INVESTOR PRESENTATION 1Q FY2021
May 21, 2020
2
Except for the historical information contained herein, certain matters in this presentation including, but not limited to, statements as to: our financial
position; our markets; the performance, benefits, abilities and impact of our products and technology; the timing for including Mellanox in our financials and its impact; the impact of COVID-19 and our response; our use of cash; NVIDIA’s financial outlook for the second quarter of fiscal 2021, including the impact of the Mellanox acquisition; our operating expenses for fiscal 2021; the benefits and impact of the Mellanox acquisition; the number of AI interactions; our
growth drivers, including, but not limited to gaming, AI, AR/VR, self-driving cars, data center, professional visualization and automotive; accelerated
computing; the number of end users and customers for our products and us reaching them; sustained growth in our profitability and businesses; the number of professional designers and creators; our financial policy; future revenue growth; our opportunities in existing and new markets; the TAM for our products; and performance in our financial metrics are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements and any other forward-looking statements that go beyond historical facts that are made in this presentation are subject to risks and uncertainties that may cause actual results to differ materially. 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 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 and demands; changes in industry standards and
interfaces; unexpected loss of performance of our products or technologies when integrated into systems and other factors.
NVIDIA has based these forward-looking statements largely on its current expectations and projections about future events and trends that it believes may
affect its financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks and uncertainties, and you should not rely upon the forward-looking statements as predictions of future events. The future events and trends discussed in this presentation may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Although NVIDIA believes that the expectations reflected in the forward-looking statements are reasonable, the company cannot guarantee that future results, levels of activity, performance, achievements or events and circumstances reflected in the
forward-looking statements will occur. Except as required by law, NVIDIA disclaims any obligation to update these forward-looking statements to reflect future events or circumstances. For a complete discussion of factors that could materially affect our financial results and operations, please refer to the reports we file from time to time with the SEC, including our Annual Report on Form 10-K and quarterly reports on Form 10-Q. Copies of reports we file with the SEC are posted on our website and are available from NVIDIA without charge.
NVIDIA uses certain non-GAAP measures in this presentation including non-GAAP gross margin, non-GAAP operating margin, non-GAAP net income, non-GAAP operating income, non-GAAP diluted earnings per share, non-GAAP operating expenses, non-GAAP other income net, non-GAAP other expense, net, free cash flow, and adjusted EBITDA. NVIDIA believes the presentation of its non-GAAP financial measures enhances investors' 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. Further information relevant to the interpretation of non-GAAP financial measures, and reconciliations of these non-GAAP financial
measures to the most comparable GAAP measures, may be found in the slide titled “Reconciliation of Non-GAAP to GAAP Financial Measures”.
CONTENT
Q1 FY2021 Earnings Summary Mellanox Acquisition
GTC 2020 Announcements NVIDIA Business Overview NVIDIA Financials
GAAP vs non-GAAP Reconciliation
4
Q1 FY21
EARNINGS SUMMARY
HIGHLIGHTS
Strong results, led by Data Center and Gaming
Total revenue up 39% y/y to $3.08B, ahead of outlook of $3.00B Data Center up 80% y/y to a record $1.14B
A100 in full production, fastest ramp in history; contributed to Q1 revenue
Up to 20x faster vs. V100, biggest generational performance leap ever
Unifies training & inference; adds multi-instance GPU capability to enable elastic data center M ellanox acquisition closed on April 27, strengthens NVIDIA’s Data Center strategy
