NVIDIA Corporation
NVIDIA CORP (Form: 8-K, Received: 08/10/2017 16:25:09)




UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
______________
FORM 8-K


CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): August 10, 2017

NVIDIA CORPORATION
(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.)
 
 
 
 
2701 San Tomas Expressway, Santa Clara, CA
95050
 
(Address of principal executive offices)
(Zip Code)
 
Registrant’s telephone number, including area code: (408) 486-2000
Not 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 the following 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))

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 this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging Growth Company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o









SECTION 2 - Financial Information
  
Item 2.02 Results of Operations and Financial Condition.
 
On August 10, 2017, NVIDIA Corporation, or the Company, issued a press release announcing its results for the second quarter and first half of fiscal year 2018. The press 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 Vice President and Chief Financial Officer of the Company, regarding results for the second quarter and first half of fiscal year 2018, or the CFO Commentary. The CFO Commentary 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 of 1934, 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 information in 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.


SECTION 9 - Financial Statements and Exhibits
  
Item 9.01 Financial Statements and Exhibits.
  
(d) Exhibits
 







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 the undersigned hereunto duly authorized.

  
 
 
 
NVIDIA Corporation
Date: August 10, 2017
 
By: /s/ Colette M. Kress
 
 
Colette M. Kress
 
 
Executive Vice President and Chief Financial Officer








EXHIBIT INDEX

Exhibit
 
Description
99.1
 
99.2
 





FOR IMMEDIATE RELEASE:
NVIDIA Announces Financial Results for Second Quarter Fiscal 2018
Record revenue of $2.23 billion, up 56 percent from a year ago
GAAP EPS of $0.92, up 124 percent from a year ago
Non-GAAP EPS of $1.01, up 91 percent from a year ago
Broad growth across all platforms
SANTA CLARA, Calif.-August 10, 2017- NVIDIA (NASDAQ: NVDA) today reported record revenue for the second quarter ended July 30, 2017, of $2.23 billion, up 56 percent from $1.43 billion a year earlier, and up 15 percent from $1.94 billion in the previous quarter.
GAAP earnings per diluted share for the quarter were $0.92, up 124 percent from $0.41 a year ago and up 16 percent from $0.79 in the previous quarter. Non-GAAP earnings per diluted share were $1.01, up 91 percent from $0.53 a year earlier and up 19 percent from $0.85 in the previous quarter.
 
“Adoption of NVIDIA GPU computing is accelerating, driving growth across our businesses,” said Jensen Huang, founder and chief executive officer of NVIDIA. “Datacenter revenue increased more than two and a half times. A growing number of car and robot-taxi companies are choosing our DRIVE PX self-driving computing platform. And in Gaming, increasingly the world’s most popular form of entertainment, we power the fastest growing platforms - GeForce and Nintendo Switch.

“Nearly every industry and company is awakening to the power of AI. Our new Volta GPU, the most complex processor ever built, delivers a 100-fold speedup for deep learning beyond our best GPU of four years ago. This quarter, we shipped Volta in volume to leading AI customers. This is the era of AI, and the NVIDIA GPU has become its brain. We have incredible opportunities ahead of us,” he said.

Capital Return
During the first half of fiscal 2018, NVIDIA paid $758 million in share repurchases and $166 million in cash dividends. For fiscal 2018, NVIDIA intends to return $1.25 billion to shareholders through ongoing quarterly cash dividends and share repurchases.
NVIDIA will pay its next quarterly cash dividend of $0.14 per share on September 18, 2017, to all shareholders of record on August 24, 2017.

Q2 FY2018 Summary
GAAP
($ in millions except earnings per share)
Q2 FY18
Q1 FY18
Q2 FY17
Q/Q
Y/Y
Revenue
$2,230
$1,937
$1,428
Up 15%
Up 56%
Gross margin
58.4%
59.4%
57.9%
Down 100 bps
Up 50 bps
Operating expenses
$614
$596
$509
Up 3%
Up 21%
Operating income
$688
$554
$317
Up 24%
Up 117%
Net income
$583
$507
$261
Up 15%
Up 123%
Diluted earnings per share
$0.92
$0.79
$0.41
Up 16%
Up 124%







