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UNITED STATESSECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549______________
FORM 8-K
CURRENT REPORTPURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): August 15, 2019
NVIDIA CORP ORATION(Exact name of registrant as specified in its charter)
Delaware 0-23985 94-3177549(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
2788 San Tomas Expressway , Santa Clara , CA 95051
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: ( 408 ) 486-2000Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of thefollowing provisions:☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registeredCommon Stock, $0.001 par value per share NVDA The Nasdaq Global Select Market
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of thischapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with anynew or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02 Results of Operations and Financial Condition.
On August 15, 2019 , NVIDIA Corporation, or the Company, issued a press release announcing its results for the quarter ended July 28, 2019 . Thepress release is attached as Exhibit 99.1 and is incorporated herein by reference.
Attached hereto as Exhibit 99.2 and incorporated by reference herein is financial information and commentary by Colette M. Kress, Executive VicePresident and Chief Financial Officer of the Company, regarding results of the quarter ended July 28, 2019 , or the CFO Commentary. The CFOCommentary will be posted to http://investor.nvidia.com immediately after the filing of this Current Report.
The press release and CFO Commentary are furnished and shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of1934, as amended, or subject to the liabilities of that Section or Sections 11 and 12(a)(2) of the Securities Act of 1933, as amended. The informationin this Current Report shall not be incorporated by reference in any filing with the U.S. Securities and Exchange Commission made by the Company,whether made before or after the date hereof, regardless of any general incorporation language in such filing.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
Exhibit Description99.1 Press Release, dated August 15, 2019, entitled "NVIDIA Announces Financial Results for Second Quarter Fiscal 2020"99.2 CFO Commentary on Second Quarter Fiscal 2020 Results
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by theundersigned hereunto duly authorized.
NVIDIA CorporationDate: August 15, 2019 By: /s/ Colette M. Kress Colette M. Kress Executive Vice President and Chief Financial Officer
FOR IMMEDIATE RELEASE:
NVIDIA Announces Financial Results for Second Quarter Fiscal 2020
SANTA CLARA, Calif.- Aug. 15, 2019 -NVIDIA (NASDAQ: NVDA) today reported revenue for the second quarter ended July28, 2019, of $2.58 billion compared with $3.12 billion a year earlier and $2.22 billion in the previous quarter.
GAAP earnings per diluted share for the quarter were $0.90, compared with $1.76 a year ago and $0.64 in the previous quarter.Non-GAAP earnings per diluted share were $1.24 compared with $1.94 a year earlier and $0.88 in the previous quarter.
“We achieved sequential growth across our platforms,” said Jensen Huang, founder and CEO of NVIDIA. “Real-time ray tracingis the most important graphics innovation in a decade. Adoption has reached a tipping point, with NVIDIA RTX leading the way.
“NVIDIA accelerated computing momentum continues to build as the industry races to enable the next frontier in artificialintelligence, conversational AI, as well as autonomous systems like self-driving vehicles and delivery robots,” he said.
NVIDIA will pay its next quarterly cash dividend of $0.16 per share on September 20, 2019, to all shareholders of record onAugust 29, 2019. The first priority of the company’s cash balance is the purchase of Mellanox Technologies, Ltd. The companywill return to repurchasing its stock after the close of the Mellanox acquisition. The regulatory approval process for thisacquisition is progressing as expected, and NVIDIA continues to work toward closing the deal by the end of this calendar year.
Q2 Fiscal 2020 Summary
GAAP($ in millions, except earnings pershare) Q2 FY20 Q1 FY20 Q2 FY19 Q/Q Y/Y
Revenue $2,579 $2,220 $3,123 Up 16% Down 17%Gross margin 59.8% 58.4% 63.3% Up 140 bps Down 350 bpsOperating expenses $970 $938 $818 Up 3% Up 19%Operating income $571 $358 $1,157 Up 59% Down 51%Net income $552 $394 $1,101 Up 40% Down 50%Diluted earnings per share $0.90 $0.64 $1.76 Up 41% Down 49%
Non-GAAP($ in millions, except earnings pershare) Q2 FY20 Q1 FY20 Q2 FY19 Q/Q Y/Y
Revenue $2,579 $2,220 $3,123 Up 16% Down 17%Gross margin 60.1% 59.0% 63.5% Up 110 bps Down 340 bpsOperating expenses $749 $753 $692 Down 1% Up 8%Operating income $802 $557 $1,290 Up 44% Down 38%Net income $762 $543 $1,210 Up 40% Down 37%Diluted earnings per share $1.24 $0.88 $1.94 Up 41% Down 36%
NVIDIA’s outlook for the third quarter of fiscal 2020 is as follows:
• Revenue is expected to be $2.90 billion, plus or minus 2 percent.