Mellanox will be included in NVIDIA financials starting with Q2 FY2021 results
For the March quarter, standalone Mellanox revenue grew 40% y/y to a record $429M
Immediately accretive to non-GAAP gross margins, non-GAAP EPS, and free cash flow
6
Q1 FY2021 FINANCIAL SUMMARY
Q1 FY21 Y/Y Q/Q
$3,080 +39% -1%
65.1% +670 bps +20 bps
$976 +173% -1%
$917 +133% -3%
$1.47 +130% -4%
$909 +26% -38%
GAAP Non-GAAP
$M Q1 FY21 Y/Y Q/Q
Revenue $3,080 +39% -1%
Gross Margin 65.8% +680 bps +40 bps
Operating Income $1,205 +116% -1%
Net Income $1,120 +106% -4%
Diluted EPS $1.80 +105% -5%
Cash Flow from
Operations $909 +26% -38%
$2,220
$2,579
$3,014 $3,105 $3,080
59.0% 60.1%
64.1% 65.4% 65.8%
50.0%
55.0%
60.0%
65.0%
70.0%
75.0%
80.0%
1,500 1,700 1,900 2,100 2,300 2,500 2,700 2,900 3,100 3,300
Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21
Revenue ($M)
Revenue(M) Non-GAAP GM No difference between GAAP and Non-GAAP Cash Flow from Operations and Revenue
COVID-19 RESPONSE
Employees – Committed to keep every job & accelerating annual raises; employees working from home very effectively
Customers – Able to keep up with customer demand while working through industry- wide supply chain disruptions and logistics challenges
Community – NVIDIA and its employees have committed to donate more than $10M to those currently in need
World – Offered Parabricks genomics stack free-of-charge; joined COVID-19 High
Performance Computing Consortium; supported Folding@home project
8
GAMING
Strong demand across all major products Overcame COVID-19 related closures
in iCafes and retail outlets with stronger e-tail demand
'Stay-at-home' driving > 50% increase in hours played on GeForce platform
Launched RTX on Minecraft – the most popular PC game in the world
Released DLSS 2.0 AI algorithm,
effectively doubling game performance
Revenue ($M) Highlights
27% y/y
$1,055
$1,313
$1,659
$1,491
$1,339
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21
10% q/q on seasonality
DATA CENTER
Record quarter, exceeded the $1 billion mark for the first time
Broad-based demand across hyperscale and vertical industries
New A100 GPUs contributed to quarter with strong adoption across leading
hyperscalers
Solid visibility into Q2
Starting with Q2 FY2021, Data Center will incorporate Mellanox revenue.
Revenue ($M) Highlights
80% y/y and 18% q/q
$634 $655 $726
$968
$1,141
0 200 400 600 800 1000 1200
Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21
10
PROFESSIONAL VISUALIZATION
Continued strong demand for laptop workstations
Turing adoption growing, now approximately 50% of sales
Stronger demand verticals included
healthcare, media & entertainment, and higher education
Supported COVID-19 related applications with end customers such as Siemens,
Oxford Nanopore, and Caption Health Remote workforce initiatives boosted demand from customers such as Disney
Revenue ($M) Highlights
$266
$291
$324 $331
$307
0 50 100 150 200 250 300 350
Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21
15% y/y 7% q/q on seasonality
AUTOMOTIVE
Xpeng introduced the P7, an all-electric sports sedan with L3 automated driving features, powered by NVIDIA DRIVE AGX Xavier; production deliveries begin next month
Announced that the NVIDIA DRIVE AGX Orin is powered by Ampere, our next generation GPU architecture
Announced that the NVIDIA DRIVE
platform extends from high performance L5 to very low power ADAS - all on a
single scalable, software-defined architecture
Revenue ($M) Highlights
$166
$209
$162 $163
$155
0 50 100 150 200 250
Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21
7% y/y and 5%
q/q on lower legacy
infotainment revenue
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SOURCES & USES OF CASH
Returned $98M to shareholders in the form of dividends
Invested $155M in capex
Raised $5B in notes with maturities of 10-40 years, at a blended rate of 3.3%
Ended quarter with $16.4B in gross cash and $7.0B in debt, $9.4B of net cash
After the quarter’s close, funded
Mellanox acquisition with approximately
$7B in cash.
Cash Flow from Operations ($M) Highlights
Gross cash is defined as cash/cash equivalents and marketable securities.
Debt is defined as principal debt.
Net cash is defined as gross cash less debt.
