Thursday, November 14, 2019, NVIDIA today reported revenue for the third quarter ended Oct. 27, 2019, of $3.01 billion compared with $3.18 billion a year earlier and $2.58 billion in the previous quarter.

GAAP earnings per diluted share for the quarter were $1.45, compared with $1.97 a year ago and $0.90 in the previous quarter. Non-GAAP earnings per diluted share were $1.78, compared with $1.84 a year earlier and $1.24 in the previous quarter.

“Our gaming business and demand from hyperscale customers powered Q3’s results,“ said Jensen Huang, founder and CEO of NVIDIA. “The realism of computer graphics is taking a giant leap forward with NVIDIA RTX. 

“This quarter, we have laid the foundation for where AI will ultimately make the greatest impact. We extended our reach beyond the cloud, to the edge, where GPU-accelerated 5G, AI and IoT will revolutionize the world’s largest industries. We see strong data center growth ahead, driven by the rise of conversational AI and inference.”

NVIDIA will pay its next quarterly cash dividend of $0.16 per share on Dec. 20, 2019, to all shareholders of record on Nov. 29, 2019. 

The company will return to repurchasing its stock after closing the acquisition of Mellanox Technologies, Ltd.  Although discussions with the European Union and China regulatory bodies are progressing and closing the acquisition is possible by the end of this calendar year, the company believes the closing will likely occur in the early part of calendar 2020.

Q3 Fiscal 2020 Summary

GAAP
($ in millions, except earnings per share)	Q3 FY20				Q2 FY20				Q3 FY19				Q/Q	Y/Y
Revenue	$3,014				$2,579				$3,181				Up 17%	Down 5%
Gross margin	63.6%				59.8%				60.4%				Up 380 bps	Up 320 bps
Operating expenses	$989				$970				$863				Up 2%	Up 15%
Operating income	$927				$571				$1,058				Up 62%	Down 12%
Net income	$899				$552				$1,230				Up 63%	Down 27%
Diluted earnings per share	$1.45				$0.90				$1.97				Up 61%	Down 26%

 

Non-GAAP
($ in millions, except earnings per share)	Q3 FY20				Q2 FY20				Q3 FY19				Q/Q	Y/Y
Revenue	$3,014				$2,579				$3,181				Up 17%	Down 5%
Gross margin	64.1%				60.1%				61.0%				Up 400 bps	Up 310 bps
Operating expenses	$774				$749				$730				Up 3%	Up 6%
Operating income	$1,156				$802				$1,210				Up 44%	Down 4%
Net income	$1,103				$762				$1,151				Up 45%	Down 4%
Diluted earnings per share	$1.78				$1.24				$1.84				Up 44%	Down 3%

NVIDIA’s outlook for the fourth quarter of fiscal 2020 does not include any contribution from the pending acquisition of Mellanox and is as follows:

• Revenue is expected to be $2.95 billion, plus or minus 2 percent. Strong sequential growth is expected in Data Center, offset by a seasonal decline in GeForce® notebook GPUs and SoC modules for gaming platforms.
• GAAP and non-GAAP gross margins are expected to be 64.1 percent and 64.5 percent, respectively, plus or minus 50 basis points.
• GAAP and non-GAAP operating expenses are expected to be approximately $1.02 billion and $805 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 9 percent, plus or minus 1 percent, excluding any discrete items.  GAAP discrete items include excess tax benefits or deficiencies related to stock-based compensation, which are expected to generate variability on a quarter by quarter basis.

Highlights

Since the end of the second quarter of fiscal 2020, NVIDIA has achieved progress in these areas:

Gaming

• Announced with Microsoft that Minecraft , the world’s most popular computer game, will feature ray tracing.
• Announced SUPER versions of GeForce GTX ^TM GPUs with GeForce GTX 1650 SUPER, and GeForce GTX 1660 SUPER , successor to GeForce GTX 1060, the world’s best-selling GPU.
• Introduced the RTX Broadcast Engine , which uses the AI capabilities of GeForce RTX GPUs to enable virtual greenscreens, filters and AR effects in livestreaming.
• Announced two new models of the SHIELD TV streaming media player, which bring unmatched levels of home entertainment, gaming and AI capabilities to the living room.
• Expanded the reach of GeForce NOW ^TM  game streaming, with the service announced by Taiwan Mobile and Russia’s Rostelcom with GFN.ru, which joined Korea’s LG U+ and Japan’s SoftBank.