• GAAP and non-GAAP gross margins are expected to be 62.0 percent and 62.5 percent, respectively, plus or minus 50basis points.
• GAAP and non-GAAP operating expenses are expected to be approximately $980 million and $765 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 10 percent, plus or minus 1 percent, excluding any discreteitems. GAAP discrete items include excess tax benefits or deficiencies related to stock-based compensation, which areexpected to generate variability on a quarter by quarter basis.
HighlightsSince the end of the first quarter of fiscal 2020, NVIDIA has achieved progress in these areas:
Data Center• Announced breakthroughs in language understanding that allow organizations to enable real-time conversational AI, with
record-setting performance in running training and inference on the BERT AI language model.
• Announced that NVIDIA’s DGX SuperPOD™ - which provides the AI infrastructure for the company’s autonomous-vehicle development program - was ranked the world’s 22nd fastest supercomputer and that its reference architecture isavailable commercially through partners.
• Set eight records in AI training performance in the latest MLPerf benchmarking tests.
• Announced support for Arm CPUs, providing a new path to build highly energy-efficient, AI-enabled exascalesupercomputers.
Gaming• Supercharged its GPU lineup with GeForce® RTX 2060 SUPER™, GeForce RTX 2070 SUPER and GeForce RTX 2080
SUPER, delivering best-in-class gaming performance and real-time ray tracing.
• Announced that new blockbuster titles including Call of Duty: Modern Warfare, Cyberpunk 2077, Watch Dogs: Legion,and Wolfenstein: Youngblood will feature ray tracing, propelling the momentum of RTX technology.
• Unveiled the new NVIDIA Studio® platform for the world’s tens of millions of online and studio-based creatives, with theintroduction of 27 new RTX Studio laptops powered by GeForce RTX™ and Quadro RTX™ GPUs.
• Announced the launch of 25 more gaming laptops by major makers fueled by NVIDIA Turing™ GPUs, bringing the totalnumber of Turing laptops to more than 100.
Professional Visualization• Announced that in its first full year, NVIDIA RTX™ ray tracing has emerged as the new industry standard in product
design, architecture, effects and scientific visualization, with the support of more than 40 key applications, including eightintroduced at SIGGRAPH.
• Rolled out a full range of Turing architecture-based Quadro® GPUs for mobile workstations with global system providers.
Automotive• Volvo Group announced that it is using the NVIDIA DRIVE™ end-to-end autonomous driving platform to train networks in
the data center, test them in simulation and deploy them in self-driving vehicles, targeting freight transport, refuse andrecycling collection, public transport, construction, mining, forestry and more.
CFO CommentaryCommentary on the quarter by Colette Kress, NVIDIA’s executive vice president and chief financial officer, is available athttp://investor.nvidia.com/.
Conference Call and Webcast InformationNVIDIA will conduct a conference call with analysts and investors to discuss its second quarter fiscal 2020 financial results andcurrent financial prospects today at 2:30 p.m. Pacific time (5:30 p.m. Eastern time). A live webcast (listen-only mode) of theconference call will be accessible at NVIDIA’s investor relations website, http://investor.nvidia.com. The webcast will be recordedand available for replay until NVIDIA’s conference call to discuss its financial results for its third quarter of fiscal 2020.