Non-GAAP
($ in millions except earnings per share)
Q2 FY18
Q1 FY18
Q2 FY17
Q/Q
Y/Y
Revenue
$2,230
$1,937
$1,428
Up 15%
Up 56%
Gross margin
58.6%
59.6%
58.1%
Down 100 bps
Up 50 bps
Operating expenses
$533
$517
$448
Up 3%
Up 19%
Operating income
$773
$637
$382
Up 21%
Up 102%
Net income
$638
$533
$313
Up 20%
Up 104%
Diluted earnings per share
$1.01
$0.85
$0.53
Up 19%
Up 91%
NVIDIA’s outlook for the third quarter of fiscal 2018 is as follows:
Revenue is expected to be $2.35 billion, plus or minus two percent.
GAAP and non-GAAP gross margins are expected to be 58.6 percent and 58.8 percent, respectively, plus or minus 50 basis points.
GAAP operating expenses are expected to be approximately $672 million. Non-GAAP operating expenses are expected to be approximately $570 million.
GAAP other income and expense is expected to be an expense of approximately $2 million, inclusive of additional charges from early conversions of convertible notes. Non-GAAP other income and expense is expected to be nominal.
GAAP and non-GAAP tax rates are both expected to be 17 percent, plus or minus one percent, excluding any discrete items. GAAP discrete items include excess tax benefits or deficiencies related to stock-based compensation, which we expect to generate variability on a quarter by quarter basis.
Capital expenditures are expected to be approximately $65 million to $75 million.
Second Quarter Fiscal 2018 Highlights

During the second quarter, NVIDIA achieved progress in these areas:
Datacenter:
Announced and began shipping NVIDIA® Tesla® V100 GPU accelerators, the first GPU based on the new Volta architecture. 
Unveiled new lineup of NVIDIA DGX™ AI supercomputers, with a large installation at Facebook.
Announced the NVIDIA GPU Cloud Platform, giving developers a comprehensive software suite for AI development.
Disclosed that the world’s 13 most energy-efficient supercomputers on the Green 500 list run on NVIDIA Tesla accelerators.
Announced partnerships with VW and Baidu to bring AI deeper into their organizations.
Gaming:
Introduced Max-Q, a design approach to make gaming laptops thinner, quieter and faster.
Collaborated with Activision and Bungie to bring Destiny 2 to the PC for the first time.
Expanded GeForce® Experience™ to China, at the ChinaJoy gaming conference.





Professional Visualization:
Introduced Project Holodeck, a photorealistic, collaborative VR environment.
Announced steps to bring AI to ray tracing to advance the iterative design process, including the launch of NVIDIA OptiX™ 5.0 SDK.
Launched NVIDIA TITAN X and NVIDIA Quadro® external GPU support for the 25 million creative professionals using thin and light notebooks.
Released the NVIDIA VRWorks™ 360 Video SDK, which enables high-quality, 360-degree live stereo streaming.
Automotive:
Toyota selected NVIDIA DRIVE™ PX for its next-generation autonomous cars.
Volvo and Autoliv selected DRIVE PX for self-driving cars targeted to hit the market by 2021.
ZF and HELLA, two leading automotive suppliers, announced a system based on DRIVE PX to deliver the highest NCAP safety ratings for cars.
Baidu announced that its Project Apollo open-source self-driving platform for the China market will use DRIVE PX.
Edge Computing:
Introduced the NVIDIA Isaac robot simulator for training intelligent machines in simulated real-world conditions before deployment.
Announced the NVIDIA Metropolis platform, used by more than 50 partners to make cities safer and smarter by applying deep learning to video streams.

CFO Commentary

Commentary on the quarter by Colette Kress, NVIDIA’s executive vice president and chief financial officer, is available at http://investor.nvidia.com/.
Conference Call and Webcast Information
NVIDIA will conduct a conference call with analysts and investors to discuss its second quarter fiscal 2018 financial results and current financial prospects today at 2 p.m. Pacific time (5 p.m. Eastern time). To listen to the conference call, dial (877) 223-3864 in the United States or (574) 990-1377 internationally, and provide the following conference ID: 56356419. A live webcast (listen-only mode) of the conference call will be accessible at NVIDIA’s investor relations website, http://investor.nvidia.com, and at www.streetevents.com. The webcast will be recorded and available for replay until NVIDIA’s conference call to discuss its financial results for its third quarter of fiscal 2018.





Non-GAAP Measures
To supplement NVIDIA’s Condensed Consolidated Statements of Income and Condensed Consolidated Balance Sheets presented 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’s investors to be better able to compare its current results with those of previous periods, the company has shown a reconciliation of 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 costs, contributions, restructuring and other charges, gains from non-affiliated investments, interest expense related to amortization of debt discount, loss on early debt conversions, and the associated tax impact of these items, where applicable. Weighted average shares used in the non-GAAP diluted net income per share computation includes the anti-dilution impact of the company’s Note Hedge. Free cash flow is calculated as GAAP net cash provided by operating activities less purchases of property and equipment and intangible assets. NVIDIA believes the presentation of its non-GAAP financial measures enhances the 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 results prepared in accordance with GAAP, and its non-GAAP measures may be different from non-GAAP measures used by other companies.

Keep Current on NVIDIA

Subscribe to the NVIDIA blog, follow us on Facebook, Google+, Twitter, LinkedIn and Instagram, and view NVIDIA videos on YouTube and images on Flickr.

