MLNX

Mellanox Technologies, Ltd. (MLNX)

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Mellanox Technologies, Ltd. (MLNX)

Q4 2012 Earnings Call

January 23, 2012 5:00 pm ET

Executives

Gwyn Lauber - Investor Relations

Eyal Waldman - Chairman, President and CEO

Jacob Shulman - Chief Financial Officer

Analysts

Jon Roy - UBS

Brian Freed - Wunderlich Securities

Joseph Wolf - Barclays

Rajesh Ghai - Craig-Hallum

Philip Lee - Lazard Capital Markets

Kevin Cassidy - Stifel Nicolaus

Alex Gauna - JMP Securities

Glenn Hanus - Needham & Company

Brent Bracelin - Pacific Crest

Srini Nandury - Summit Research

Ruben Roy - Mizuho Securities

Presentation

Operator

Good afternoon and welcome to the Mellanox Technologies Fourth Quarter 2012 Financial Results Conference Call. At this time all participants have been placed in a listen-only mode and the floor will be open for your questions following the presentation. (Operator Instructions). As a reminder, this conference is being recorded.

Now, I would like to turn the conference over to Gwyn Lauber, who will introduce today's speakers. Please begin.

Gwyn Lauber

Good afternoon, and welcome to Mellanox Technologies' fourth quarter and fiscal year 2012 conference call. Leading the call today will be Eyal Waldman, Chairman, President and CEO of Mellanox Technologies and Jacob Shulman, Chief Financial Officer.

By now, you've seen our press release and associated financial information that we furnished to the SEC on Form 8-K this afternoon. In addition to reviewing our financial results, some of the comments today will include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities and Exchange Act of 1934 as amended, based on our current expectations. These forward-looking comments entail various significant risks and uncertainties that could cause our actual results to differ materially from those expressed in such forward-looking statements.

Forward-looking statements in this conference are generally identified by words such as believes, anticipates, expects, intends, may, will, and other similar expressions. However, these words are not the only way we identify forward-looking statements. In addition, any statements that refer to expectations, projections, forecasts, predictions or other characterizations of future events or circumstances are forward-looking statements.

Listeners are cautioned not to place undue reliance on these forward-looking statements which speak only as of today. We take no obligation to update any of the information contained in any forward-looking statements that we make.

We have provided additional information about risk factors that could cause our actual results to differ materially from those in the forward-looking statements in today's conference call, in our press release, in our Form 10-K filed with the SEC on November 2, 2012, or in our Form 10-K filed on February 28, 2012. If you do not have a copy of our 10-Q or 10-K, you can find it at ir.mellanox.com or we will be happy to provide you with one.

Now, I would turn the call over to Eyal for his opening remarks. Eyal?

Eyal Waldman

Thank you, Gwyn. Good afternoon, everyone and thank you for joining us. On today's call, I will highlight our fourth quarter and fiscal year 2012 results and achievements. I will then turn the call over to Jacob Shulman, our Chief Financial Officer, who will discuss the financial results in more detail and provide our fiscal fourth quarter guidance. After that we will be happy to take your questions.

For the fourth quarter of 2012, Mellanox reported revenue of $122.1 million, compared to $156.5 million in the third quarter of 2012 and $72.7 million in the fourth quarter of 2011. Fourth quarter non-GAAP gross margins were 70%; non-GAAP operating income was $36.2 million, or 29.6% of revenues; and non-GAAP diluted earnings per share were $0.69.

We generated cash from operations of $25.4 million in the fourth quarter and the record of $182.5 million for the year. Highlighting our record year-over-year results, revenue was record $500 million, $0.5 billion, up 93% from $259.3 million in 2011 and non-GAAP net income was record $155.7 million, compared to $45.6 million in 2011 at 241% increase.

We ended the year with $426.3 million in cash and investments, an annual increase of $184.9 million. For 2012, we grew IC unit volume shipment approximately 95% to 1.1 million units shipped, highlighting the increased adoption of our technology in server and storage systems.

During the FDR InfiniBand products represented 39% of revenues, compared to 57% in the third quarter of 2012. As we mentioned earlier, we had a cabling issue in the fourth quarter that affected sales of our FDR solutions. The cabling issue has been resolved and is not expected to further impact revenue.

Revenue from our 10 and 40 gigabit Ethernet products increased during the quarter to 11% of revenues. Mellanox continues to provide the industry's only end-to-end 40 gigabit per second Ethernet interconnect solutions.

During the quarter, we launched a variety of new solutions into the market including MetroX, our new line of long haul InfiniBand and Ethernet interconnect solutions. MetroX extends RDMA over InfiniBand or Ethernet beyond the single data center network location sense of up to 40 kilometers now, and in the future up to 100 kilometers to help connect multiple data centers together in local, campus and even metro environments.

We introduced a new 12-port FDR 56 gigabit a second InfiniBand switch. We released our Unified Fabric Management, software defined network appliance, which provides a comprehensive management solution for scalable compute and storage infrastructures. With the UFM-SDN, appliance, IT administrators can effectively manage their data center resources, reduce data center deployment time, improve its performance and provide the capability to monitor provision and optimize in real time manner, all in an easy install package.

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