Non-GAAP MeasuresTo supplement NVIDIA’s Condensed Consolidated Statements of Income and Condensed Consolidated Balance Sheetspresented 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’sinvestors to be better able to compare its current results with those of previous periods, the company has shown a reconciliationof GAAP to non-GAAP financial measures. These reconciliations adjust the related GAAP financial measures to exclude stock-based compensation expense, legal settlement costs, acquisition-related and other costs, gains and losses from non-affiliatedinvestments, interest expense related to amortization of debt discount, and the associated tax impact of these items, whereapplicable. Weighted average shares used in the non-GAAP diluted net income per share computation includes the anti-dilutionimpact of our Note Hedge. Free cash flow is calculated as GAAP net cash provided by operating activities less purchase ofproperty and equipment and intangible assets. NVIDIA believes the presentation of its non-GAAP financial measures enhancesthe 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 resultsprepared in accordance with GAAP, and the company’s non-GAAP measures may be different from non-GAAP measures usedby other companies.
About NVIDIANVIDIA’s (NASDAQ: NVDA) invention of the GPU in 1999 sparked the growth of the PC gaming market, redefined moderncomputer graphics and revolutionized parallel computing. More recently, GPU deep learning ignited modern AI - the next era ofcomputing - with the GPU acting as the brain of computers, robots and self-driving cars that can perceive and understand theworld. More information at http://nvidianews.nvidia.com/.
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For further information, contact:
Simona Jankowski Robert SherbinInvestor Relations Corporate CommunicationsNVIDIA Corporation NVIDIA [email protected] [email protected]
Certain statements in this press release including, but not limited to, statements as to: real-time ray tracing being the most important graphics innovation in adecade; adoption of ray tracing reaching a tipping point with RTX leading the way; NVIDIA accelerated computing momentum continuing to build as the industryraces to enable the next frontier of artificial intelligence and autonomous systems; NVIDIA’s intended capital return; NVIDIA’s next quarterly cash dividend; thepriority of NVIDIA’s cash balance being the purchase of Mellanox; NVIDIA returning to repurchasing its stock after the close of the Mellanox acquisition; theregulatory approval process for the Mellanox acquisition progressing and NVIDIA continuing to work toward closing the deal by the end of this calendar year;NVIDIA’s financial outlook for the third quarter of fiscal 2020; NVIDIA’s expected tax rates for the third quarter of fiscal 2020; NVIDIA’s expectation to generatevariability from excess tax benefits or deficiencies; NVIDIA’s support for Arm CPUs providing a path to build exascale supercomputers; breakthroughs inlanguage understanding enabling real-time conversational AI and its performance; NVIDIA DGX SuperPOD’s availability; new games featuring ray tracing and itpropelling the momentum of RTX technology; the launch of laptops by major makers; the benefits, impact and performance of our technologies, including theRTX SUPER GPU lines, NVIDIA Studio platform and NVIDIA RTX ray tracing; NVIDIA RTX ray tracing emerging as the new industry standard and supportingmore than 40 key applications; and Volvo Group’s uses of NVIDIA DRIVE are forward-looking statements that are subject to risks and uncertainties that couldcause results to be materially different than expectations. Important factors that could cause actual results to differ materially include: global economicconditions; our reliance on third parties to manufacture, assemble, package and test our products; the impact of technological development and competition;development of new products and technologies or enhancements to our existing product and technologies; market acceptance of our products or our partners’products; design, manufacturing or software defects; changes in consumer preferences or demands; changes in industry standards and interfaces; unexpectedloss of performance of our products or technologies when integrated into systems; as well as other factors detailed from time to time in the most recent reportsNVIDIA files with the Securities and Exchange Commission, or SEC, including, but not limited to, its annual report on Form 10-K and quarterly reports on Form10-Q. Copies of reports filed with the SEC are posted on the company’s website and are available from NVIDIA without charge. These forward-lookingstatements are not guarantees of future performance and speak only as of the date hereof, and, except as required by law, NVIDIA disclaims any obligation toupdate these forward-looking statements to reflect future events or circumstances.
© 2019 NVIDIA Corporation. All rights reserved. NVIDIA, the NVIDIA logo, GeForce, GeForce RTX, GeForce RTX SUPER, NVIDIA DGX SuperPOD, NVIDIADRIVE, NVIDIA RTX, NVIDIA Turing, Quadro and Quadro RTX are trademarks and/or registered trademarks of NVIDIA Corporation in the U.S. and/or othercountries. 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.
