NVIDIA Announces Financial Results For Third Quarter Fiscal 2015

Thursday, November 6, 2014

SANTA CLARA, CA - NVIDIA (NASDAQNVDA)

  • Record revenue of $1.23 billion in quarter, up 16 percent from a year earlier
  • GAAP diluted EPS of $0.31 in quarter, up from $0.20 a year earlier; non-GAAP diluted EPS of $0.39, up from $0.26 a year earlier
  • Record revenue of $3.43 billion in first three quarters, up 15 percent from a year earlier

NVIDIA today reported revenue for the third quarter ended October 26, 2014, of $1.23 billion, up 16 percent from $1.05 billion a year earlier and up 11 percent from $1.10 billion the previous quarter. Revenue for the first three quarters of fiscal 2015 was a record $3.43 billion, up 15 percent from $2.99 billion a year earlier.

GAAP earnings per diluted share for the quarter were $0.31, up 55 percent from $0.20 a year earlier and up 41 percent from the previous quarter. Non-GAAP earnings per diluted share were $0.39, up 50 percent from $0.26 a year earlier and up 30 percent from the previous quarter.

"NVIDIA's focus on creating visual computing platforms for datacenter, mobile and PC drove record revenue this quarter," said Jen-Hsun Huang, president and chief executive officer of NVIDIA.

"Growth drivers have kicked in for us on several fronts. High-performance computing, virtualization and web service providers have created demand for our GPU-accelerated datacenter platforms. Automakers are using Tegra to help reinvent the driving experience. And our new Maxwell architecture is a giant leap forward that has triggered a major upgrade cycle by PC gamers."

During the third quarter, NVIDIA paid $46 million in cash dividends and received 16.8 million shares under a $310 million structured repurchase agreement it entered into in the quarter. During the first three quarters of fiscal 2015, the company paid $140 million in cash dividends and repurchased 44.2 million shares. As a result, the company has returned to shareholders $950 million in the first three quarters of fiscal 2015.

Since restarting its capital return program in the fourth quarter of fiscal 2013, NVIDIA has returned approximately $2.17 billion to shareholders. This represents 136 percent of the company's cumulative free cash flow for fiscal years 2013 to 2015 to date, and reflects the acceleration of the capital return program of cash generated in previous years.

The company intends to return approximately $600 million to shareholders in fiscal 2016 through ongoing quarterly cash dividends and share repurchases.

NVIDIA will pay its next quarterly cash dividend of $0.085 per share on Dec. 15, 2014, to all shareholders of record on Nov. 21, 2014. NVIDIA expects that a portion of this dividend payment may be considered a return of capital for U.S. federal income tax purposes.

 
 
GAAP Quarterly Financial Comparison
($ in millions except earnings per share) Q3 FY15 Q2 FY15 Q3 FY14   Q/Q   Y/Y
Revenue $1,225 $1,103 $1,054   up 11%   up 16%
Gross margin 55.2% 56.1% 55.4%   down 90 bps   down 20 bps
Operating expenses $463 $456 $443   up 2%   up 5%
Net income $173 $128 $119   up 35%   up 45%
Diluted earnings per share $0.31 $0.22 $0.20   up 41%   up 55%
               
               
 
Non-GAAP Quarterly Financial Comparison
($ in millions except earnings per share) Q3 FY15 Q2 FY15 Q3 FY14   Q/Q   Y/Y
Revenue $1,225 $1,103 $1,054   up 11%   up 16%
Gross margin 55.5% 56.4% 55.7%   down 90 bps   down 20 bps
Operating expenses $415 $411 $405   up 1%   up 2%
Net income $220 $173 $154   up 27%   up 43%
Diluted earnings per share $0.39 $0.30 $0.26   up 30%   up 50%
               
 

NVIDIA's outlook for the fourth quarter of fiscal 2015 is as follows:

  • Revenue is expected to be $1.20 billion, plus or minus two percent. 
     
  • GAAP and non-GAAP gross margins are expected to be 55.2 percent and 55.5 percent, respectively, plus or minus 50 basis points. 
     
  • GAAP operating expenses are expected to be approximately $470 million; non-GAAP operating expenses are expected to be approximately $422 million, inclusive of litigation costs. 
     
  • GAAP and non-GAAP tax rates for the fourth quarter of fiscal 2015 are both expected to be 18 percent, plus or minus one percentage point. This estimate excludes any discrete tax events that may occur during a quarter which, if realized, may increase or decrease NVIDIA's actual effective tax rates in such quarter. 
     
  • Capital expenditures are expected to be approximately $40 million to $50 million. 
     