About NVIDIA

NVIDIA’s (NASDAQ: NVDA) invention of the GPU in 1999 sparked the growth of the PC gaming market, redefined modern computer graphics and revolutionized parallel computing. More recently, GPU deep learning ignited modern AI - the next era of computing - with the GPU acting as the brain of computers, robots and self-driving cars that can perceive and understand the world. More information at http://nvidianews.nvidia.com/.

###







For further information, contact:
Shawn Simmons
 
Robert Sherbin
Investor Relations
 
Corporate Communications
NVIDIA Corporation
 
NVIDIA Corporation
(408) 566-5784
 
(408) 566-5150
ssimmons@nvidia.com
 
rsherbin@nvidia.com

Certain statements in this press release including, but not limited to statements as to: adoption of NVIDIA GPU computing accelerating and driving growth; a growing number of car and robot-taxi companies choosing DRIVE PX; gaming being the world’s most popular form of entertainment; GeForce and Nintendo Switch as the fastest growing platforms; the impact of AI and the company’s Volta GPU; the company’s intended capital return for fiscal 2018; the company’s next quarterly cash dividend; the company’s financial outlook for the third quarter of fiscal 2018; the company’s tax rates for the third quarter of fiscal 2018; the impact and benefits of the NVIDIA GPU Cloud Platform, partnerships with VW and Baidu, Max-Q, Project Holodeck, OptiX 5.0 SDK, VRWorks 360 Video SDK, DRIVE PX, the NVIDIA Isaac robot simulator and the NVIDIA Metropolis platform; and the use of DRIVE PX by Baidu’s self-driving platform are forward-looking statements that are subject to risks and uncertainties 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 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; 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 reports NVIDIA files with the Securities and Exchange Commission, or SEC, including its Form 10-Q for the fiscal period ended April 30, 2017. 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 any obligation to update these forward-looking statements to reflect future events or circumstances.


© 2017 NVIDIA Corporation. All rights reserved. NVIDIA, the NVIDIA logo, DGX, DRIVE, GeForce, OptiX, Quadro, Tesla and VRWorks are trademarks and/or registered trademarks of NVIDIA Corporation in the U.S. and/or other countries. MAXQ® is the registered trademark of Maxim Integrated Products, Inc. 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 CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share data)
(Unaudited)
 
 Three Months Ended
 
 Six Months Ended
 
July 30,
 
July 31,
 
July 30,
 
July 31,
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
Revenue
$
2,230

 
$
1,428

 
$
4,167

 
$
2,733

Cost of revenue
928

 
602

 
1,715

 
1,156

Gross profit
1,302

 
826

 
2,452

 
1,577

Operating expenses
 
 
 
 
 
 
 
Research and development
416

 
350

 
827

 
697

Sales, general and administrative
198

 
157

 
383

 
316

Restructuring and other charges

 
2

 

 
3

Total operating expenses
614

 
509

 
1,210

 
1,016

Income from operations
688

 
317

 
1,242

 
561

Interest income
15

 
12

 
31

 
23

Interest expense
(15
)
 
(12
)
 
(31
)
 
(23
)
Other, net
(4
)
 

 
(21
)
 
(3
)
Total other income (expense)
(4
)
 

 
(21
)
 
(3
)
Income before income tax expense
684

 
317

 
1,221

 
558

Income tax expense
101

 
56

 
130

 
89

Net income
$
583

 
$
261

 
$
1,091

 
$
469

 
 
 
 
 
 
 
 
Net income per share:
 
 
 
 
 
 
 
Basic
$
0.98

 
$
0.49

 
$
1.83

 
$
0.88

Diluted
$
0.92

 
$
0.41

 
$
1.71

 
$
0.76

 
 
 
 
 
 
 
 
Weighted average shares used in per share computation:
 
 
 
 
 
 
 
Basic
597

 
534

 
595

 
536

Diluted
633

 
634

 
637

 
620










NVIDIA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
 
 
 
 
 
 
 
 
 
July 30,
 
January 29,
 
 
 
2017
 
2017
ASSETS
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash, cash equivalents and marketable securities
 
$
5,877

 
$
6,798

 
Accounts receivable, net
 
1,213

 
826

 
Inventories
 
855

 
794

 
Prepaid expenses and other current assets
 
125

 
118

 
Total current assets
 
8,070

 
8,536

 
 
 
 
 
 
Property and equipment, net
 
578

 
521

Goodwill
 
618

 
618

Intangible assets, net
 
76

 
104

Other assets
 
60

 
62

 
Total assets
 
$
9,402

 
$
9,841

 
 
 
 
 
 
LIABILITIES, CONVERTIBLE DEBT CONVERSION OBLIGATION AND SHAREHOLDERS' EQUITY
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Accounts payable
 
$
431

 
$
485

 
Accrued and other current liabilities
 
517

 
507

 
Convertible short-term debt
 
84

 
796

 
  Total current liabilities
 
1,032

 
1,788

 
 
 
 
 
 