NVIDIA CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share data)(Unaudited)
Three Months Ended Six Months Ended July 28, July 29, July 28, July 29, 2019 2018 2019 2018
Revenue $ 2,579 $ 3,123 $ 4,799 $ 6,330Cost of revenue 1,038 1,148 1,962 2,287Gross profit 1,541 1,975 2,837 4,043Operating expenses
Research and development 704 581 1,379 1,124 Sales, general and administrative 266 237 529 467 Total operating expenses 970 818 1,908 1,591Income from operations 571 1,157 929 2,452 Interest income 47 32 92 57 Interest expense (13) (14) (27) (29) Other, net 1 5 1 11 Total other income (expense) 35 23 66 39Income before income tax 606 1,180 995 2,491Income tax expense 54 79 48 146Net income $ 552 $ 1,101 $ 947 $ 2,345
Net income per share:
Basic $ 0.91 $ 1.81 $ 1.56 $ 3.86
Diluted $ 0.90 $ 1.76 $ 1.54 $ 3.74
Weighted average shares used in per sharecomputation:
Basic 609 607 608 607 Diluted 616 626 616 627
NVIDIA CORPORATIONCONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)(Unaudited)
July 28, January 27, 2019 2019ASSETS
Current assets:
Cash, cash equivalents and marketable securities $ 8,475 $ 7,422 Accounts receivable, net 1,561 1,424 Inventories 1,204 1,575 Prepaid expenses and other current assets 151 136 Total current assets 11,391 10,557
Property and equipment, net 1,484 1,404Operating lease assets 535 —Goodwill 618 618Intangible assets, net 49 45Deferred income tax assets 588 560Other assets 110 108 Total assets $ 14,775 $ 13,292
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 437 $ 511 Accrued and other current liabilities 880 818 Total current liabilities 1,317 1,329
Long-term debt 1,989 1,988Long-term operating lease liabilities 483 —Other long-term liabilities 650 633 Total liabilities 4,439 3,950
Shareholders' equity 10,336 9,342 Total liabilities and shareholders' equity $ 14,775 $ 13,292
NVIDIA CORPORATION RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (In millions, except per share data) (Unaudited)
Three Months Ended Six Months Ended July 28, April 28, July 29, July 28, July 29, 2019 2019 2018 2019 2018
GAAP gross profit $ 1,541 $ 1,296 $ 1,975 $ 2,837 $ 4,043 GAAP gross margin 59.8% 58.4% 63.3% 59.1% 63.9%
Stock-based compensation expense (A) 8 4 8 12 16 Legal settlement costs 2 10 — 11 —Non-GAAP gross profit $ 1,551 $ 1,310 $ 1,983 $ 2,860 $ 4,059
Non-GAAP gross margin 60.1% 59.0% 63.5% 59.6% 64.1%
GAAP operating expenses $ 970 $ 938 $ 818 $ 1,908 $ 1,591 Stock-based compensation expense (A) (216) (174) (124) (389) (246) Acquisition-related and other costs (5) (10) (2) (15) (4) Legal settlement costs — (1) — (2) —Non-GAAP operating expenses $ 749 $ 753 $ 692 $ 1,502 $ 1,341
GAAP income from operations $ 571 $ 358 $ 1,157 $ 929 $ 2,452
Total impact of non-GAAP adjustments to incomefrom operations 231 199 133 429 266
Non-GAAP income from operations $ 802 $ 557 $ 1,290 $ 1,358 $ 2,718
GAAP other income (expense) $ 35 $ 31 $ 23 $ 66 $ 39 Gains from non-affiliated investments — — (2) — (8)
Interest expense related to amortization of debtdiscount — — — 1 1
Non-GAAP other income (expense) $ 35 $ 31 $ 21 $ 67 $ 32
GAAP net income $ 552 $ 394 $ 1,101 $ 947 $ 2,345 Total pre-tax impact of non-GAAP adjustments 231 199 131 430 259 Income tax impact of non-GAAP adjustments (B) (21) (50) (22) (72) (109)Non-GAAP net income $ 762 $ 543 $ 1,210 $ 1,305 $ 2,495
Three Months Ended Six Months Ended July 28, April 28, July 29, July 28, July 29, 2019 2019 2018 2019 2018Diluted net income per share GAAP $ 0.90 $ 0.64 $ 1.76 $ 1.54 $ 3.74
Non-GAAP $ 1.24 $ 0.88 $ 1.94 $ 2.12 $ 3.99
Weighted average shares used in diluted netincome per share computation GAAP 616 616 626 616 627 Anti-dilution impact from note hedge — — (1) — (1) Non-GAAP 616 616 625 616 626
GAAP net cash provided by operating activities $ 936 $ 720 $ 913 $ 1,656 $ 2,358
Purchase of property and equipment andintangible assets (113) (128) (128) (241) (247)
Free cash flow $ 823 $ 592 $ 785 $ 1,415 $ 2,111
(A) Stock-based compensation consists of the following:
Three Months Ended Six Months Ended July 28, April 28, July 29, July 28, July 29, 2019 2019 2018 2019 2018 Cost of revenue $ 8 $ 4 $ 8 $ 12 $ 16 Research and development $ 145 $ 114 $ 76 $ 259 $ 150 Sales, general and administrative $ 71 $ 60 $ 48 $ 130 $ 96 (B) Income tax impact of non-GAAP adjustments, including the recognition of excess tax benefits or deficiencies related to stock-basedcompensation under GAAP accounting standard (ASU 2016-09).
