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pww.comNVIDIA Corporation, Q3 2013 Earnings Call, Nov 08, 2012 - NasdaqGS:NVDA

NasdaqGS:NVDA

Rob Csongor [Executives] 💬

Rob Csongor, Vice President of Investor Relations at NVIDIA, provided opening remarks and discussed the highlights of NVIDIA's third quarter of fiscal 2013. Here’s a detailed summary of his statements:

Opening Remarks

  • Welcome and Introduction:

    • Welcomed everyone to the NVIDIA Third Quarter Earnings Conference Call.
    • Introduced Jen-Hsun Huang, President and Chief Executive Officer, and Karen Burns, Interim Chief Financial Officer.

  • Conference Call Format:

    • Announced that after prepared remarks, there would be a question-and-answer session.
    • Reminded participants that the call was being webcast live on NVIDIA's Investor Relations website and recorded.
    • Provided details about accessing the replay of the conference call until November 16, 2012, and the webcast replay until the next earnings call.
    • Stated that the content of the call is NVIDIA's property and cannot be reproduced or transcribed without prior written consent.

  • Forward-Looking Statements:

    • Noted that the call included forward-looking statements based on current expectations and subject to risks and uncertainties.
    • Advised listeners to refer to the disclosure in the earnings release, the Form 10-Q for the fiscal quarter ended July 29, 2012, and SEC filings for factors that could affect future financial results and business.

  • Conference Call Guidelines:

    • Clarified that all statements were made as of November 8, 2012, and that NVIDIA assumed no obligation to update statements unless required by law.
    • Mentioned that market research and market share numbers throughout the call came from Mercury Research or Jon Peddie Research.

  • Non-GAAP Financial Measures:

    • Noted that the call would discuss non-GAAP financial measures, with reconciliations to GAAP measures available in the financial release on the company's website.

Business Highlights

  • Record Revenue and Gross Margin:

    • Announced that NVIDIA achieved record revenue and gross margin in the third quarter, driven by strong demand for Kepler GPUs and Tegra 3.
    • Highlighted the company's strategies to reinvent itself:
      • Create the most energy-efficient processors.
      • Invent mobile and cloud-computing technologies to grow beyond the PC.
      • Create solutions for special-purpose PC markets, such as gaming, design, media and entertainment, and GPU-accelerated computing.

  • Business Growth Beyond PCs:

    • Noted that NVIDIA's business beyond PCs grew to 30% of total revenues, up from 7% three years ago.
    • Mentioned the success of NVIDIA processors in new devices and settings, including Google's Nexus 7 tablet, Microsoft's Surface, Oak Ridge National Laboratory's new supercomputer, and Tesla's latest electric sedan.

  • Notebook GPU Business:

    • Reported a second consecutive record quarter for the notebook GPU business.
    • Increased market share in the premium segment with Kepler as part of the Ivy Bridge design cycle.

  • Desktop GPU Business:

    • Increased again in the third quarter with improved supply, delivering Kepler into the volume PC gaming market.

  • Professional Solutions Business:

    • Up due to a record quarter for Tesla, with over 18,000 NVIDIA Tesla K20 GPU accelerators shipped to Oak Ridge National Laboratory for their new Titan supercomputer.
    • Quadro business was roughly flat quarter-to-quarter, down from the previous year, consistent with softness in the global workstation market.

  • Cloud-Based GPU:

    • Announced the industry's first cloud-based GPU that delivers workstation graphics capabilities to any screen.
    • Described the cloud-based NVIDIA VGX K2 GPU, which allows engineers and design professionals to work anywhere on virtually any device with GPU-powered workstation performance.

  • Tegra Business:

    • Had another record quarter, driven by the emergence of Tegra 3 as the applications processor of choice for many popular tablets.
    • Mentioned the success of Tegra 3 in Android tablets, including the Google Nexus 7, and its entry into the Windows PC market with the launch of Windows RT devices.

  • Automotive Business:

    • Delivered a record quarter, with a growing number of leading auto brands choosing Tegra for infotainment and navigation systems.

Transition to CFO

  • Concluded his remarks by handing the call over to Karen Burns, the Interim Chief Financial Officer.

Karen T. Burns [VP of Finance & Tax and Corporate Controller] 💬

Karen T. Burns, the VP of Finance & Tax and Corporate Controller at NVIDIA, provided the financial details and outlook during the Q3 2013 Earnings Call on November 8, 2012. Below is a summary of her key statements:

  • Financial Results:

    • NVIDIA achieved record revenue of $1.2 billion, up 15.3% quarter-over-quarter and 12.9% year-over-year.
    • Record gross margin on both a GAAP and non-GAAP basis.
    • GAAP gross margin was 52.9%, up 1.1 percentage points sequentially and 0.7 points year-over-year.
    • Non-GAAP gross margin was 53.1%, up 1.1 points sequentially and 0.6 points year-over-year.
    • GAAP operating expenses (OpEx) were $384.4 million, and non-GAAP OpEx was $344.8 million, both better than outlook.
    • GAAP net income was $209.1 million, a 75.6% increase over the prior quarter and 17.3% year-over-year.
    • Non-GAAP net income was $245.5 million, up 44% sequentially and 13.1% year-over-year.

  • Business Segment Revenue:

    • GPU business was up 10.7% sequentially and 14.7% year-over-year, driven by the launch of new Kepler desktop products and new Ivy Bridge platform for notebooks.
    • Professional business was up 12.4% sequentially due to the first shipments of new Kepler-based Tesla products, supporting the new Titan supercomputer. Year-over-year, the Professional business was down 4.2%.
    • Consumer business was up 35.7% sequentially and 27.6% year-over-year, driven by the Tegra business.

  • Operational Metrics:

    • Inventory in the desktop channel business remained stable at healthy levels.
    • Days Sales Outstanding (DSO) was 34 days, down 5 days from the prior quarter.
    • Days Sales in Inventory (DSI) was 69 days, down 1 day from the prior quarter.

  • Fourth Quarter Outlook:

    • Revenue guidance: $1.025 billion to $1.175 billion.
    • Gross margin guidance: 52.9%, flat from the third quarter.
    • GAAP OpEx guidance: Approximately $400 million.
    • Tax rate guidance: 20%, plus or minus 1 percentage point.
    • Non-GAAP guidance:
      • Gross margin: 53.1%, flat from Q3.
      • OpEx: Approximately $359 million, excluding stock-based compensation and acquisition-related charges.
      • Tax rate: Approximately 19%, plus or minus 1 percentage point.
      • Depreciation and amortization: Expected to be in the range of $58 million to $60 million.
      • Capital expenditures: $60 million to $70 million.
      • Diluted shares: Expected to be approximately 629 million.

  • Share Repurchase Program and Dividend:

    • NVIDIA's Board of Directors approved the initiation of a quarterly cash dividend of $0.075 per share, equivalent to $0.30 per share annually.
    • The dividend approximates an annual yield of about 2.4% based on the closing stock price of $12.61.
    • The Board also approved the extension of the existing share repurchase program to December 31, 2014.

  • Cash Position:

    • NVIDIA increased its cash by $305.2 million in the fiscal year, with cash, cash equivalents, and marketable securities totaling $3.43 billion at the end of the quarter, compared to $3.13 billion at Q4 fiscal 2012.

  • Clarification on Tegra Revenue:

    • Karen clarified that the Consumer Product Business (CPB) increase quarter-over-quarter was almost entirely due to Tegra, suggesting that the analyst's estimate of Tegra revenue for the quarter was understated.