Third Quarter Fiscal 2015 Highlights

During the third quarter, NVIDIA:

  • Launched flagship NVIDIA® GeForce® GTX™ GPUs for gaming based on Maxwell™, its 10th generation GPU architecture, which sets new standards of efficiency and performance. 
     
  • Extended Maxwell-based processors into the company's upgraded NVIDIA Quadro® lineup. 
     
  • Continued Tesla®'s push into the big data analytics market. IBM announced future support for GPU acceleration in its IBM DB2 with BLU database software; NVIDIA released a deep learning library to enable faster growth in machine learning; and nearly all teams in the recent ImageNet international computer-vision competition used GPUs. 
     
  • Announced its early customer access program for NVIDIA GRID™ with VMware, which is drawing strong interest from companies worldwide. Among those signing up were airline-manufacturer Airbus, international construction group CH2M Hill and U.S. healthcare-provider MetroHealth. 
     
  • Added new wins for the Tegra® K1 mobile processor, including the Google Nexus 9 tablet and NVIDIA's SHIELD™ tablet with 32GB of memory and LTE connectivity. Acer and HP also announced Chromebooks with Tegra K1. 
     
  • Surpassed 6 million cars on the road with infotainment systems powered by NVIDIA. Honda also announced that three of its models -- the Civic, Civic Tourer and CR-V -- will include Tegra-based systems in the European market. 
     
  • Filed lawsuits against Samsung and Qualcomm in the International Trade Commission (ITC) and U.S. District Court in Delaware for using NVIDIA GPU patents without a license. The ITC has subsequently determined that it will investigate the case and hold an evidentiary hearing in June of 2015.

CFO Commentary
Commentary on the quarter by Colette Kress, NVIDIA's executive vice president and chief financial officer, is available at http://investor.nvidia.com/.

Conference Call and Webcast Information 
NVIDIA will conduct a conference call with analysts and investors to discuss its third quarter fiscal 2015 financial results and current financial prospects today at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time). To listen to the conference call, dial (303) 223-2684; no password is required. A live webcast (listen-only mode) of the conference call will be accessible at the NVIDIA investor relations web site http://investor.nvidia.com/ 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 fourth quarter fiscal 2015.

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 other income and expense, non-GAAP income tax expense, non-GAAP net income, non-GAAP net income, or earnings, per diluted 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, legal settlements, acquisition-related costs, gains and losses from non-affiliated investments, interest expense related to the amortization of debt discount, other 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.

 
 
NVIDIA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
 
 
    Three Months Ended     Nine Months Ended
    October 26,     October 27,     October 26,   October 27,
    2014     2013     2014   2013
                             
Revenue   $ 1,225,382     $ 1,053,967     $ 3,430,993   $ 2,985,944
Cost of revenue     548,684       469,552       1,531,119     1,337,423
Gross profit     676,698       584,415       1,899,874     1,648,521
Operating expenses                            
  Research and development     340,085       340,294       1,011,472     999,193
  Sales, general and administrative     123,298       103,133       360,549     320,025
    Total operating expenses     463,383       443,427       1,372,021     1,319,218
Operating income     213,315       140,988       527,853     329,303
  Interest income     7,422       4,022       19,961     12,963
  Interest expense     11,542       819       34,539     2,508
  Other income (expense), net     (125 )     (2,707 )     13,702     1,608
Income before income tax expense     209,070       141,484       526,977     341,366
Income tax expense     36,103       22,750       89,518     48,293
Net income   $ 172,967     $ 118,734     $ 437,459   $ 293,073
                             
Net income per share:                            
  Basic   $ 0.32     $ 0.20     $ 0.79   $ 0.49
  Diluted   $ 0.31     $ 0.20     $ 0.77   $ 0.49
                             
Weighted average shares used in per share computation:                            
  Basic     547,789       580,870       555,035     594,363
  Diluted     558,201       588,752       565,653     600,108
 
 
 
NVIDIA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
         
         
    October 26,   January 26,
    2014   2014
ASSETS            
             
Current assets:            
  Cash, cash equivalents and marketable securities   $ 4,240,797   $ 4,671,810
  Accounts receivable, net     563,400     426,357
  Inventories     408,081     387,765
  Prepaid expenses and other current assets     128,831     138,779
    Total current assets     5,341,109     5,624,711
             
Property and equipment, net     566,601     582,740
Goodwill     643,179     643,179
Intangible assets, net     241,301     296,012
Other assets     93,679     104,252
    Total assets   $ 6,885,869   $ 7,250,894
             
LIABILITIES AND STOCKHOLDERS' EQUITY            
             
Current liabilities:            
  Accounts payable   $ 328,097   $ 324,391
  Accrued liabilities and other current liabilities     605,810     621,105
    Total current liabilities     933,907     945,496
             