Long-term debt
 
1,984

 
1,983

Other long-term liabilities
 
408

 
271

Capital lease obligations, long-term
 
3

 
6

 
  Total liabilities
 
3,427

 
4,048

 
 
 
 
 
 
Convertible debt conversion obligation
 
2

 
31

 
 
 
 
 
 
Shareholders' equity
 
5,973

 
5,762

 
Total liabilities, convertible debt conversion obligation and shareholders' equity
 
$
9,402

 
$
9,841







 NVIDIA CORPORATION
 RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
 (In millions, except per share data)
 (Unaudited)
 
 
 
 
 
 
 
 
 
 Three Months Ended
 
 Six Months Ended
 
 
July 30,
 
April 30,
 
July 31,
 
July 30,
 
July 31,
 
 
2017
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
 
GAAP gross profit
 
$
1,302

 
$
1,150

 
$
826

 
$
2,452

 
$
1,577

GAAP gross margin
 
58.4
%
 
59.4
%
 
57.9
%
 
58.8
%
 
57.7
%
Stock-based compensation expense (A)
 
4

 
4

 
4

 
8

 
8

Legal settlement costs
 

 

 

 

 
10

Non-GAAP gross profit
 
$
1,306

 
$
1,154

 
$
830

 
$
2,460

 
$
1,595

Non-GAAP gross margin
 
58.6
%
 
59.6
%
 
58.1
%
 
59.0
%
 
58.4
%
 
 
 
 
 
 
 
 
 
 
 
GAAP operating expenses
 
$
614

 
$
596

 
$
509

 
$
1,210

 
$
1,016

Stock-based compensation expense (A)
 
(77
)
 
(73
)
 
(54
)
 
(150
)
 
(104
)
Legal settlement costs
 

 

 

 

 
(6
)
Acquisition-related costs (B)
 
(4
)
 
(4
)
 
(4
)
 
(8
)
 
(8
)
Contributions
 

 
(2
)
 
(1
)
 
(2
)
 
(4
)
Restructuring and other charges
 

 

 
(2
)
 

 
(3
)
Non-GAAP operating expenses
 
$
533

 
$
517

 
$
448

 
$
1,050

 
$
891

 
 
 
 
 
 
 
 
 
 
 
GAAP income from operations
 
$
688

 
$
554

 
$
317

 
$
1,242

 
$
561

Total impact of non-GAAP adjustments to income from operations
 
85

 
83

 
65

 
168

 
143

Non-GAAP income from operations
 
$
773

 
$
637

 
$
382

 
$
1,410

 
$
704

 
 
 
 
 
 
 
 
 
 
 
GAAP other income (expense)
 
$
(4
)
 
$
(18
)
 
$

 
$
(21
)
 
$
(3
)
Gains from non-affiliated investments
 

 

 

 

 
(3
)
Interest expense related to amortization of debt discount
 
1

 
2

 
7

 
3

 
14

Loss on early debt conversions
 
3

 
14

 

 
17

 

Non-GAAP other income (expense)
 
$

 
$
(2
)
 
$
7

 
$
(1
)
 
$
8

 
 
 
 
 
 
 
 
 
 
 
GAAP net income
 
$
583

 
$
507

 
$
261

 
$
1,091

 
$
469

Total pre-tax impact of non-GAAP adjustments
 
89

 
99

 
72

 
188

 
153

Income tax impact of non-GAAP adjustments
 
(34
)
 
(73
)
 
(20
)
 
(108
)
 
(46
)
Non-GAAP net income
 
$
638

 
$
533

 
$
313

 
$
1,171

 
$
576








 
 
 Three Months Ended
 
Six Months Ended
 
 
July 30,
 
April 30,
 
July 31,
 
July 30,
 
July 31,
 
 
2017
 
2017
 
2016
 
2017
 
2016
Diluted net income per share
 
 
 
 
 
 
 
 
 
 
GAAP
 
$
0.92

 
$
0.79

 
$
0.41

 
$
1.71

 
$
0.76

Non-GAAP
 
$
1.01

 
$
0.85

 
$
0.53

 
$
1.87

 
$
0.99

 
 
 
 
 
 
 
 
 
 
 
Weighted average shares used in diluted net income per share computation
 
 
 
 
 
 
 
 
 
 
GAAP
 
633

 
641

 
634

 
637

 
620

Anti-dilution impact from note hedge (C)
 
(4
)
 
(14
)
 
(43
)
 
(10
)
 
(37
)
Non-GAAP
 
629

 
627

 
591

 
627

 
583

 
 
 
 
 
 
 
 
 
 
 
GAAP net cash provided by operating activities
 
$
705

 
$
282

 
$
201

 
$
987

 
$
519

Purchase of property and equipment and intangible assets
 
(55
)
 
(53
)
 
(33
)
 
(108
)
 
(88
)
Free cash flow
 
$
650

 
$
229

 
$
168

 
$
879

 
$
431



(A) Excludes stock-based compensation as follows:
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
 
July 30,
 
April 30,
 
July 31,
 
July 30,
 
July 31,
 
 
2017
 
2017
 
2016
 
2017
 
2016
Cost of revenue
 
$
4

 
$
4

 
$
4

 
$
8

 
$
8

Research and development
 
$
44

 
$
41

 
$
30

 
$
85

 
$
59

Sales, general and administrative
 
$
33

 
$
31

 
$
24

 
$
65

 
$
44

 
 
 
 
 
 
 
 
 
 
 
(B) Consists of amortization of acquisition-related intangible assets and compensation charges.
 