NVIDIA CORPORATION RECONCILIATION OF GAAP TO NON-GAAP OUTLOOK
Q3 FY2020 Outlook GAAP gross margin 62.0% Impact of stock-based compensation expense 0.5% Non-GAAP gross margin 62.5%
Q3 FY2020 Outlook (In millions)GAAP operating expenses $ 980 Stock-based compensation expense, acquisition-related costs, and other costs (215)Non-GAAP operating expenses $ 765
CFO Commentary on Second Quarter Fiscal 2020 Results
Q2 Fiscal 2020 Summary
GAAP($ in millions, except earnings pershare) Q2 FY20 Q1 FY20 Q2 FY19 Q/Q Y/Y
Revenue $2,579 $2,220 $3,123 Up 16% Down 17%Gross margin 59.8% 58.4% 63.3% Up 140 bps Down 350 bpsOperating expenses $970 $938 $818 Up 3% Up 19%Operating income $571 $358 $1,157 Up 59% Down 51%Net income $552 $394 $1,101 Up 40% Down 50%Diluted earnings per share $0.90 $0.64 $1.76 Up 41% Down 49%
Non-GAAP($ in millions, except earnings pershare) Q2 FY20 Q1 FY20 Q2 FY19 Q/Q Y/Y
Revenue $2,579 $2,220 $3,123 Up 16% Down 17%Gross margin 60.1% 59.0% 63.5% Up 110 bps Down 340 bpsOperating expenses $749 $753 $692 Down 1% Up 8%Operating income $802 $557 $1,290 Up 44% Down 38%Net income $762 $543 $1,210 Up 40% Down 37%Diluted earnings per share $1.24 $0.88 $1.94 Up 41% Down 36%
Revenue by Reportable Segments($ in millions) Q2 FY20 Q1 FY20 Q2 FY19 Q/Q Y/YGPU Business $2,104 $2,022 $2,656 Up 4% Down 21%Tegra Processor Business 475 198 467 Up 140% Up 2%Total $2,579 $2,220 $3,123 Up 16% Down 17%
Revenue by Market Platform($ in millions) Q2 FY20 Q1 FY20 Q2 FY19 Q/Q Y/YGaming $1,313 $1,055 $1,805 Up 24% Down 27%Professional Visualization 291 266 281 Up 9% Up 4%Data Center 655 634 760 Up 3% Down 14%Automotive 209 166 161 Up 26% Up 30%OEM and Other 111 99 116 Up 12% Down 4%Total $2,579 $2,220 $3,123 Up 16% Down 17%
RevenueRevenue was $2.58 billion, down 17 percent from a year earlier and up 16 percent sequentially.
GPU business revenue was $2.10 billion, down 21 percent from a year earlier and up 4 percent sequentially.
Tegra™ Processor business revenue - which includes Automotive, SOC modules for gaming platforms, and embedded edge AIplatforms - was $475 million, up 2 percent from a year ago and up 140 percent sequentially.
