NVIDIA today reported revenue for the third quarter ended Oct. 27, 2019, of $3.01 billion compared with $3.18 billion a year earlier and $2.58 billion in the previous quarter.
GAAP earnings per diluted share for the quarter were $1.45, compared with $1.97 a year ago and $0.90 in the previous quarter. Non-GAAP earnings per diluted share were $1.78, compared with $1.84 a year earlier and $1.24 in the previous quarter.
“Our gaming business and demand from hyperscale customers powered Q3’s results,“ said Jensen Huang, founder and CEO of NVIDIA. “The realism of computer graphics is taking a giant leap forward with NVIDIA RTX.
“This quarter, we have laid the foundation for where AI will ultimately make the greatest impact. We extended our reach beyond the cloud, to the edge, where GPU-accelerated 5G, AI and IoT will revolutionize the world’s largest industries. We see strong data center growth ahead, driven by the rise of conversational AI and inference.”
NVIDIA will pay its next quarterly cash dividend of $0.16 per share on Dec. 20, 2019, to all shareholders of record on Nov. 29, 2019.
The company will return to repurchasing its stock after closing the acquisition of Mellanox Technologies, Ltd. Although discussions with the European Union and China regulatory bodies are progressing and closing the acquisition is possible by the end of this calendar year, the company believes the closing will likely occur in the early part of calendar 2020.
Q3 Fiscal 2020 Summary
| GAAP | ||||||||||||||
| ($ in millions, except earnings per share) |
Q3 FY20 | Q2 FY20 | Q3 FY19 | Q/Q | Y/Y | |||||||||
| Revenue | $3,014 | $2,579 | $3,181 | Up 17% | Down 5% | |||||||||
| Gross margin | 63.6% | 59.8% | 60.4% | Up 380 bps | Up 320 bps | |||||||||
| Operating expenses | $989 | $970 | $863 | Up 2% | Up 15% | |||||||||
| Operating income | $927 | $571 | $1,058 | Up 62% | Down 12% | |||||||||
| Net income | $899 | $552 | $1,230 | Up 63% | Down 27% | |||||||||
| Diluted earnings per share | $1.45 | $0.90 | $1.97 | Up 61% | Down 26% | |||||||||
| Non-GAAP | ||||||||||||||
| ($ in millions, except earnings per share) |
Q3 FY20 | Q2 FY20 | Q3 FY19 | Q/Q | Y/Y | |||||||||
| Revenue | $3,014 | $2,579 | $3,181 | Up 17% | Down 5% | |||||||||
| Gross margin | 64.1% | 60.1% | 61.0% | Up 400 bps | Up 310 bps | |||||||||
| Operating expenses | $774 | $749 | $730 | Up 3% | Up 6% | |||||||||
| Operating income | $1,156 | $802 | $1,210 | Up 44% | Down 4% | |||||||||
| Net income | $1,103 | $762 | $1,151 | Up 45% | Down 4% | |||||||||
| Diluted earnings per share | $1.78 | $1.24 | $1.84 | Up 44% | Down 3% | |||||||||
NVIDIA’s outlook for the fourth quarter of fiscal 2020 does not include any contribution from the pending acquisition of Mellanox and is as follows:
- Revenue is expected to be $2.95 billion, plus or minus 2 percent. Strong sequential growth is expected in Data Center, offset by a seasonal decline in GeForce® notebook GPUs and SoC modules for gaming platforms.
- GAAP and non-GAAP gross margins are expected to be 64.1 percent and 64.5 percent, respectively, plus or minus 50 basis points.
- GAAP and non-GAAP operating expenses are expected to be approximately $1.02 billion and $805 million, respectively.
- GAAP and non-GAAP other income and expense are both expected to be income of approximately $25 million.
- GAAP and non-GAAP tax rates are both expected to be 9 percent, plus or minus 1 percent, excluding any discrete items. GAAP discrete items include excess tax benefits or deficiencies related to stock-based compensation, which are expected to generate variability on a quarter by quarter basis.
Highlights
Since the end of the second quarter of fiscal 2020, NVIDIA has achieved progress in these areas:
Gaming
- Announced with Microsoft that Minecraft, the world’s most popular computer game, will feature ray tracing.
- Announced SUPER versions of GeForce GTX TM GPUs with GeForce GTX 1650 SUPER, and GeForce GTX 1660 SUPER, successor to GeForce GTX 1060, the world’s best-selling GPU.