 
 
 
 
 
 
 
 
 
 
(C) Represents the number of shares that would be delivered upon conversion of the currently outstanding 1.00% Convertible Senior Notes Due 2018. Under GAAP, shares delivered in hedge transactions are not considered offsetting shares in the fully diluted share calculation until actually delivered.








 NVIDIA CORPORATION
 RECONCILIATION OF GAAP TO NON-GAAP OUTLOOK
 
 
 
 
 Q3 FY2018 Outlook
  GAAP gross margin
 
58.6
%
 
Impact of stock-based compensation expense
 
0.2
%
  Non-GAAP gross margin
 
58.8
%
 
 
 
 
 
 
 
 Q3 FY2018 Outlook
 
 
 
(In millions)
GAAP operating expenses
 
$
672

 
Stock-based compensation expense, acquisition-related costs, and other costs
 
(102
)
Non-GAAP operating expenses
 
$
570

 
 
 
 
GAAP other income (expense)
 
$
(2
)
 
Loss on early debt conversions and interest expense related to amortization of debt discount
 
2

Non-GAAP other income (expense)
 
$







NVDALOGOA07.JPG
CFO Commentary on Second Quarter Fiscal Year 2018 Results

Q2 FY 2018 Summary

GAAP
($ in millions except earnings per share)
Q2 FY18
Q1 FY18
Q2 FY17
Q/Q
Y/Y
Revenue
$2,230
$1,937
$1,428
Up 15%
Up 56%
Gross margin
58.4%
59.4%
57.9%
Down 100 bps
Up 50 bps
Operating expenses
$614
$596
$509
Up 3%
Up 21%
Operating income
$688
$554
$317
Up 24%
Up 117%
Net income
$583
$507
$261
Up 15%
Up 123%
Diluted earnings per share
$0.92
$0.79
$0.41
Up 16%
Up 124%

Non-GAAP
($ in millions except earnings per share)
Q2 FY18
Q1 FY18
Q2 FY17
Q/Q
Y/Y
Revenue
$2,230
$1,937
$1,428
Up 15%
Up 56%
Gross margin
58.6%
59.6%
58.1%
Down 100 bps
Up 50 bps
Operating expenses
$533
$517
$448
Up 3%
Up 19%
Operating income
$773
$637
$382
Up 21%
Up 102%
Net income
$638
$533
$313
Up 20%
Up 104%
Diluted earnings per share
$1.01
$0.85
$0.53
Up 19%
Up 91%

Revenue by Reportable Segments
($ in millions)
Q2 FY18
Q1 FY18
Q2 FY17
Q/Q
Y/Y
GPU Business
$1,897
$1,562
$1,196
Up 21%
Up 59%
Tegra Processor Business
333
332
166
--
Up 101%
Other
--
43
66
Down 100%
Down 100%
Total
$2,230
$1,937
$1,428
Up 15%
Up 56%

Revenue by Market Platform
($ in millions)
Q2 FY18
Q1 FY18
Q2 FY17
Q/Q
Y/Y
Gaming
$1,186
$1,027
$781
Up 15%
Up 52%
Professional Visualization
235
205
214
Up 15%
Up 10%
Datacenter
416
409
151
Up 2%
Up 175%
Automotive
142
140
119
Up 1%
Up 19%
OEM and IP
251
156
163
Up 61%
Up 54%
Total
$2,230
$1,937
$1,428
Up 15%
Up 56%








Revenue

Second quarter revenue increased 56 percent year over year and 15 percent sequentially to a record $2.23 billion. Growth was driven by GPUs for gaming, datacenter, and professional visualization, as well as Tegra® processors.

GPU business revenue was $1.90 billion, up 59 percent from a year earlier and up 21 percent sequentially, led by strength across all platforms, including datacenter, gaming, and professional visualization platforms, along with PC OEM sales. GeForce GPU gaming results were led by continued strong adoption of Pascal™-based GeForce® GTX gaming platforms. Datacenter (including Tesla®, NVIDIA GRID™ and DGX™) revenue was a record $416 million, up 175 percent year on year and up 2 percent sequentially. This datacenter revenue reflects initial shipments of our newest Volta GPU architecture and V100 platform. Datacenter growth was fueled by strong demand by hyperscale and cloud customers for deep learning training and accelerated GPU computing, as well as demand for HPC, DGX AI supercomputing, and GRID virtualization platforms. Professional visualization revenue grew 10 percent year over year and 15 percent sequentially to a record $235 million, led by high-end mobile platforms. Our PC OEM revenue includes GPUs designed for mainstream desktops, notebooks, and cryptocurrency mining. The recent rise in crypto coin prices resulted in increased demand in OEM GPU sales.