From a market-platforms perspective, Gaming revenue was $1.31 billion, down 27 percent from a year ago and up 24 percentsequentially. The year-on-year decrease reflects a decline in shipments of gaming desktop GPUs and SOC modules for gamingplatforms, partially offset by growth in gaming notebook GPUs. The sequential increase reflects growth from SOC modules forgaming platforms, gaming notebook GPUs, and GeForce RTX SUPER™ gaming GPUs.
Professional Visualization revenue was $291 million, up 4 percent from a year earlier and up 9 percent sequentially. The year-on-year and sequential growth reflects strength across mobile workstation products.
Data Center revenue was $655 million, down 14 percent from a year ago and up 3 percent sequentially. The year-on-yeardecline reflects lower hyperscale revenue. The sequential increase was due to enterprise revenue growth driven by expandingAI workloads.
Automotive revenue was a record $209 million, up 30 percent from a year earlier and up 26 percent sequentially. The year-on-year and sequential growth was primarily driven by a development services agreement in the second quarter of fiscal 2020. Thegrowth in revenue also reflected AI cockpit solutions and other autonomous vehicle development agreements.
OEM and Other revenue was $111 million, down 4 percent from a year ago and up 12 percent sequentially. The sequentialincrease was primarily due to growth in shipments of embedded edge AI products.
Gross MarginGAAP gross margin for the second quarter was 59.8 percent, down 350 basis points from a year earlier and up 140 basis pointssequentially. Non-GAAP gross margin was 60.1 percent. The year-on-year decrease reflects lower Gaming and Data Centermargins driven primarily by product costs. The sequential increase reflects Automotive development services, a favorable mix inGaming, and lower component costs.
ExpensesGAAP operating expenses were $970 million, including $221 million in stock-based compensation and other charges, up 19percent from a year earlier and up 3 percent sequentially. Non-GAAP operating expenses were $749 million, up 8 percent from ayear earlier and down 1 percent sequentially. The year-on-year increase primarily reflects employee additions and increases inemployee compensation and other related costs, including infrastructure costs.
Operating IncomeGAAP operating income was $571 million, down 51 percent from a year earlier and up 59 percent sequentially. Non-GAAPoperating income was $802 million, down 38 percent from a year earlier and up 44 percent sequentially.
Other Income & Expense and Income Tax
GAAP($ in millions) Q2 FY20 Q1 FY20 Q2 FY19Interest income $47 $44 $32Interest expense (13) (13) (14)Other, net 1 -- 5Total $35 $31 $23
Non-GAAP($ in millions) Q2 FY20 Q1 FY20 Q2 FY19Interest income $47 $44 $32Interest expense (13) (13) (14)Other, net 1 -- 3Total $35 $31 $21
Other income and expense, or OI&E, includes interest earned on cash and investments, interest expense associated withcorporate bonds, and other gains and losses. GAAP OI&E includes interest expense associated with corporate bonds, interestincome from our investment portfolio, and gains or losses from investments. Non-GAAP OI&E excludes the portion of interestexpense from the amortization of the debt discount and the gains or losses from certain investments.
GAAP effective tax rate was 8.8 percent, inclusive of excess tax benefits related to stock-based compensation. Non-GAAPeffective tax rate was 8.9 percent.
Net Income and EPSGAAP net income was $552 million and non-GAAP net income was $762 million. GAAP earnings per diluted share were $0.90,down 49 percent from a year earlier and up 41 percent sequentially. Non-GAAP earnings per diluted share were $1.24, down 36percent from a year earlier and up 41 percent sequentially. The year-on-year decrease reflects lower revenue and gross margin,and higher operating expenses. The sequential increase primarily reflects higher revenue and gross margin.
Capital Return
Capital Return(in millions) FY13 FY14 FY15 FY16 FY17 FY18 FY19 YTD FY20
Dividends $47 $181 $186 $213 $261 $341 $371 $195Share repurchases:
$ $100 $887 $814 $587 $739 $909 $1,578 $-- Shares 8 62 44 25 15 6 9 --
Our first priority for the company’s cash balance is the purchase of Mellanox Technologies, Ltd. We will return to repurchasingour stock after the close of the Mellanox acquisition. The regulatory approval process for this acquisition is progressing asexpected, and we continue to work toward closing the deal by the end of this calendar year.
Balance Sheet and Cash FlowCash, cash equivalents and marketable securities at the end of the second quarter were $8.47 billion, up from $7.80 billion in theprior quarter. This increase primarily reflects growth in operating cash flow.