- Introduced the RTX Broadcast Engine, which uses the AI capabilities of GeForce RTX GPUs to enable virtual greenscreens, filters and AR effects in livestreaming.
- Announced two new models of the SHIELD TV streaming media player, which bring unmatched levels of home entertainment, gaming and AI capabilities to the living room.
- Expanded the reach of GeForce NOW TM game streaming, with the service announced by Taiwan Mobile and Russia’s Rostelcom with GFN.ru, which joined Korea’s LG U+ and Japan’s SoftBank.
Data Center
- Launched the NVIDIA® EGX Intelligent Edge Computing Platform to bring accelerated AI to retail, manufacturing, telecommunications, logistics and other industries, with Walmart, BMW, NTT East, Procter & Gamble and Samsung Electronics among early adopters.
- Collaborated with Microsoft to provide an optimized hybrid-cloud platform combining Microsoft Azure software with NVIDIA EGX powered by NVIDIA T4 GPUs to address edge-computing demand.
- Entered the 5G telecom market, enabling telcos to build high-performing, efficient, virtualized 5G radio access networks using GPUs, in collaboration with Ericsson.
- Announced a collaboration with Red Hat to deliver software-defined 5G RAN using Red Hat OpenShift and GPU-accelerated servers.
- Won the first inference benchmark, MLPerf Inference 0.5, measuring AI workload performance in data centers and at the edge.
- Partnered with VMware to accelerate VMware Cloud on AWS using NVIDIA T4 GPUs and introduced the new NVIDIA Virtual Compute Server software for enterprises to run AI workloads on GPU servers in virtualized environments.
- Announced that the United States Postal Service will use NVIDIA AI technology to improve its package data-processing efficiency.
Professional Visualization
- Announced that more than 40 creative and design applications, including three from Adobe -- Adobe Dimension, Substance Alchemist and Premiere Pro -- are now accelerated by RTX technology.
Edge Computing
- Introduced Jetson Xavier™ NX, the world’s smallest, most powerful AI supercomputer for robotic and embedded computing devices at the edge.
CFO Commentary
Commentary on the quarter by Colette Kress, NVIDIA’s executive vice president and chief financial officer, is available at https://investor.nvidia.com/home/default.aspx.
Conference Call and Webcast Information
NVIDIA will conduct a conference call with analysts and investors to discuss its third quarter fiscal 2020 financial results and current financial prospects today at 2:30 p.m. Pacific time (5:30 p.m. Eastern time). A live webcast (listen-only mode) of the conference call will be accessible at NVIDIA’s investor relations website, https://investor.nvidia.com/home/default.aspx. The webcast will be recorded and available for replay until NVIDIA’s conference call to discuss its financial results for its fourth quarter of fiscal 2020.
Non-GAAP Measures
To supplement NVIDIA’s Condensed Consolidated Statements of Income 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 from operations, non-GAAP other income (expense), non-GAAP income tax expense, non-GAAP net income, non-GAAP net income, or earnings, per diluted share, non-GAAP diluted shares, 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 expense, legal settlement costs, restructuring and other, acquisition-related and other costs, gains and losses from non-affiliated investments, interest expense related to amortization of debt discount, and the associated tax impact of these items, where applicable. Free cash flow is calculated as GAAP net cash provided by operating activities less purchase 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 the company’s non-GAAP measures may be different from non-GAAP measures used by other companies.