Tegra Processor business revenue, which included gaming development platforms and services, was $333 million, up 101 percent from a year ago and flat sequentially. Tegra business revenue includes SOC modules for the Nintendo Switch gaming console and development services. Also included was record automotive revenue of $142 million, which was up 19 percent from a year earlier and up 1 percent sequentially, incorporating infotainment modules, production DRIVE PX platforms, and development agreements for self-driving cars.

Revenue from our patent license agreement with Intel concluded in the first quarter of fiscal 2018, when it was $43 million.

Gross Margin

GAAP gross margin for the second quarter was 58.4 percent and non-GAAP gross margin was 58.6 percent. These reflect a sequential decrease associated with the absence of licensing revenue from Intel.

Expenses

GAAP operating expenses were $614 million, including $81 million in stock-based compensation and other charges. Non-GAAP operating expenses were $533 million, up 19 percent from a year earlier and up 3 percent sequentially. This reflects growth in employees and costs related to our growth initiatives - gaming, artificial intelligence, and autonomous driving.

Operating Income

GAAP operating income was $688 million in the second quarter, up 117 percent from a year earlier. Non-GAAP operating income was $773 million, up 102 percent from a year earlier.







Other Income & Expense and Income Tax

GAAP
($ in millions)
Q2 FY18
Q1 FY18
Q2 FY17
Interest income
$15
$16
$12
Interest expense
(15)
(16)
(12)
Other, net
(4)
(18)
--
Total
$(4)
$(18)
$--

Non-GAAP
($ in millions)
Q2 FY18
Q1 FY18
Q2 FY17
Interest income
$15
$16
$12
Interest expense
(14)
(14)
(5)
Other, net
(1)
(4)
--
Total
$--
$(2)
$7

Other income and expense, or OI&E, includes interest earned on our cash and investments, interest expense associated with our convertible notes and corporate debt, and other gains and losses. GAAP OI&E includes interest expense primarily associated with our corporate debt and remaining convertible debt, interest income from our investment portfolio, and charges from early conversions of convertible notes. Non-GAAP OI&E excludes the charges from early conversions of convertible notes, the portion of interest expense from the amortization of the debt discount and the gains or losses from sales of certain investments.

Our GAAP effective tax rate in the second quarter was 15 percent, reflecting the recognition of excess tax benefits related to stock-based compensation. We expect to generate variability on a quarter-by-quarter basis from excess tax benefits or deficiencies related to stock-based compensation. Our non-GAAP effective tax rate was 18 percent.

Net Income and EPS

Second quarter GAAP net income was $583 million and earnings per diluted share were $0.92, both up more than 120 percent from a year earlier. Non-GAAP net income was $638 million and earnings per diluted share were $1.01, up 104 percent and 91 percent, respectively, from a year earlier, fueled by strong revenue growth and improved gross and operating margins.











Weighted Average Shares

Weighted average shares used in the GAAP and non-GAAP diluted EPS calculations were as follows:
Weighted Average Shares
(in millions)
GAAP
Non-GAAP
Basic shares
597
597
Dilutive impact from:
 
 
      Equity awards
26
26
      Warrants
6
6
      Convertible notes
4
--
Diluted shares
633
629

All outstanding warrants were terminated during the second quarter of fiscal 2018.

Capital Return
Capital Return
(in millions)
FY13
FY14
FY15
FY16
FY17
YTD FY18
Dividends
$47
$181
$186
$213
$261
$166
Share repurchases:
 
 
 
 
 
 
      $
$100
$887
$814
$587
$739
$758
      Shares
8
62
44
25
15
5
During the first half of fiscal 2018, we paid $758 million in share repurchases and $166 million in cash dividends. For fiscal 2018, we intend to return $1.25 billion to shareholders through ongoing quarterly cash dividends and share repurchases.
Since the restart of our capital return program in the fourth quarter of fiscal 2013, we have returned $4.94 billion to shareholders. This return represents 90 percent of our cumulative free cash flow for fiscal 2013 through the second quarter of fiscal 2018.

Balance Sheet and Cash Flow

Cash, cash equivalents and marketable securities at the end of the second quarter were $5.88 billion, compared with $6.21 billion at the end of the prior quarter. The sequential decrease in cash was primarily related to share repurchases made under our capital return program.

Accounts receivable at the end of the quarter was $1.21 billion compared with $976 million in the prior quarter. DSO at quarter-end was 49 days, up from 46 days in the prior quarter.