Data Center

• Launched the NVIDIA® EGX Intelligent Edge Computing Platform to bring accelerated AI to retail, manufacturing, telecommunications, logistics and other industries, with Walmart, BMW, NTT East, Procter & Gamble and Samsung Electronics among early adopters.
• Collaborated with Microsoft to provide an optimized hybrid-cloud platform combining Microsoft Azure software with NVIDIA EGX powered by NVIDIA T4 GPUs to address edge-computing demand.
• Entered the 5G telecom market, enabling telcos to build high-performing, efficient, virtualized 5G radio access networks using GPUs, in collaboration with Ericsson .
• Announced a collaboration with Red Hat to deliver software-defined 5G RAN using Red Hat OpenShift and GPU-accelerated servers.  
• Won the first inference benchmark, MLPerf Inference 0.5 , measuring AI workload performance in data centers and at the edge.
• Partnered with VMware to accelerate VMware Cloud on AWS using NVIDIA T4 GPUs and introduced the new NVIDIA vComputeServer software for enterprises to run AI workloads on GPU servers in virtualized environments.
• Announced that the United States Postal Service will use NVIDIA AI technology to improve its package data-processing efficiency.

Professional Visualization

• Announced that more than 40 creative and design applications, including three from Adobe -- Adobe Dimension, Substance Alchemist and Premiere Pro -- are now accelerated by RTX ray tracing.

Edge Computing

• Introduced Jetson Xavier™ NX , the world’s smallest, most powerful AI supercomputer for robotic and embedded computing devices at the edge.          

CFO Commentary

Commentary on the quarter by Colette Kress, NVIDIA’s executive vice president and chief financial officer, is available at https://investor.nvidia.com/home/default.aspx .

Conference Call and Webcast Information

NVIDIA will conduct a conference call with analysts and investors to discuss its third quarter fiscal 2020 financial results and current financial prospects today at 2:30 p.m. Pacific time (5:30 p.m. Eastern time). A live webcast (listen-only mode) of the conference call will be accessible at NVIDIA’s investor relations website, https://investor.nvidia.com/home/default.aspx . The webcast will be recorded and available for replay until NVIDIA’s conference call to discuss its financial results for its fourth quarter of fiscal 2020.

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, restructuring and other, acquisition-related and other costs, gains and losses from non-affiliated investments, interest expense related to amortization of debt discount, and the associated tax impact of these items, where applicable. Free cash flow is calculated as GAAP net cash provided by operating activities less purchase 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 the company’s non-GAAP measures may be different from non-GAAP measures used by other companies. 

NVIDIA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share data)
(Unaudited)
			Three Months Ended								Nine Months Ended
			October 27,				October 28,				October 27,				October 28,
			2019				2018				2019				2018
Revenue			$	3,014			$	3,181			$	7,813			$	9,511
Cost of revenue				1,098				1,260				3,060				3,547
Gross profit				1,916				1,921				4,753				5,964
Operating expenses
	Research and development			712				605				2,091				1,729
	Sales, general and administrative			277				258				806				725
		Total operating expenses		989				863				2,897				2,454
Income from operations				927				1,058				1,856				3,510
	Interest income			45				37				137				94
	Interest expense			(13	)			(15	)			(39	)			(44	)
	Other, net			-				1				-				12
		Total other income (expense)		32				23				98				62
Income before income tax				959				1,081				1,954				3,572
Income tax expense (benefit)				60				(149	)			109				(3	)
Net income			$	899			$	1,230			$	1,845			$	3,575
Net income per share:
	Basic		$	1.47			$	2.02			$	3.03			$	5.88
	Diluted		$	1.45			$	1.97			$	2.99			$	5.71
Weighted average shares used in per share computation:
	Basic			610				609				609				608
	Diluted			618				625				617				626

 

NVIDIA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
			October 27,			January 27,
			2019			2019
ASSETS
Current assets:
	Cash, cash equivalents and marketable securities		$	9,769		$	7,422
	Accounts receivable, net			1,455			1,424
	Inventories			1,047			1,575
	Prepaid expenses and other current assets			149			136
		Total current assets		12,420			10,557
Property and equipment, net				1,517			1,404
Operating lease assets				527			-
Goodwill				618			618
Intangible assets, net				43			45
Deferred income tax assets				569			560
Other assets				116			108
		Total assets	$	15,810		$	13,292
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
	Accounts payable		$	591		$	511
	Accrued and other current liabilities			884			818
		Total current liabilities		1,475			1,329
Long-term debt				1,990			1,988
Long-term operating lease liabilities				469			-
Other long-term liabilities				662			633
		Total liabilities		4,596			3,950
Shareholders' equity				11,214			9,342
		Total liabilities and shareholders' equity	$	15,810		$	13,292