$720
$936
$1,640
$1,465
$909
0 200 400 600 800 1000 1200 1400 1600 1800
Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21
26% y/y on strong earnings growth partially offset by
changes in working capital 38% q/q on changes in working capital
Q2 FY2021 OUTLOOK
Revenue – $3.65 billion, plus or minus two percent
Includes a full quarter of Mellanox revenue
Automotive expected to decline about 40% q/q
Gross Margin – 58.6% GAAP and 66.0% non-GAAP, plus or minus 50 basis points
Operating Expense – $1.52 billion GAAP and $1.04 billion non-GAAP
FY2021 operating expense – approx. $5.7 billion GAAP and $4.1 billion non-GAAP, including 3 quarters of Mellanox
Other Income & Expenses – net loss of $50 million GAAP and $45 million non-GAAP Tax Rate – GAAP and non-GAAP both approx. 9%
Capital Expenditure – approximately $225 to $250 million
14
MELLANOX ACQUISITION
$7B transaction value, funded with cash
Acquisition closed on April 27, 2020 and will start contributing to NVIDIA financials in Q2 FY21
Adds >2,600 employees and trailing 4-
qtr revenue of $1.5B, growing at 27%+ y/y Expected to be immediately accretive
to non-GAAP gross margin, non-GAAP EPS and free cash flow
Financial Highlights Strategic Highlights
Unites two of the world’s leading companies in high performance & data center computing
NVIDIA computing + Mellanox networking will enable higher performance and lower
operating costs for customers
Full-stack offerings from processors to
software will advance next-gen data centers Common culture of technology and
performance leadership
16
MELLANOX
Strong Financial Momentum
$305 $310 $335
$380
$429
68.0% 67.9% 68.1% 69.1% 69.1%
60.0%
62.0%
64.0%
66.0%
68.0%
70.0%
72.0%
74.0%
76.0%
78.0%
80.0%
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
Q1CY19 Q2CY19 Q3CY19 Q4CY19 Q1CY20
Revenue Growth and Profitability
Revenue(M) GM
$1,089
$1,331
CY18 CY19
Growth Across Both InfiniBand and Ethernet
Ethernet InfiniBand Others
$1,089
$1,331
CY18 CY19
22% Y/Y Increase
Cables, Others. Switch Systems
Boards ICs
Note: GM = Non-GAAP Gross Margin. Quarters are calendar quarters.
GTC 2020
ANNOUNCEMENTS
18
GTC 2020 ANNOUNCEMENTS
Data-Center-Scale
Computing Omniverse RTX Server A100 and DGX A100 NVIDIA AI EGX and ISAAC
ANNOUNCING NVIDIA A100
GREATEST GENERATIONAL LEAP — 20X VOLTA
20
CHALLENGES: ACCELERATING BIG AND SMALL
AlexNet
ResNet
BERT GPT-2 Megatron-GPT2
Turing NLG Megatron-BERT
1E-03 1E-02 1E-01 1E+00 1E+01 1E+02 1E+03
2012 2013 2014 2015 2016 2017 2018 2019 2020
Petaflop/s -Days
10s Billions of Ecom Recommendations Billions of
Searches Millions of
Interactions Millions of Medical
Scans
Thousands Ads / Person Billions of
photos tagged
100s of Billions Events For Cyber Threat
100s of Millions Fin Txn For Fraud
AI Interactions Per Day Computing For Training AI
3000x
3000X Higher Compute Required to Train
Largest Models Since Volta Every AI Powered Interaction Needs
Varying Amount of Compute
NVIDIA OVERVIEW
22
NVIDIA — A COMPUTING PLATFORM COMPANY
NVIDIA pioneered accelerated computing to help solve the most challenging computational problems. The approach is broadly recognized as the way to advance computing as Moore’s law ends and AI lifts off. NVIDIA’s platform is installed in several hundred million computers, is available in every cloud and from every server maker, powers 136 of the TOP500 supercomputers, and boasts 1.6 million developers.