Inventory at the end of the quarter was $855 million, up from $821 million in the prior quarter. DSI at quarter-end was 84 days, down from 95 days in the prior quarter.

Cash flow from operating activities was $705 million in the second quarter, up from $282 million in the prior quarter. The sequential increase was primarily due to growth in net income and strong collections of accounts receivable and other changes in working capital.

Free cash flow was $650 million in the second quarter, compared with $229 million in the previous quarter.

Depreciation and amortization expense amounted to $49 million for the second quarter. Capital expenditures were $55 million for the second quarter.





Third Quarter of Fiscal 2018 Outlook

Our outlook for the third quarter of fiscal 2018 is as follows:

Revenue is expected to be $2.35 billion, plus or minus two percent.

GAAP and non-GAAP gross margins are expected to be 58.6 percent and 58.8 percent, respectively, plus or minus 50 basis points.

GAAP operating expenses are expected to be approximately $672 million. Non-GAAP operating expenses are expected to be approximately $570 million.

GAAP other income and expense is expected to be an expense of approximately $2 million, inclusive of additional charges from early conversions of convertible notes. Non-GAAP other income and expense is expected to be nominal.

GAAP and non-GAAP tax rates are both expected to be 17 percent, plus or minus one percent, excluding any discrete items. GAAP discrete items include excess tax benefits or deficiencies related to stock-based compensation, which we expect to generate variability on a quarter by quarter basis.

Capital expenditures are expected to be approximately $65 million to $75 million.


______________
For further information, contact:

Shawn Simmons
 
Robert Sherbin
Investor Relations
 
Corporate Communications
NVIDIA Corporation
 
NVIDIA Corporation
(408) 566-5784
 
(408) 566-5150
ssimmons@nvidia.com
 
rsherbin@nvidia.com






Non-GAAP Measures

To supplement NVIDIA’s Condensed Consolidated Statements of Income and Condensed Consolidated Balance Sheets presented 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’s investors to be better able to compare its current results with those of previous periods, the company has shown a reconciliation of 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 costs, contributions, restructuring and other charges, gains from non-affiliated investments, interest expense related to amortization of debt discount, loss on early debt conversions, and the associated tax impact of these items, where applicable. Weighted average shares used in the non-GAAP diluted net income per share computation includes the anti-dilution impact of our Note Hedge. Free cash flow is calculated as GAAP net cash provided by operating activities less purchases of property and equipment and intangible assets. NVIDIA believes the presentation of its non-GAAP financial measures enhances the 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 results prepared in accordance with GAAP, and our non-GAAP measures may be different from non-GAAP measures used by other companies.

Certain statements in this CFO Commentary including, but not limited to, statements as to: our expectation to generate variability from excess tax benefits or deficiencies related to stock-based compensation; our intended fiscal 2018 capital return; our financial outlook for the third quarter of fiscal 2018; and our tax rates for the third quarter of fiscal 2018 are forward-looking statements that are subject to risks and uncertainties 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 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; 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 reports NVIDIA files with the Securities and Exchange Commission, or SEC, including its Form 10-Q for the fiscal period ended April 30, 2017. 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 any obligation to update these forward-looking statements to reflect future events or circumstances.

# # #

© 2017 NVIDIA Corporation. All rights reserved. NVIDIA, the NVIDIA logo, GeForce, Tegra, Tesla, NVIDIA DGX, NVIDIA DRIVE and NVIDIA GRID are trademarks and/or registered trademarks of NVIDIA Corporation in the U.S. and/or other countries.  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 CORPORATION
 RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
 (In millions, except per share data)
 (Unaudited)
 
 
 
 
 
 
 
 
 
 Three Months Ended
 
 Six Months Ended
 
 
July 30,
 
April 30,
 
July 31,
 
July 30,
 
July 31,
 
 
2017
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
 
GAAP gross profit
 
$
1,302

 
$
1,150

 
$
826

 
$
2,452

 
$
1,577

GAAP gross margin
 
58.4
%
 
59.4
%
 
57.9
%
 
58.8
%
 
57.7
%
Stock-based compensation expense (A)
 
4

 
4

 
4

 
8

 
8

Legal settlement costs
 

 

 

 

 
10

Non-GAAP gross profit
 
$
1,306

 
$
1,154

 
$
830

 
$
2,460

 
$
1,595

Non-GAAP gross margin
 
58.6
%
 
59.6
%
 
58.1
%
 
59.0
%
 
58.4
%
 
 
 
 
 
 
 
 
 
 
 
GAAP operating expenses
 
$
614

 
$
596

 
$
509

 
$
1,210

 
$
1,016

Stock-based compensation expense (A)
 
(77
)
 
(73
)
 
(54
)
 
(150
)
 
(104
)
Legal settlement costs
 

 

 

 