 

NVIDIA CORPORATION
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(In millions, except per share data)
(Unaudited)
		Three Months Ended												Nine Months Ended
		October 27,				July 28,				October 28,				October 27,				October 28,
		2019				2019				2018				2019				2018
GAAP gross profit		$	1,916			$	1,541			$	1,921			$	4,753			$	5,964
GAAP gross margin			63.6	%			59.8	%			60.4	%			60.8	%			62.7	%
	Stock-based compensation expense (A)		15				8				5				27				21
	Legal settlement costs		-				2				14				11				14
Non-GAAP gross profit		$	1,931			$	1,551			$	1,940			$	4,791			$	5,999
Non-GAAP gross margin			64.1	%			60.1	%			61.0	%			61.3	%			63.1	%
GAAP operating expenses		$	989			$	970			$	863			$	2,897			$	2,454
	Stock-based compensation expense (A)		(208	)			(216	)			(135	)			(597	)			(379	)
	Acquisition-related and other costs		(7	)			(5	)			(1	)			(22	)			(5	)
	Legal settlement costs		-				-				(1	)			(2	)			(3	)
	Restructuring and other		-				-				4				-				4
Non-GAAP operating expenses		$	774			$	749			$	730			$	2,276			$	2,071
GAAP income from operations		$	927			$	571			$	1,058			$	1,856			$	3,510
	Total impact of non-GAAP adjustments to income from operations		229				231				152				659				418
Non-GAAP income from operations		$	1,156			$	802			$	1,210			$	2,515			$	3,928
GAAP other income (expense)		$	32			$	35			$	23			$	98			$	62
	Losses (Gains) from non-affiliated investments		-				-				(2	)			1				(11	)
	Interest expense related to amortization of debt discount		1				-				-				1				1
Non-GAAP other income (expense)		$	33			$	35			$	21			$	100			$	52
GAAP net income		$	899			$	552			$	1,230			$	1,845			$	3,575
	Total pre-tax impact of non-GAAP adjustments		230				231				150				660				409
	Income tax impact of non-GAAP adjustments (B)		(26	)			(21	)			(91	)			(97	)			(199	)
	Tax benefit from income tax reform		-				-				(138	)			-				(138	)
Non-GAAP net income		$	1,103			$	762			$	1,151			$	2,408			$	3,647
Diluted net income per share
	GAAP	$	1.45			$	0.90			$	1.97			$	2.99			$	5.71
	Non-GAAP	$	1.78			$	1.24			$	1.84			$	3.90			$	5.83
Weighted average shares used in diluted net income per share computation			618				616				625				617				626
GAAP net cash provided by operating activities		$	1,640			$	936			$	487			$	3,296			$	2,845
	Purchase of property and equipment and intangible assets		(104	)			(113	)			(150	)			(344	)			(397	)
Free cash flow		$	1,536			$	823			$	337			$	2,952			$	2,448
(A) Stock-based compensation consists of the following:		Three Months Ended												Nine Months Ended
		October 27,				July 28,				October 28,				October 27,				October 28,
		2019				2019				2018				2019				2018
	Cost of revenue	$	15			$	8			$	5			$	27			$	21
	Research and development	$	141			$	145			$	88			$	400			$	237
	Sales, general and administrative	$	67			$	71			$	47			$	197			$	142
(B) Income tax impact of non-GAAP adjustments, including the recognition of excess tax benefits or deficiencies related to stock-based compensation under GAAP accounting standard (ASU 2016-09).

 

NVIDIA CORPORATION
RECONCILIATION OF GAAP TO NON-GAAP OUTLOOK
		Q4 FY2020 Outlook
GAAP gross margin		64.1%
	Impact of stock-based compensation expense	0.4%
Non-GAAP gross margin		64.5%
		Q4 FY2020 Outlook
		(In millions)
GAAP operating expenses		$1,015
	Stock-based compensation expense, acquisition-related costs, and other costs	(210)
Non-GAAP operating expenses		$805