NVIDIA Reports Financial Results for Third Quarter Fiscal 2014

Thursday, November 7, 2013

Increases Dividend; Intends to Return to Shareholders $1 Billion of Capital in Fiscal 2015

SANTA CLARA, CA - NVIDIA (NASDAQ: NVDA) NVIDIA (NASDAQ: NVDA) today reported revenue for the third quarter of fiscal 2014, ended Oct. 27, 2013, of $1.054 billion, up 7.9 percent from $977.2 million in the previous quarter.

  • Revenue of $1.054 billion. 
     
  • GAAP net income of $118.7 million, or $0.20 per diluted share. Non-GAAP net income of $153.8 million, or $0.26 per diluted share. 
     
  • GAAP and non-GAAP gross margins of 55.4 percent and 55.7 percent, respectively. 

NVIDIA (NASDAQ: NVDA) today reported revenue for the third quarter of fiscal 2014, ended Oct. 27, 2013, of $1.054 billion, up 7.9 percent from $977.2 million in the previous quarter.

GAAP earnings per diluted share were $0.20, up 25.0 percent from $0.16 in the previous quarter. Non-GAAP earnings per diluted share were $0.26, up 13.0 percent from $0.23 in the previous quarter.

NVIDIA also announced a 13 percent increase in the quarterly cash dividend to $0.085 per share ($0.34 per share on an annual basis) from $0.075 per share ($0.30 per share on an annual basis). NVIDIA will pay its next quarterly cash dividend of $0.085 per share on Dec. 13, 2013, to all stockholders of record on Nov. 21, 2013.

NVIDIA intends to return $1 billion in fiscal 2015 through stock repurchases and quarterly dividend payments. The company's board of directors has authorized an additional $1 billion under the company's stock repurchase program for a total of $1.286 billion available through the end of January 2016.

"Visual computing is increasingly important to more and more markets," said Jen-Hsun Huang, president and chief executive officer of NVIDIA. "It's creating demand for GPUs and opening up large opportunities. The proof can be seen in the proliferation of Tegra into new verticals like automotive and set-top boxes, in our all-time high Quadro and Tesla revenues, and in the record number of customer trials for our GRID datacenter initiative. At a time when many are struggling with the decline in the mainstream PC market, our visual computing leadership has positioned us well to grow with the accelerating adoption of GPUs in the cloud and the world of connected devices."

 
GAAP Quarterly Financial Comparison
(in millions except per share data)   Q3 FY14 Q2 FY14 Q3 FY13 Q/Q Y/Y
Revenue   $1,054.0   $977.2   $1,204.1   up 7.9%   down 12.5%
Gross margin   55.4%   55.8%   52.9%   down 40 bps   up 250 bps
Operating expenses   $443.4   $440.0   $384.4   up 0.8%   up 15.3%
Net income   $118.7   $96.4   $209.1   up 23.1%   down 43.2%
Earnings per share   $0.20   $0.16   $0.33   up 25.0%   down 39.4%
                     
 
Non-GAAP* Quarterly Financial Comparison
(in millions except per share data)   Q3 FY14 Q2 FY14 Q3 FY13 Q/Q Y/Y
Revenue   $1,054.0   $977.2   $1,204.1   up 7.9%   down 12.5%
Gross margin   55.7%   56.3%   53.1%   down 60 bps   up 260 bps
Operating expenses   $405.4   $400.8   $344.8   up 1.1%   up 17.6%
Net income   $153.8   $133.3   $245.5   up 15.3%   down 37.3%
Earnings per share   $0.26   $0.23   $0.39   up 13.0%   down 33.3%
                     
                     

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

The company's previously announced $750 million accelerated stock repurchase was completed on Oct. 22 with the delivery of an additional 14.6 million shares. In aggregate, we received 51.5 million shares at an average price of $14.56 per share. The common stock delivered to NVIDIA was placed into treasury stock.