| NVIDIA CORPORATION | |||||||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF INCOME | |||||||||||||||||
| (In millions, except per share data) | |||||||||||||||||
| (Unaudited) | |||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||
| October 27, | October 28, | October 27, | October 28, | ||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||||
| Revenue | $ | 3,014 | $ | 3,181 | $ | 7,813 | $ | 9,511 | |||||||||
| Cost of revenue | 1,098 | 1,260 | 3,060 | 3,547 | |||||||||||||
| Gross profit | 1,916 | 1,921 | 4,753 | 5,964 | |||||||||||||
| Operating expenses | |||||||||||||||||
| Research and development | 712 | 605 | 2,091 | 1,729 | |||||||||||||
| Sales, general and administrative | 277 | 258 | 806 | 725 | |||||||||||||
| Total operating expenses | 989 | 863 | 2,897 | 2,454 | |||||||||||||
| Income from operations | 927 | 1,058 | 1,856 | 3,510 | |||||||||||||
| Interest income | 45 | 37 | 137 | 94 | |||||||||||||
| Interest expense | (13 | ) | (15 | ) | (39 | ) | (44 | ) | |||||||||
| Other, net | - | 1 | - | 12 | |||||||||||||
| Total other income (expense) | 32 | 23 | 98 | 62 | |||||||||||||
| Income before income tax | 959 | 1,081 | 1,954 | 3,572 | |||||||||||||
| Income tax expense (benefit) | 60 | (149 | ) | 109 | (3 | ) | |||||||||||
| Net income | $ | 899 | $ | 1,230 | $ | 1,845 | $ | 3,575 | |||||||||
| Net income per share: | |||||||||||||||||
| Basic | $ | 1.47 | $ | 2.02 | $ | 3.03 | $ | 5.88 | |||||||||
| Diluted | $ | 1.45 | $ | 1.97 | $ | 2.99 | $ | 5.71 | |||||||||
| Weighted average shares used in per share computation: | |||||||||||||||||
| Basic | 610 | 609 | 609 | 608 | |||||||||||||
| Diluted | 618 | 625 | 617 | 626 | |||||||||||||
| NVIDIA CORPORATION | |||||||
| CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||
| (In millions) | |||||||
| (Unaudited) | |||||||
| October 27, | January 27, | ||||||
| 2019 | 2019 | ||||||
| ASSETS | |||||||
| Current assets: | |||||||
| Cash, cash equivalents and marketable securities | $ | 9,769 | $ | 7,422 | |||
| Accounts receivable, net | 1,455 | 1,424 | |||||
| Inventories | 1,047 | 1,575 | |||||
| Prepaid expenses and other current assets | 149 | 136 | |||||
| Total current assets | 12,420 | 10,557 | |||||
| Property and equipment, net | 1,517 | 1,404 | |||||
| Operating lease assets | 527 | - | |||||
| Goodwill | 618 | 618 | |||||
| Intangible assets, net | 43 | 45 | |||||
| Deferred income tax assets | 569 | 560 | |||||
| Other assets | 116 | 108 | |||||
| Total assets | $ | 15,810 | $ | 13,292 | |||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||
| Current liabilities: | |||||||
| Accounts payable | $ | 591 | $ | 511 | |||
| Accrued and other current liabilities | 884 | 818 | |||||
| Total current liabilities | 1,475 | 1,329 | |||||
| Long-term debt | 1,990 | 1,988 | |||||
| Long-term operating lease liabilities | 469 | - | |||||
| Other long-term liabilities | 662 | 633 | |||||
| Total liabilities | 4,596 | 3,950 | |||||
| Shareholders' equity | 11,214 | 9,342 | |||||
| Total liabilities and shareholders' equity | $ | 15,810 | $ | 13,292 | |||
| NVIDIA CORPORATION | ||||||||||||||||||||||
| RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES | ||||||||||||||||||||||
| (In millions, except per share data) | ||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||
| October 27, | July 28, | October 28, | October 27, | October 28, | ||||||||||||||||||
| 2019 | 2019 | 2018 | 2019 | 2018 | ||||||||||||||||||
| GAAP gross profit | $ | 1,916 | $ | 1,541 | $ | 1,921 | $ | 4,753 | $ | 5,964 | ||||||||||||
| GAAP gross margin | 63.6 | % | 59.8 | % | 60.4 | % | 60.8 | % | 62.7 | % | ||||||||||||
| Stock-based compensation expense (A) | 15 | 8 | 5 | 27 | 21 | |||||||||||||||||
| Legal settlement costs | - | 2 | 14 | 11 | 14 | |||||||||||||||||