Headquarters: Santa Clara, CA Headcount: 13,775
FY16 FY17 FY18 FY19 FY20
Gaming Data Center ProViz
Auto OEM/IP
NVIDIA AT A GLANCE
Accelerated Computing Pioneer
Brief History
Recognitions From Chip Vendor to Computing Platform
Revenue by Market Platform
1993: Founded by Jensen Huang, Chris Malachowsky, and Curtis Priem 1999: IPO on NASDAQ at $12 (prior to 4 stock splits, now 12:1)
2001: Xbox win; fastest semiconductor company to reach $1B in sales 2006: Unveils CUDA architecture, expanding to scientific computing 2009: Inaugural GPU Technology Conference (GTC)
2016: Introduces first products for AI and autonomous driving
Harvard Business Review’s The CEO 100 Fortune’s Best Places to Work
MIT Tech Review’s 50 Smartest Companies Fortune’s World’s Most Admired Companies
Forbes JUST 100 Best Corporate Citizens Dow Jones Sustainability Index
1999 GM 30%+
2014 GM 50%+
2019 GM 60%+
$5.0B
$6.9B
$9.7B $11.7B $10.9B
Fiscal Year End Jan
CUDA-X CUDA
Health- care AI
PRO VIZ Trans-
portation
Smart City/IOT HPC
Robotics GAMING
ARCHITECTURE SYSTEMS DATA CENTER
24
GROWTH DRIVERS
AI Self-driving Cars
Gaming AR/VR
OUR CORE BUSINESSES
Data Center
27% of FY20 Rev
Automotive
6% of FY20 Rev
Gaming
51% of FY20 Rev
Professional Visualization
11% of FY20 Rev
FY20 Revenue $5.52B, 3-year CAGR of 11%
Strong market position and technology leadership
Compounded long-term unit and ASP growth
200M+ gamers on our platform
Strong Gaming ecosystem Multiple secular growth
drivers: expanding population of gamers, eSports, VR, rising production value of games, gaming and prosumer laptops
FY20 Revenue of $2.98B, 3-year CAGR of 53%
Leader in deep learning/AI – used by all major cloud
computing providers and thousands of enterprises Leader in HPC - in 5 of the top 10 and 136 of the top 500 fastest supercomputers Multiple secular growth drivers: fast growing
adoption of AI in every major industry; rising compute
needs unmet by conventional approaches such as x86 CPUs
FY20 Revenue of $1.21B, 3-year CAGR of 13%
90%+ market share in graphics for workstations Diversified end markets, e.g. media & entertainment, architecture, engineering &
construction, public sector Strong software ecosystem Multiple secular growth drivers: expanding creative
& design workflows, mobile workstations, rising adoption of AR/VR across industries
FY20 Revenue of $700M, 3-year CAGR of 13%
Current revenue driven largely by infotainment
Future growth expected to be driven largely by
Autonomous Vehicle (AV) solution offering full
hardware & software stack Large secular growth
opportunity: autonomous vehicles estimated to drive a $25B TAM for the AV
computing stack by 2025
26 56
7 15
6
16
Gaming Data Center ProViz
Auto OEM / IP
51 27
11
6 5
Gaming Data Center ProViz
Auto
OEM / IP FY16 FY17 FY18 FY19 FY20
Gaming Data Center ProViz Auto OEM/IP
STRONG, PROFITABLE GROWTH
Broad-based Growth Sustained Profitability
(showing non-GAAP margins)
Business Mix (%)
$5.0B
$6.9B
$9.7B
$10.9B
$11.7B
57% 59% 60% 62% 63%
22%
32%
37% 38%
34%
20%
30%
40%
50%
60%
70%
80%
0 2,000 4,000 6,000 8,000 10,000 12,000
FY16 FY17 FY18 FY19 FY20 Revenue Gross Margin Operating Margin
FY16 FY20
Refer to Appendix for reconciliation of Non-GAAP measures
WHY ACCELERATED COMPUTING?
The world’s demand for computing power
continues to grow exponentially, yet CPUs are no longer keeping up as Moore’s Law has ended.
NVIDIA pioneered GPU-accelerated computing to solve this challenge.
Optimizing across the entire stack — from silicon to software — allows NVIDIA to advance computing in the post-Moore’s Law era for large and
important markets:
Gaming, Pro Viz, High Performance Computing (HPC), AI, Cloud, Transportation, Healthcare, Robotics, and the Internet of Things (IOT).
