227 )     (30,744 )     (29,606 )     (60,971 )     (62,649 )
    Amortization of acquisition-related intangible assets   (3,980 )     (3,915 )     (4,065 )     (7,895 )     (8,407 )
    Other acquisition-related costs (B)   (4,984 )     (4,946 )     (4,794 )     (9,930 )     (9,965 )
    Contribution expense (C)   -       -       (20,127 )     -       (20,127 )
Non-GAAP operating expenses $ 400,813     $ 396,182     $ 342,504     $ 796,995     $ 690,486  
                                       
GAAP net income $ 96,448     $ 77,891     $ 119,046     $ 174,339     $ 179,483  
    Total pre-tax impact of non-GAAP adjustments   43,649       42,258       61,241       85,907       106,323  
    Income tax impact of non-GAAP adjustments   (6,767 )     (6,348 )     (9,839 )     (13,115 )     (17,828 )
Non-GAAP net income $ 133,330     $ 113,801     $ 170,448     $ 247,131     $ 267,978  
                                       
Diluted net income per share                                      
    GAAP $ 0.16     $ 0.13     $ 0.19     $ 0.29     $ 0.29  
    Non-GAAP $ 0.23     $ 0.18     $ 0.27     $ 0.41     $ 0.43  
                                       
Shares used in diluted net income per share computation   592,006       619,302       623,143       606,051       623,397  
                                       
Metrics:                                      
    GAAP net cash flow provided by operating activities $ 99,192     $ 175,650     $ 200,886     $ 274,842     $ 191,678  
    Purchase of property and equipment and intangible assets   (87,709 )     (65,667 )     (61,944 )     (153,376 )     (90,867 )
    Free cash flow $ 11,483     $ 109,983     $ 138,942     $ 121,466     $ 100,811  
                                       
                                       
                                       
(A) Excludes stock-based compensation as follows: Three Months Ended     Six Months Ended  
  July 28,     April 28,     July 29,     July 28,     July 29,  
  2013     2013     2012     2013     2012  
    Cost of revenue $ 2,168     $ 2,653     $ 2,649     $ 4,821     $ 5,175  
    Research and development $ 18,555     $ 21,935     $ 18,885     $ 40,490     $ 40,092  
    Sales, general and administrative $ 11,672     $ 8,809     $ 10,721     $ 20,481     $ 22,557  
                                       
(B) Comprise of transaction costs and compensation charges related to acquisitions.                   
                                       
(C) Net present value of a $25 million charitable contribution pledged on June 12, 2012 to Stanford Hospital and Clinic, payable over ten years.                   
                                       
                                       
                                       
                                       
NVIDIA CORPORATION  
RECONCILIATION OF GAAP TO NON-GAAP OUTLOOK  
   
    Q3 FY2014 Outlook  
         
GAAP gross margin     56.0 %
  Impact of stock-based compensation (A)     0.3 %
Non-GAAP gross margin     56.3 %
         
    Q3 FY2014 Outlook  
    (In millions)  
         
GAAP operating expenses   $ 460.0  
  Stock-based compensation expense included in operating expense     (33.0 )
  Amortization of acquisition-related intangible assets     (5.0 )
  Other acquisition-related costs (B)     (4.0 )
         
Non-GAAP operating expenses   $ 418.0  
         
(A) Represents $3.3 million of stock-based compensation expense included in cost of revenue.  
   
(B) Comprise of transaction costs and compensation charges related to acquisitions.