Accounts receivable at the end of the quarter was $1.56 billion compared with $1.24 billion in the prior quarter and $1.66 billion ayear earlier. DSO at quarter-end was 55 days, up from 51 days in the prior quarter and up from 48 days a year earlier.
Inventory at the end of the quarter was $1.20 billion, down from $1.43 billion in the prior quarter and up from $1.09 billion a yearearlier. Outstanding inventory purchase obligations at the end of the quarter were $757 million, down from $782 million in theprior quarter. DSI at quarter-end was 106 days, down from 140 days in the prior quarter and up from 86 days a year earlier.
Cash flow from operating activities was $936 million in the second quarter, up from $720 million in the prior quarter, and up from$913 million a year earlier. The sequential increase reflects growth in operating income partially offset by changes in workingcapital.
Free cash flow was $823 million in the second quarter, compared with $592 million in the previous quarter and $785 million ayear earlier.
Depreciation and amortization expense amounted to $92 million for the second quarter. Capital expenditures were $113 millionfor the second quarter.
Third Quarter of Fiscal 2020 OutlookOur outlook for the third quarter of fiscal 2020 is as follows:
• Revenue is expected to be $2.90 billion, plus or minus 2 percent.
• GAAP and non-GAAP gross margins are expected to be 62.0 percent and 62.5 percent, respectively, plus or minus 50basis points.
• GAAP and non-GAAP operating expenses are expected to be approximately $980 million and $765 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 10 percent, plus or minus 1 percent, excluding any discreteitems. GAAP discrete items include excess tax benefits or deficiencies related to stock-based compensation, which areexpected to generate variability on a quarter by quarter basis.
• Capital expenditures are expected to be approximately $100 million to $120 million.
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For further information, contact:
Simona Jankowski Robert SherbinInvestor Relations Corporate CommunicationsNVIDIA Corporation NVIDIA [email protected] [email protected]
Non-GAAP MeasuresTo supplement NVIDIA’s Condensed Consolidated Statements of Income and Condensed Consolidated Balance Sheetspresented 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’sinvestors to be better able to compare its current results with those of previous periods, the company has shown a reconciliationof GAAP to non-GAAP financial measures. These reconciliations adjust the related GAAP financial measures to exclude stock-based compensation expense, legal settlement costs, acquisition-related and other costs, gains and losses from non-affiliatedinvestments, interest expense related to amortization of debt discount, and the associated tax impact of these items, whereapplicable. Weighted average shares used in the non-GAAP diluted net income per share computation includes the anti-dilutionimpact of our Note Hedge. Free cash flow is calculated as GAAP net cash provided by operating activities less purchases ofproperty and equipment and intangible assets. NVIDIA believes the presentation of its non-GAAP financial measures enhancesthe 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 resultsprepared in accordance with GAAP, and the company’s non-GAAP measures may be different from non-GAAP measures usedby other companies.
Certain statements in this CFO Commentary including, but not limited to, statements as to: our intended capital return; the priority of NVIDIA’s cash balancebeing the purchase of Mellanox; NVIDIA returning to repurchasing its stock after the close of the Mellanox acquisition; the regulatory approval process for theMellanox acquisition progressing and NVIDIA continuing to work toward closing the deal by the end of this calendar year; our financial outlook for the thirdquarter of fiscal 2020; our expected tax rates for the third quarter of fiscal 2020; variability from excess tax benefits or deficiencies related to stock-basedcompensation; and our expected capital expenditures for the third quarter of fiscal 2020 are forward-looking statements that are subject to risks anduncertainties that could cause results to be materially different than expectations. Important factors that could cause actual results to differ materially include:global economic conditions; our reliance on third parties to manufacture, assemble, package and test our products; the impact of technological development andcompetition; development of new products and technologies or enhancements to our existing product and technologies; market acceptance of our products orour partners’ products; design, manufacturing or software defects; changes in consumer preferences or demands; changes in industry standards and interfaces;unexpected loss of performance of our products or technologies when integrated into systems; as well as other factors detailed from time to time in the mostrecent reports NVIDIA files with the Securities and Exchange Commission, or SEC, including, but not limited to, its annual report on Form 10-K and quarterlyreports on Form 10-Q. Copies of reports filed with the SEC are posted on the company’s website and are available from NVIDIA without charge. These forward-looking statements are not guarantees of future performance and speak only as of the date hereof, and, except as required by law, NVIDIA disclaims anyobligation to update these forward-looking statements to reflect future events or circumstances.
