Mellanox Technologies, Ltd. (NASDAQ:MLNX) Q2 2018 Earnings Conference Call - Final Transcript

Jul 17, 2018 • 05:00 pm ET

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Mellanox Technologies, Ltd. (NASDAQ:MLNX) Q2 2018 Earnings Conference Call - Final Transcript

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Presentation
Operator
Operator

Good afternoon and welcome to the Mellanox Technologies' Second Quarter Financial Results Conference Call. At this time, all participants have been placed in a listen-only mode, and the floor will be opened for your questions following the presentation. (Operator Instructions). As a reminder, this conference is being recorded.

And now, I would like to turn the conference over to Mellanox. Please go ahead.

Executive
Eric Johnson

Good afternoon and welcome to Mellanox Technologies' second quarter 2018 conference call. Leading the call today will be Eyal Waldman, President and CEO of Mellanox Technologies; and Eric Johnson, VP, Corporate Controller. By now, you've seen our press release and associated financial information that we furnished to the SEC on Form 8-K earlier this afternoon. If not, you may access them on our website at ir.mellanox.com.

(Forward-Looking Cautionary Statements)

Now, I will turn the call over to Eyal for his opening remarks. Eyal?

Executive
Eyal Waldman

Thank you, Eric. Good afternoon everyone and thank you for joining us. I'm proud to share with you the details of another strong quarter with you. We are again reporting record revenue and non-GAAP operating income in the second quarter of 2018. While continuing to invest our revenue growth in operating expense discipline is returning more profit to the bottom line.

We believe we're in the early stages of our transition from 10 gigabit per second to 25 gigabit per second and above and our products are well stood at to capture market share in this transition. This will be a multi-year transition and we expect to remain a leader in hyperscale, artificial intelligence, cloud, high performance computing, storage and more. With closer relationships with our customers and our end-users, we believe we can deliver healthy growth in 2019 and beyond.

Now let me give you a brief financial overview. Second quarter revenue came in near the top of our updated guidance at $268.5 million, representing a sequential increase of 7% and an increase of 27% over the prior year. With strong revenue growth and operating expense better than our guidance, our non-GAAP operating margin was 24.7%. Second quarter diluted non-GAAP EPS was $1.25, a 184% increase compared to the prior year.

We continue to capitalize on margin opportunities for higher Ethernet speeds and again delivered strong growth and record Ethernet revenue. Ethernet revenues were up 15% sequentially and 81% year-over-year, driven by increased adoption of our 25 gigabit per second and above ConnectX network adapters, Spectrum switches and LinkX cables and transceivers.

Customers recognized the performance efficiency, scalability and software advantages Mellanox delivers across 25, 50 and 100 gigabit per second. Independent research shows that we are capturing 67% of the network adapter market at this speeds, which is foretasted to grow at a more than 50% CAGR over the next five years. In the second quarter, our Ethernet Switch revenue were up 26% sequentially and more than doubled year-over-year, with 114% growth driven by a growing demand from OEMs, global hyperscale, enterprise data centers, financial services and artificial intelligence customers.

Multiple Tier 1