Advancing Computing in the Post-Moore’s Law Era
1980 1990 2000 2010 2020
10
310
510
7GPU PERFORMANCE
CPU PERFORMANCE
28
WORLD LEADER IN ACCELERATED COMPUTING
Our Four Market Platforms & Key Brands
DRIVE for Autonomous Vehicles
Auto Data Center
Tesla for HPC/AI
Gaming
GeForce GPUs for PC Gamers
Professional Visualization
Quadro for Workstations
$2,818
$4,060
$5,513
$6,246
$5,518
FY16 FY17 FY18 FY19 FY20
18% CAGR
GAMING
GeForce - The World’s Largest Gaming Platform
Highlights
Revenue ($M) 200M+ Gamers on GeForce
#1 in PC gaming with more than 3X the revenue of the other major GPU vendor
Expanding the market with gaming laptops and cloud gaming
Powering the Nintendo
Switch console
30
2005 2010 2015 2020
0 500K 1M 1.5M 2.0M
$339
$830
$1,932
$2,932 $2,983
FY16 FY17 FY18 FY19 FY20
CAGR72%
DATA CENTER
High Performance Computing (HPC) and AI
Registered NVIDIA Developers 90%+ Share of Accelerators
in Supercomputing
Revenue ($mm) Every Major Cloud Provider
NVIDIA Share of New Top 500 Systems
#1 and #2 Supercomputers Worldwide;
#1 in Europe; #1 in Japan
50%
40%
30%
20%
10%
0%
SC16 SC17 SC18 SC19
6%
24%
34%
41%
PROFESSIONAL VISUALIZATION
Workstation Graphics
40+ Applications
Unlocking New Markets 40M Designers and Creatives
Foundry
Remington
Virtual Workstations Accelerated
Rendering Data
Science Simulation
and Sci Viz
AR/VR
Revenue ($mm)
$750 $835
$934
$1,130 $1,212
FY16 FY17 FY18 FY19 FY20
13% CAGR
32
42
7
26 24
15
33
76
0 10 20 30 40 50 60 70 80
Cars Trucks Tier 1s Robo
taxis Mapping Sensors Software
$320
$487
$558
$641
$700
FY16 FY17 FY18 FY19 FY20
22% CAGR
AUTO
Infotainment and Autonomous Vehicles
NVIDIA DRIVE Partners Strong Partnership / Ecosystem Revenue ($mm)
TOYOTA MERCEDES-BENZ
VOLVO KOMATSU
DIDI ZF
XPENG SINGULATO
LARGE AND DIVERSE CUSTOMER BASE
Reaching Hundreds of Millions of End Users Through Hundreds of Customers
Data Center Auto
Gaming Pro Visualization
40M Designers/Creatives
20M Enterprise Users
Cloud
HPC
Vertical Industry
SummitORNL LLNL
Sierra Piz
Daint ABCI
Reaching 200M+ PC gamers
Every Major PC OEM/ODM
Every Major Graphics Card Manufacturer
Largest Customer 11% of Total Revenue Over Past 3 Fiscal Years
34
FINANCIALS
ANNUAL REVENUE BY MARKET PLATFORM
Gaming
Pro Visualization Auto
Data Center
$2,818
$4,060
$5,513 $6,246
$5,518
FY2016FY16 FY2017FY17 FY2018FY18 FY2019FY19 FY2020FY20
$339
$830
$1,932
$2,932 $2,983
FY2016FY16 FY2017FY17 FY2018FY18 FY2019FY19 FY2020FY20
$750 $835 $934
$1,130 $1,212
FY2016FY16 FY2017FY17 FY2018FY18 FY2019FY19 FY2020FY20
$320
$487 $558 $641 $700
FY2016 FY2017 FY2018 FY2019 FY2020
FY2016FY16 FY2017FY17 FY2018FY18 FY2019FY19 FY2020FY20
$mm $mm
$mm $mm
36
ANNUAL CASH & CASH FLOW METRICS
ADJUSTED EBITDA (NON-GAAP)
FREE CASH FLOW CASH BALANCE
OPERATING CASH FLOW
FY16 FY17 FY18 FY19 FY20
$mm $mm
$mm $mm
$1,305
$2,392
$3,803 $4,110
FY2016 FY2017 FY2018 FY2019 FY2020
$1,175 $1,672
$3,502 $3,743
FY2016 FY2017 FY2018 FY2019 FY2020
$5,037
$6,798 $7,108 $7,422
$10,897
FY2016 FY2017 FY2018 FY2019 FY2020
FY16 FY17 FY18 FY19 FY20
FY16 FY17 FY18 FY19 FY20
$1,089 $1,496
$2,909 $3,143
FY16 FY17 FY18 FY19 FY20
$4,272
$4,761
$4,662
FY20
Revenue $10.92B
Adjusted EBITDA $4.11B
Free Cash Flow $4.27B
Cash & Cash Equivalents and
Marketable Securities $10.90B
Principal Value of Debt $2.00B
Net Cash $8.90B
Principal Value of Debt / Adjusted EBITDA 0.5x
CONSERVATIVE FINANCIAL POLICY
Financial Policy Highlights Historical Debt / Adjusted EBITDA
Source: SEC filings and public disclosures
1 Adjusted EBITDA and Free Cash Flow are Non-GAAP measures. Refer to Appendix for reconciliation of Non-GAAP measures 2 Net Cash is defined as Cash & Cash Equivalents and Marketable Securities less principal value of debt
Commitment to maintain our historically modest leverage,
consistent with investment grade credit ratings
Disciplined capital return policy Solid balance sheet with
substantial liquidity, and positive net cash position
Disciplined approach to M&A
00.2 0.4 0.6 0.8 1 1.2 1.4
FY16 FY17 FY18 FY19 FY20
Key Credit Metrics
38
NVIDIA’S COMMITMENT TO ESG
Creating a Leading Workplace Tackling Climate Change
NVIDIA GPUs are 20 to 25 times more energy efficient than traditional CPU servers for AI workloads.