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NVIDIA CORPORATION RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (In millions, except per share data) (Unaudited)
Three Months Ended Six Months Ended July 28, April 28, July 29, July 28, July 29, 2019 2019 2018 2019 2018
GAAP gross profit $ 1,541 $ 1,296 $ 1,975 $ 2,837 $ 4,043 GAAP gross margin 59.8% 58.4% 63.3% 59.1% 63.9%
Stock-based compensation expense (A) 8 4 8 12 16 Legal settlement costs 2 10 — 11 —Non-GAAP gross profit $ 1,551 $ 1,310 $ 1,983 $ 2,860 $ 4,059
Non-GAAP gross margin 60.1% 59.0% 63.5% 59.6% 64.1%
GAAP operating expenses $ 970 $ 938 $ 818 $ 1,908 $ 1,591 Stock-based compensation expense (A) (216) (174) (124) (389) (246) Acquisition-related and other costs (5) (10) (2) (15) (4) Legal settlement costs — (1) — (2) —Non-GAAP operating expenses $ 749 $ 753 $ 692 $ 1,502 $ 1,341
GAAP income from operations $ 571 $ 358 $ 1,157 $ 929 $ 2,452
Total impact of non-GAAP adjustments toincome from operations 231 199 133 429 266
Non-GAAP income from operations $ 802 $ 557 $ 1,290 $ 1,358 $ 2,718
GAAP other income (expense) $ 35 $ 31 $ 23 $ 66 $ 39 Gains from non-affiliated investments — — (2) — (8)
Interest expense related to amortization of debtdiscount — — — 1 1
Non-GAAP other income (expense) $ 35 $ 31 $ 21 $ 67 $ 32
GAAP net income $ 552 $ 394 $ 1,101 $ 947 $ 2,345 Total pre-tax impact of non-GAAP adjustments 231 199 131 430 259
Income tax impact of non-GAAP adjustments(B) (21) (50) (22) (72) (109)
Non-GAAP net income $ 762 $ 543 $ 1,210 $ 1,305 $ 2,495
Three Months Ended Six Months Ended July 28, April 28, July 29, July 28, July 29, 2019 2019 2018 2019 2018Diluted net income per share GAAP $ 0.90 $ 0.64 $ 1.76 $ 1.54 $ 3.74
Non-GAAP $ 1.24 $ 0.88 $ 1.94 $ 2.12 $ 3.99
Weighted average shares used in diluted net income pershare computation GAAP 616 616 626 616 627 Anti-dilution impact from note hedge — — (1) — (1) Non-GAAP 616 616 625 616 626
GAAP net cash provided by operating activities $ 936 $ 720 $ 913 $ 1,656 $ 2,358
Purchase of property and equipment andintangible assets (113) (128) (128) (241) (247)
Free cash flow $ 823 $ 592 $ 785 $ 1,415 $ 2,111
(A) Stock-based compensation consists of the following: Three Months Ended Six Months Ended July 28, April 28, July 29, July 28, July 29, 2019 2019 2018 2019 2018 Cost of revenue $ 8 $ 4 $ 8 $ 12 $ 16 Research and development $ 145 $ 114 $ 76 $ 259 $ 150 Sales, general and administrative $ 71 $ 60 $ 48 $ 130 $ 96
(B) Income tax impact of non-GAAP adjustments, including the recognition of excess tax benefits or deficiencies related to stock-basedcompensation under GAAP accounting standard (ASU 2016-09).
NVIDIA CORPORATION RECONCILIATION OF GAAP TO NON-GAAP OUTLOOK
Q3 FY2020 Outlook GAAP gross margin 62.0% Impact of stock-based compensation expense 0.5% Non-GAAP gross margin 62.5%
Q3 FY2020 Outlook (In millions)GAAP operating expenses $ 980 Stock-based compensation expense, acquisition-related costs, and other costs (215)Non-GAAP operating expenses $ 765