 
(6
)
Acquisition-related costs (B)
 
(4
)
 
(4
)
 
(4
)
 
(8
)
 
(8
)
Contributions
 

 
(2
)
 
(1
)
 
(2
)
 
(4
)
Restructuring and other charges
 

 

 
(2
)
 

 
(3
)
Non-GAAP operating expenses
 
$
533

 
$
517

 
$
448

 
$
1,050

 
$
891

 
 
 
 
 
 
 
 
 
 
 
GAAP income from operations
 
$
688

 
$
554

 
$
317

 
$
1,242

 
$
561

Total impact of non-GAAP adjustments to income from operations
 
85

 
83

 
65

 
168

 
143

Non-GAAP income from operations
 
$
773

 
$
637

 
$
382

 
$
1,410

 
$
704

 
 
 
 
 
 
 
 
 
 
 
GAAP other income (expense)
 
$
(4
)
 
$
(18
)
 
$

 
$
(21
)
 
$
(3
)
Gains from non-affiliated investments
 

 

 

 

 
(3
)
Interest expense related to amortization of debt discount
 
1

 
2

 
7

 
3

 
14

Loss on early debt conversions
 
3

 
14

 

 
17

 

Non-GAAP other income (expense)
 
$

 
$
(2
)
 
$
7

 
$
(1
)
 
$
8

 
 
 
 
 
 
 
 
 
 
 
GAAP net income
 
$
583

 
$
507

 
$
261

 
$
1,091

 
$
469

Total pre-tax impact of non-GAAP adjustments
 
89

 
99

 
72

 
188

 
153

Income tax impact of non-GAAP adjustments
 
(34
)
 
(73
)
 
(20
)
 
(108
)
 
(46
)
Non-GAAP net income
 
$
638

 
$
533

 
$
313

 
$
1,171

 
$
576
















 
 
 Three Months Ended
 
Six Months Ended
 
 
July 30,
 
April 30,
 
July 31,
 
July 30,
 
July 31,
 
 
2017
 
2017
 
2016
 
2017
 
2016
Diluted net income per share
 
 
 
 
 
 
 
 
 
 
GAAP
 
$
0.92

 
$
0.79

 
$
0.41

 
$
1.71

 
$
0.76

Non-GAAP
 
$
1.01

 
$
0.85

 
$
0.53

 
$
1.87

 
$
0.99

 
 
 
 
 
 
 
 
 
 
 
Weighted average shares used in diluted net income per share computation
 
 
 
 
 
 
 
 
 
 
GAAP
 
633

 
641

 
634

 
637

 
620

Anti-dilution impact from note hedge (C)
 
(4
)
 
(14
)
 
(43
)
 
(10
)
 
(37
)
Non-GAAP
 
629

 
627

 
591

 
627

 
583

 
 
 
 
 
 
 
 
 
 
 
GAAP net cash provided by operating activities
 
$
705

 
$
282

 
$
201

 
$
987

 
$
519

Purchase of property and equipment and intangible assets
 
(55
)
 
(53
)
 
(33
)
 
(108
)
 
(88
)
Free cash flow
 
$
650

 
$
229

 
$
168

 
$
879

 
$
431



(A) Excludes stock-based compensation as follows:
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
 
July 30,
 
April 30,
 
July 31,
 
July 30,
 
July 31,
 
 
2017
 
2017
 
2016
 
2017
 
2016
Cost of revenue
 
$
4

 
$
4

 
$
4

 
$
8

 
$
8

Research and development
 
$
44

 
$
41

 
$
30

 
$
85

 
$
59

Sales, general and administrative
 
$
33

 
$
31

 
$
24

 
$
65

 
$
44

 
 
 
 
 
 
 
 
 
 
 
(B) Consists of amortization of acquisition-related intangible assets and compensation charges.
 
 
 
 
 
 
 
 
 
 
 
(C) Represents the number of shares that would be delivered upon conversion of the currently outstanding 1.00% Convertible Senior Notes Due 2018. Under GAAP, shares delivered in hedge transactions are not considered offsetting shares in the fully diluted share calculation until actually delivered.










 NVIDIA CORPORATION
 RECONCILIATION OF GAAP TO NON-GAAP OUTLOOK
 
 
 
 
 Q3 FY2018 Outlook
  GAAP gross margin
 
58.6
%
 
Impact of stock-based compensation expense
 
0.2
%
  Non-GAAP gross margin
 
58.8
%
 
 
 
 
 
 
 
 Q3 FY2018 Outlook
 
 
 
(In millions)
GAAP operating expenses
 
$
672

 
Stock-based compensation expense, acquisition-related costs, and other costs
 
(102
)
Non-GAAP operating expenses
 
$
570

 
 
 
 
GAAP other income (expense)
 
$
(2
)
 
Loss on early debt conversions and interest expense related to amortization of debt discount
 
2

Non-GAAP other income (expense)
 
$