Long-term debt     1,377,259     1,356,375
Other long-term liabilities     355,133     475,125
Capital lease obligations, long-term     14,977     17,500
Stockholders' equity     4,204,593     4,456,398
    Total liabilities and stockholders' equity   $ 6,885,869   $ 7,250,894
                 
                 
 
                             
NVIDIA CORPORATION  
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES  
(In thousands, except per share data)  
(Unaudited)  
                       
  Three Months Ended     Nine Months Ended  
  October 26,   July 27,     October 27,   October 26,   October 27,
  2014     2014     2013     2014     2013  
                                       
GAAP gross profit $ 676,698     $ 618,974     $ 584,415     $ 1,899,874     $ 1,648,521  
  GAAP gross margin   55.2 %     56.1 %     55.4 %     55.4 %     55.2 %
                                       
    Stock-based compensation expense included in cost of revenue (A)   3,021       2,656       3,090       8,596       7,911  
    Legal settlement   -       -       -       -       2,290  
Non-GAAP gross profit $ 679,719     $ 621,630     $ 587,505     $ 1,908,470     $ 1,658,722  
  Non-GAAP gross margin   55.5 %     56.4 %     55.7 %     55.6 %     55.6 %
                                       
GAAP operating expenses $ 463,383     $ 455,795     $ 443,427     $ 1,372,021     $ 1,319,218  
    Stock-based compensation expense included in operating expense (A)   (38,414 )     (35,759 )     (31,209 )     (106,775 )     (92,180 )
    Acquisition-related costs (B)   (9,572 )     (9,173 )     (4,577 )     (28,186 )     (22,402 )
    Other expense (C)   -       -       (2,235 )     -       (2,235 )
Non-GAAP operating expenses $ 415,397     $ 410,863     $ 405,406     $ 1,237,060     $ 1,202,401  
                                       
GAAP other income (expense), net $ (4,245 )   $ (8,554 )   $ 496     $ (876 )   $ 12,063  
    Gains and losses from non-affiliated investments   -       2,500       -       (14,482 )     -  
    Interest expense related to amortization of debt discount   7,010       6,973       -       20,884       -  
Non-GAAP other income (expense), net $ 2,765     $ 919     $ 496     $ 5,526     $ 12,063  
                                       
GAAP net income $ 172,967     $ 127,976     $ 118,734     $ 437,459     $ 293,073  
    Total pre-tax impact of non-GAAP adjustments   58,017       57,061       41,111       149,959       127,018  
    Income tax impact of non-GAAP adjustments   (10,549 )     (11,606 )     (6,055 )     (27,497 )     (19,170 )
Non-GAAP net income $ 220,435     $ 173,431     $ 153,790     $ 559,921     $ 400,921  
                                       
Diluted net income per share                                      
    GAAP $ 0.31     $ 0.22     $ 0.20     $ 0.77     $ 0.49  
    Non-GAAP $ 0.39     $ 0.30     $ 0.26     $ 0.99     $ 0.67  
                                       
Shares used in diluted net income per share computation   558,201       570,572       588,752       565,653       600,108  
                                       
Metrics:                                      
                                       
    GAAP net cash flow provided by operating activities $ 215,623     $ 96,282     $ 162,315     $ 462,927     $ 434,434  
    Purchase of property and equipment and intangible assets   (39,741 )     (22,527 )     (38,159 )     (91,336 )     (188,812 )
    Free cash flow $ 175,882     $ 73,755     $ 124,156     $ 371,591     $ 245,622  
                                       
                                       
(A) Excludes stock-based compensation as follows: Three Months Ended     Nine Months Ended  
  October 26,   July 27,     October 27,   October 26,   October 27,
  2014     2014     2013     2014     2013  
    Cost of revenue $ 3,021     $ 2,656     $ 3,090     $ 8,596     $ 7,911  
    Research and development $ 22,680     $ 21,462     $ 20,902     $ 64,636     $ 61,392  
    Sales, general and administrative $ 15,734     $ 14,297     $ 10,307     $ 42,139     $ 30,788  
                                       
(B) Consists of amortization of acquisition-related intangible assets, transaction costs, compensation charges, and other credits related to acquisitions.  
(C) Consists of restructuring charges.  
   
   
 
   
   
NVIDIA CORPORATION  
RECONCILIATION OF GAAP TO NON-GAAP OUTLOOK  
   
  Q4 FY2015 Outlook  
       
GAAP gross margin   55.2 %
  Impact of stock-based compensation   0.3 %
Non-GAAP gross margin   55.5 %
       
  Q4 FY2015 Outlook  
  (In millions)  
       
GAAP operating expenses $ 470  
  Stock-based compensation expense and acquisition-related costs   (48 )
Non-GAAP operating expenses $ 422  
 

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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/.
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