RECONCILIATION OF GAAP VS
NON-GAAP FINANCIAL MEASURES
40
RECONCILIATION OF NON-GAAP TO GAAP FINANCIAL MEASURES
($ IN MILLIONS)
NON-GAAP
OPERATING INCOME (A)
GAAP DEPRECIATION
& AMORTIZATION
AMORTIZATION OF ACQUISITION-
RELATED INTANGIBLES
ADJUSTED EBITDA
FY 2016 $1,125 197 (17) $1,305
FY 2017 $2,221 187 (16) $2,392
FY 2018 $3,617 199 (13) $3,803
FY 2019 $4,407 262 (7) $4,662
FY 2020 $3,735 381 (6) $4,110
A . Refer to A ppendix herein for reconciliation of Non-GA A P operating income to GA A P operating income
RECONCILIATION OF NON-GAAP TO GAAP FINANCIAL MEASURES (CONTD.)
($ IN MILLIONS)
NON-GAAP OPERATING
INCOME
STOCK-BASED COMPENSATION
(A)
PRODUCT WARRANTY
(B)
ACQUISITION- RELATED AND OTHER COSTS
(C)
OTHER (D)
GAAP OPERATING
INCOME
FY 2016 $1,125 (205) (20) (22) (131) $747
FY 2017 $2,221 (248) — (16) (23) $1,934
FY 2018 $3,617 (391) — (13) (3) $3,210
FY 2019 $4,407 (557) — (2) (44) $3,804
FY 2020 $3,735 (844) — (30) (15) $2,846
A. Stock-based compensation charge was allocated to cost of goods sold, research and development expense, and sales, general and administrative expense.
B. Consists of warranty charge associated with a product recall.
C. Consists of amortization of acquisition-related intangible assets, transaction costs, compensation charges, other credits related to acquisitions, and other costs.
D. Comprises of legal settlement costs, contributions, and restructuring and other charges.
42
RECONCILIATION OF NON-GAAP TO GAAP FINANCIAL MEASURES (CONTD.)
($ IN MILLIONS) NON-GAAP
STOCK-BASED COMPENSATION
(A)
ACQUISITION- RELATED ITEMS
AND OTHER COSTS (B)
OTHER (C)
TAX IMPACT OF
ADJUSTMENTS GAAP
Q1 FY2021
Revenue $3,080 — — — — $3,080
Gross profit $2,026 (21) (1) — — $2,004
Gross margin 65.8% (0.7) — — — 65.1%
Operating expense $821 203 4 — — $1,028
Operating income $1,205 (224) (5) — — $976
Net income $1,120 (224) (5) (3) 29 $917
Diluted EPS $1.80 (0.36) (0.01) (0.01) 0.05 $1.47
A. Stock-based compensation charge was allocated to cost of goods sold, research and development expense, and sales, general and administrative expense.
B. Consists of amortization of acquisition-related intangible assets, transaction costs, and other costs.
C. Other comprises of losses from non-affiliated investments and interest expense related to amortization of debt discount
RECONCILIATION OF NON-GAAP TO GAAP FINANCIAL MEASURES (CONTD.)