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

  • Strengthened its mobile business, with the first shipments of Tegra® 4 devices -- including China's Mi3 smartphone from Xiaomi and Tegra Note™, a complete tablet platform.
  • Improved gaming for NVIDIA® SHIELD™ users, with the introduction of Gamepad Mapper, which expands support for thousands more Android gaming titles.
  • Launched its new flagship gaming GPU, GeForce® GTX™ 780 Ti, and the world's most powerful workstation graphics card, Quadro® K6000.
  • Introduced revolutionary G-SYNC™ technology, which eliminates onscreen tearing, stuttering and lag by synchronizing the GPU and the display.
  • Announced that VMware Horizon View, a leading virtual desktop management product, now supports NVIDIA GRID technology.

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

  • Revenue is expected to be $1.05 billion, plus or minus two percent. 
     
  • GAAP and non-GAAP margins are expected to be approximately 54.2 percent and 54.5 percent, respectively.
     
  • GAAP operating expenses are expected to be approximately $450 million; non-GAAP operating expenses are expected to be approximately $410 million. 
     
  • GAAP and non-GAAP tax rates are expected to be 16 percent, plus or minus one percent. This estimate excludes any discrete tax events that may occur during the quarter, which, if realized, may increase or decrease our actual effective tax rates in the quarter.

Diluted shares for the fourth quarter are expected to be approximately 578.5 million.

CFO Commentary and Earnings Presentation
Commentary on the quarter by Colette Kress, NVIDIA 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 third 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 (212) 231-2922. 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 fourth 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 or credits, a restructuring charge, 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.

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NVIDIA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
                 
    Three Months Ended   Nine Months Ended
    October 27,2013   October 28,2012   October 27,2013   October 28,2012
                         
Revenue   $ 1,053,967   $ 1,204,110   $ 2,985,944   $ 3,173,257
Cost of revenue     469,552     567,452     1,337,423     1,532,516
Gross profit     584,415     636,658     1,648,521     1,640,741
Operating expenses                        
  Research and development     340,294     284,180     999,193     849,275
  Sales, general and administrative     103,133     100,261     320,025     326,800
    Total operating expenses     443,427     384,441     1,319,218     1,176,075
Operating income     140,988     252,217     329,303     464,666
Interest and other income, net     496     1,411     12,063     11,265
Income before income tax expense     141,484     253,628     341,366     475,931
Income tax expense     22,750     44,548     48,293     87,368
Net income   $ 118,734   $ 209,080   $ 293,073   $ 388,563
                         
Basic net income per share   $ 0.20   $ 0.34   $ 0.49   $ 0.63
Diluted net income per share   $ 0.20   $ 0.33   $ 0.49   $ 0.62
                         
Shares used in basic per share computation     580,870     622,352     594,363     619,043
Shares used in diluted per share computation     588,752     628,845     600,108     625,973
                         
                         
 
NVIDIA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
         
    October 27,2013   January 27,2013
ASSETS            
             
Current assets:            
  Cash, cash equivalents and marketable securities   $ 3,032,954   $ 3,727,883
  Accounts receivable, net     447,631     454,252
  Inventories     380,319     412,467
  Prepaid expenses and other current assets     188,937     180,656
    Total current assets     4,049,841     4,775,258
             
Property and equipment, net     595,418     576,144
Goodwill     643,179     641,030
Intangible assets, net     320,589     312,332
Other assets     102,346     107,481
    Total assets   $ 5,711,373   $ 6,412,245
             
LIABILITIES AND STOCKHOLDERS' EQUITY            
             
Current liabilities:            
  Accounts payable   $ 333,283   $ 356,428
  Accrued liabilities and other current liabilities     652,644     619,795
    Total current liabilities     985,927     976,223
             
Other long-term liabilities     387,784     589,321
Capital lease obligations, long term     17,015     18,998
Stockholders' equity     4,320,647     4,827,703
    Total liabilities and stockholders' equity   $ 5,711,373   $ 6,412,245
                 
                 
                               
NVIDIA CORPORATION  
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES  
(In thousands, except per share data)  
(Unaudited)  
                               
    Three Months Ended     Nine Months Ended  
    October 27, 2013     July 28,2013     October 28, 2012     October 27, 2013     October 28, 2012  
                                         