| Non-GAAP gross profit | $ | 1,931 | $ | 1,551 | $ | 1,940 | $ | 4,791 | $ | 5,999 | ||||||||||||
| Non-GAAP gross margin | 64.1 | % | 60.1 | % | 61.0 | % | 61.3 | % | 63.1 | % | ||||||||||||
| GAAP operating expenses | $ | 989 | $ | 970 | $ | 863 | $ | 2,897 | $ | 2,454 | ||||||||||||
| Stock-based compensation expense (A) | (208 | ) | (216 | ) | (135 | ) | (597 | ) | (379 | ) | ||||||||||||
| Acquisition-related and other costs | (7 | ) | (5 | ) | (1 | ) | (22 | ) | (5 | ) | ||||||||||||
| Legal settlement costs | - | - | (1 | ) | (2 | ) | (3 | ) | ||||||||||||||
| Restructuring and other | - | - | 4 | - | 4 | |||||||||||||||||
| Non-GAAP operating expenses | $ | 774 | $ | 749 | $ | 730 | $ | 2,276 | $ | 2,071 | ||||||||||||
| GAAP income from operations | $ | 927 | $ | 571 | $ | 1,058 | $ | 1,856 | $ | 3,510 | ||||||||||||
| Total impact of non-GAAP adjustments to income from operations | 229 | 231 | 152 | 659 | 418 | |||||||||||||||||
| Non-GAAP income from operations | $ | 1,156 | $ | 802 | $ | 1,210 | $ | 2,515 | $ | 3,928 | ||||||||||||
| GAAP other income (expense) | $ | 32 | $ | 35 | $ | 23 | $ | 98 | $ | 62 | ||||||||||||
| Losses (Gains) from non-affiliated investments | - | - | (2 | ) | 1 | (11 | ) | |||||||||||||||
| Interest expense related to amortization of debt discount | 1 | - | - | 1 | 1 | |||||||||||||||||
| Non-GAAP other income (expense) | $ | 33 | $ | 35 | $ | 21 | $ | 100 | $ | 52 | ||||||||||||
| GAAP net income | $ | 899 | $ | 552 | $ | 1,230 | $ | 1,845 | $ | 3,575 | ||||||||||||
| Total pre-tax impact of non-GAAP adjustments | 230 | 231 | 150 | 660 | 409 | |||||||||||||||||
| Income tax impact of non-GAAP adjustments (B) | (26 | ) | (21 | ) | (91 | ) | (97 | ) | (199 | ) | ||||||||||||
| Tax benefit from income tax reform | - | - | (138 | ) | - | (138 | ) | |||||||||||||||
| Non-GAAP net income | $ | 1,103 | $ | 762 | $ | 1,151 | $ | 2,408 | $ | 3,647 | ||||||||||||
| Diluted net income per share | ||||||||||||||||||||||
| GAAP | $ | 1.45 | $ | 0.90 | $ | 1.97 | $ | 2.99 | $ | 5.71 | ||||||||||||
| Non-GAAP | $ | 1.78 | $ | 1.24 | $ | 1.84 | $ | 3.90 | $ | 5.83 | ||||||||||||
| Weighted average shares used in diluted net income per share computation | 618 | 616 | 625 | 617 | 626 | |||||||||||||||||
| GAAP net cash provided by operating activities | $ | 1,640 | $ | 936 | $ | 487 | $ | 3,296 | $ | 2,845 | ||||||||||||
| Purchase of property and equipment and intangible assets | (104 | ) | (113 | ) | (150 | ) | (344 | ) | (397 | ) | ||||||||||||
| Free cash flow | $ | 1,536 | $ | 823 | $ | 337 | $ | 2,952 | $ | 2,448 | ||||||||||||
| (A) Stock-based compensation consists of the following: | Three Months Ended | Nine Months Ended | ||||||||||||||||||||
| October 27, | July 28, | October 28, | October 27, | October 28, | ||||||||||||||||||
| 2019 | 2019 | 2018 | 2019 | 2018 | ||||||||||||||||||
| Cost of revenue | $ | 15 | $ | 8 | $ | 5 | $ | 27 | $ | 21 | ||||||||||||
| Research and development | $ | 141 | $ | 145 | $ | 88 | $ | 400 | $ | 237 | ||||||||||||
| Sales, general and administrative | $ | 67 | $ | 71 | $ | 47 | $ | 197 | $ | 142 | ||||||||||||
| (B) Income tax impact of non-GAAP adjustments, including the recognition of excess tax benefits or deficiencies related to stock-based compensation under GAAP accounting standard (ASU 2016-09). | ||||||||||||||||||||||
| NVIDIA CORPORATION | ||||
| RECONCILIATION OF GAAP TO NON-GAAP OUTLOOK | ||||
| Q4 FY2020 Outlook |
||||
| GAAP gross margin | 64.1 | % | ||
| Impact of stock-based compensation expense | 0.4 | % | ||
| Non-GAAP gross margin | 64.5 | % | ||
| Q4 FY2020 Outlook |
||||
| (In millions) | ||||
| GAAP operating expenses | $ | 1,015 | ||
| Stock-based compensation expense, acquisition-related costs, and other costs | (210 | ) | ||
| Non-GAAP operating expenses | $ | 805 | ||