NON-GAAP GROSS MARGIN
STOCK-BASED COMPENSATION
(A)
PRODUCT WARRANTY (B)
OTHER (C)
GAAP GROSS MARGIN
FY 2016 56.8% (0.3) (0.4) — 56.1%
FY 2017 59.2% (0.2) — (0.2) 58.8%
FY 2018 60.2% (0.3) — — 59.9%
FY 2019 61.7% (0.2) — (0.3) 61.2%
FY 2020 62.5% (0.4) — (0.1) 62.0%
A. Stock-based compensation charge was allocated to cost of goods sold.
B. Consists of warranty charge associated with a product recall.
C. Consists of legal settlement costs.
44
RECONCILIATION OF NON-GAAP TO GAAP FINANCIAL MEASURES (CONTD.)
NON-GAAP GROSS MARGIN
STOCK-BASED COMPENSATION (A)
OTHER (B)
GAAP GROSS MARGIN
Q1 FY2020 59.0% (0.2) (0.4) 58.4%
Q2 FY2020 60.1% (0.3) — 59.8%
Q3 FY2020 64.1% (0.5) — 63.6%
Q4 FY2020 65.4% (0.4) (0.1) 64.9%
Q1 FY2021 65.8% (0.7) — 65.1%
A. Stock-based compensation charge was allocated to cost of goods sold.
B. Consists of legal settlement costs.
RECONCILIATION OF NON-GAAP TO GAAP FINANCIAL MEASURES (CONTD.)
NON-GAAP OPERATING
MARGIN
STOCK-BASED COMPENSATION
(A)
PRODUCT WARRANTY
(B)
ACQUISITION- RELATED AND OTHER COSTS
(C)
OTHER (D)
GAAP OPERATING
MARGIN
FY 2016 22.5% (4.2) (0.4) (0.4) (2.6) 14.9%
FY 2017 32.1% (3.6) — (0.2) (0.3) 28.0%
FY 2018 37.2% (4.0) — (0.2) — 33.0%
FY 2019 37.6% (4.7) — — (0.4) 32.5%
FY 2020 34.2% (7.7) — (0.3) (0.1) 26.1%
A. Stock-based compensation charge was allocated to cost of goods sold, research and development expense, and sales, general and administrative expense.
B. Consists of warranty charge associated with a product recall.
C. Consists of amortization of acquisition-related intangible assets, transaction costs, compensation charges, other credits related to acquisitions, and other costs.
46
RECONCILIATION OF NON-GAAP TO GAAP FINANCIAL MEASURES (CONTD.)
($ IN MILLIONS) NET CASH PROVIDED BY OPERATING ACTIVITIES
PURCHASES OF PROPERTY AND EQUIPMENT AND
INTANGIBLE ASSETS
FREE CASH FLOW
FY 2016 $1,175 (86) $1,089
FY 2017 $1,672 (176) $1,496
FY 2018 $3,502 (593) $2,909
FY 2019 $3,743 (600) $3,143
FY 2020 $4,761 (489) $4,272
RECONCILIATION OF GAAP TO NON-GAAP OUTLOOK
($ in millions) Q2 FY2021
Outlook
GAAP gross margin 58.6%
Impact of stock-based compensation expense, acquisition-related costs, and other costs 7.4%
Non-GAAP gross margin 66.0%
GAAP operating expenses $1,515
Stock-based compensation expense, acquisition-related costs, and other costs (475)
Non-GAAP operating expenses $1,040
GAAP other expense, net $50
Interest expense from amortization of debt discount and other costs (5)
Non-GAAP other expense, net $45
48
RECONCILIATION OF GAAP TO NON-GAAP OUTLOOK (CONTD.)
($ in millions) FY2021
Outlook
GAAP operating expenses $5,700
Stock-based compensation expense, acquisition-related costs, and other costs (1,600)
Non-GAAP operating expenses $4,100
MELLANOX RECONCILIATION OF NON-GAAP TO GAAP FINANCIAL MEASURES
NON-GAAP GROSS MARGIN
STOCK-BASED COMPENSATION (A)
AMORTIZATION OF ACQUIRED
INTANGIBLES
GAAP GROSS MARGIN
Q1 CY2019 68.0% (0.2) (3.2) 64.6%
Q2 CY2019 67.9% (0.3) (3.1) 64.5%
Q3 CY2019 68.1% (0.3) (2.9) 64.9%
Q4 CY2019 69.1% (0.3) (2.6) 66.2%
Q1 CY2020 69.1% (0.2) (2.1) 66.8%
A. Stock-based compensation charge was allocated to cost of goods sold.