GAAP gross profit   $ 584,415     $ 545,538     $ 636,658     $ 1,648,521     $ 1,640,741  
  GAAP gross margin     55.4 %     55.8 %     52.9 %     55.2 %     51.7 %
    Stock-based compensation expense included in cost of revenue (A)     3,090       2,168       2,489       7,911       7,664  
    Legal settlement     -       2,290       -       2,290       -  
Non-GAAP gross profit   $ 587,505     $ 549,996     $ 639,147     $ 1,658,722     $ 1,648,405  
  Non-GAAP gross margin     55.7 %     56.3 %     53.1 %     55.6 %     51.9 %
                                         
GAAP operating expenses   $ 443,427     $ 440,004     $ 384,441     $ 1,319,218     $ 1,176,075  
    Stock-based compensation expense included in operating expense (A)     (31,209 )     (30,227 )     (30,580 )     (92,180 )     (93,229 )
    Amortization of acquisition-related intangible assets     (4,906 )     (3,980 )     (4,402 )     (12,801 )     (12,809 )
    Other acquisition-related costs or credits (B)     329       (4,984 )     (4,666 )     (9,601 )     (14,631 )
    Contribution expense (C)     -       -       -       -       (20,127 )
    Restructuring charge     (2,235 )     -       -       (2,235 )     -  
Non-GAAP operating expenses   $ 405,406     $ 400,813     $ 344,793     $ 1,202,401     $ 1,035,279  
                                         
GAAP net income   $ 118,734     $ 96,448     $ 209,080     $ 293,073     $ 388,563  
    Total pre-tax impact of non-GAAP adjustments     41,111       43,649       42,137       127,018       148,460  
    Income tax impact of non-GAAP adjustments     (6,055 )     (6,767 )     (5,755 )     (19,170 )     (23,583 )
Non-GAAP net income   $ 153,790     $ 133,330     $ 245,462     $ 400,921     $ 513,440  
                                         
Diluted net income per share                                        
    GAAP   $ 0.20     $ 0.16     $ 0.33     $ 0.49     $ 0.62  
    Non-GAAP   $ 0.26     $ 0.23     $ 0.39     $ 0.67     $ 0.82  
                                         
Shares used in diluted net income per share computation     588,752       592,006       628,845       600,108       625,973  
                                         
Metrics:                                        
    GAAP net cash flow provided by operating activities   $ 162,315     $ 96,469     $ 181,485     $ 434,434     $ 373,163  
    Purchase of property and equipment and intangible assets     (38,159 )     (84,986 )     (44,684 )     (188,812 )     (135,551 )
    Free cash flow   $ 124,156     $ 11,483     $ 136,801     $ 245,622     $ 237,612  
                                         
                                         
                                         
(A) Excludes stock-based compensation as follows:   Three Months Ended     Nine Months Ended  
    October 27, 2013     July 28,2013     October 28, 2012     October 27, 2013     October 28, 2012  
    Cost of revenue   $ 3,090     $ 2,168     $ 2,489     $ 7,911     $ 7,664  
    Research and development   $ 20,902     $ 18,555     $ 20,056     $ 61,392     $ 60,148  
    Sales, general and administrative   $ 10,307     $ 11,672     $ 10,524     $ 30,788     $ 33,081  
                                         
                                         
(B) Consists of transaction costs, compensation charges, and other credits 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  
   
    Q4 FY2014 Outlook  
         
GAAP gross margin     54.2 %
  Impact of stock-based compensation (A)     0.3 %
Non-GAAP gross margin     54.5 %
         
    Q4 FY2014 Outlook  
    (In millions)  
         
GAAP operating expenses   $ 450.0  
  Stock-based compensation expense included in operating expense     (30.8 )
  Amortization of acquisition-related intangible assets     (4.9 )
  Other acquisition-related costs (B)     (4.3 )
         
Non-GAAP operating expenses   $ 410.0  
         
(A) Represents $2.7 million of stock-based compensation expense included in cost of revenue.  
   
(B) Consists of transaction costs and compensation charges related to acquisitions.  
   
 
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/.
© 2016 NVIDIA Corporation. All rights reserved. NVIDIA and the NVIDIA logo 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.

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