Mellanox releases strong financials

Eyal Waldman  photo: courtesy Mellanox Technologies
Eyal Waldman photo: courtesy Mellanox Technologies

Credcit Suisse: Investors underestimate the size of the company's addressable market.

As New York markets fell generally yesterday, the share price of Mellanox Technologies, Ltd. (MLNX) dipped 7.5%, but shot up 6.1% in late trading after the company released good quarterly financials and provided encouraging guidance for the fourth quarter, further raising its annual revenue estimate. Mellanox develops and sells end-to-end interconnect solutions for data center servers and storage systems using Ethernet and InfiniBand technology.

In the third quarter, Mellanox had revenue of $279 million, 23.7% more than in the corresponding quarter of 2017 and 4% more than in the previous quarter. The company thus beat the analysts' consensus revenue estimate by some $4 million. For the first three quarters, Mellanox's revenue totaled $799 million, 27.5% more than in the corresponding period of 2017.

The company posted a GAAP-based net profit in the third quarter of $37 million, which compares with $3.4 million in the corresponding quarter and $16.5 million in the previous quarter. On a non-GAAP basis, net profit was $71.4 million, compared with $36.6 million in the corresponding quarter and $66.6 million in the previous quarter.

Earnings per share were $1.33 in the third quarter, ahead of the analysts' estimate of $1.2. In the first nine months of this year, non-GAAP net profit totaled $189 million. The difference between the GAAP and non-GAAP profit figures is partly due to an expense of $800,000 in the third quarter and $13.4 million in the year to date arising from the proxy battle with activist investment fund Starboard, which ended in compromise in June.

In the first nine months Mellanox generated $168 million cash from regular activities, 78.5% more than in the corresponding period of 2017. At the end of the third quarter, Mellanox had more than $350 million cash.

For the fourth quarter, Mellanox expects revenue of $280-290 million, which compares with a consensus analysts, estimate of $281 million. Revenue for 2018 as a whole is thus expected to total $1.079-1.089 billion, representing 25-26% growth over 2017, when revenue grew only slightly.

“Mellanox continues to execute and gain momentum in the markets we participate in. We reported another record quarter in Q3, delivering 24% revenue growth and 90% non-GAAP operating income growth year-over-year. This resulted in a non-GAAP operating margin of 26.2%," said Eyal Waldman, President and CEO of Mellanox Technologies.

"Our strong results reflect the differentiated and superior product technologies that Mellanox has to offer for data center infrastructure. The innovations built into our high-speed Ethernet adapters, switches and cables are fueling demand for our Ethernet products. Leading hyperscale, cloud, enterprise data center and artificial intelligence customers continue to choose Mellanox to maximize the efficiency and utilization of their compute and storage investments. This has resulted in further market share gains across our high-speed Ethernet products and 59% year-over-year revenue growth in our Ethernet business."

Credit Suisse sees Mellanox's results as better than expected, and says that investors underestimate the size of the company's addressable market. Nevertheless, Credit Suisse continues to rate the stock "Neutral", with a price target of $90, 36.4% above yesterday's closing price and 28.6% above the price the stock reached in after-hours trading.

Mellanox's share price is 25.5% below the peak it reached in early June against the background of the struggle with Starboard, which, as mentioned, ended in compromise.

Published by Globes, Israel business news - en.globes.co.il - on October 25, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

Eyal Waldman  photo: courtesy Mellanox Technologies
Eyal Waldman photo: courtesy Mellanox Technologies
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