SOURCE: Cavium Networks, Inc.

October 17, 2007 16:05 ET

Cavium Networks Announces Financial Results for Q3 2007

MOUNTAIN VIEW, CA--(Marketwire - October 17, 2007) - Cavium Networks (NASDAQ: CAVM), a leading provider of highly integrated semiconductor products that enable intelligent processing for networking, communications, storage and security applications, today announced financial results for the third quarter of 2007 ended September 30, 2007.

Revenue in the third quarter of 2007 was $14.2 million, a 12% sequential increase from the $12.7 million reported for the second quarter of 2007 and an increase of 54% from the $9.2 million reported for the third quarter of last year.

Generally Accepted Accounting Principles (GAAP) Results

Net income for the third quarter of 2007, on a GAAP basis, was $1.3 million, or $0.03 per share (diluted), compared with a net loss of $0.1 million, or $0.00 per diluted share in the second quarter of 2007, and a net loss of $1.7 million, or $0.21 per share (diluted) in the third quarter of last year. Gross margins were 63.2% in the third quarter of 2007 compared to 57.8% in the third quarter last year. Total cash and cash equivalents were $101.5 million at September 30, 2007.

Non-GAAP Results

Cavium Networks believes that the presentation of non-GAAP financial measures provides important supplemental information to management and investors regarding financial and business trends relating to the company's financial condition and results of operations. Non-GAAP financial measures in the third quarter of 2007 exclude $0.5 million in stock-based compensation expense and $0.2 million in amortization of acquired intangible assets. The reconciliation between GAAP and non-GAAP financial results are provided in the financial statements portion of this release.

Net income for the third quarter of 2007, on a non-GAAP basis, was $2.1 million, or $0.05 per share (diluted), compared with $1.0 million, or $0.03 per share (diluted) in the second quarter of 2007, and a net loss of $1.2 million, or $0.14 per share (diluted) in the third quarter of last year. Gross margins, on a non-GAAP basis, were 64.9% in the third quarter of 2007 compared to 65.2% in the second quarter of 2007 and 60.9% in the third quarter of last year.

Company Highlights

"We continue to show strong revenue growth on both a sequential and year-over-year basis," said Syed Ali, president and CEO of Cavium Networks. "The increased revenue growth along with strong gross margins has driven continued operating margin expansion. In addition, we generated our first quarterly positive GAAP net income in the Company's history. We have seen accelerated design win activity this quarter and continue to gain strong traction in a number of significant growth markets."

Third Quarter Highlights:

--  July 24, 2007 - Avnet Memec and Cavium Networks Announce Americas
    Distribution Agreement to expand Cavium's product reach to a larger and
    more diversified customer base.
    
--  July 26, 2007 - QUALCOMM Announces New Ultra Mobile Broadband Base
    Station Reference Design using Cavium Networks OCTEON processor.
    
--  July 26, 2007 - Green Hills Software, a leading RTOS and tools vendors
    and Cavium Ecosystem partner announces comprehensive support for the OCTEON
    Processor line.
    
--  July 30, 2007 - Sophos, a leader in IT security and control solutions
    and a Cavium Ecosystem partner announces the availability of their Sophos
    Anti-Virus Interface for the OCTEON Processor line.
    
--  September 17, 2007 - Cavium Networks Announces Industry's First 10Gbps
    IPsec and SSL PCI-Express Security Accelerators using the new NITROX PX
    processors.
    
--  September 17, 2007 - Cavium Networks Introduces OCTEON Plus-based
    Accelerators for Appliance, Blade Server and Storage Systems with NIC and
    coprocessor functionality in a desirable single slot form factor.
    
--  October 8, 2007 - Cavium Networks Demonstrates Complete Broadband,
    SOHO, SME Reference Designs and Partner Solutions for triple enabled CPE
    equipment at Broadband World Forum 2007 in Berlin.
    
--  October 8, 2007 - Cavium Networks and Jungo, a leading provider of
    broadband home value-added service solutions showcase the performance,
    features, low power and scalability of a joint solution at the Broadband
    World Forum 2007, Berlin, Germany.
    
--  October 8, 2007 - Cavium Networks Introduces OCTEON Plus CN50XX to
    Fuel Widespread Multi-core Processor Adoption in Triple play enabled
    Service Provider Gateway, SME and Storage Applications.
    
--  Oct 15, 2007 - Cavium Networks Demonstrates Industry-Leading
    Performance for Enterprise and SMB/Home Storage Applications at Storage
    Network World, 2007.
    
--  Oct 16, 2007 - Cavium Networks New OCTEON Plus CN58XX Low-Power Series
    Breaks the 1 Watt per Core Barrier targeting power and space constrained
    applications in the service provider, access and enterprise markets.
    
--  Oct 16, 2007 - Cavium Networks, AFORE and GE Fanuc announce Carrier
    Grade Ethernet on a MicroTCA® Platform with Packet Processor
    AdvancedMC®.
    
--  Oct 16, 2007 - Interphase  announces Packet Accelerator AdvancedMC and
    PCI-x Modules  based on the OCTEON Processor Family.
    

Conference Call

Cavium Networks will broadcast its third quarter 2007 financial results conference call today, October 17, 2007 at 2 p.m. Pacific time (5 p.m. Eastern time). The conference call will be available via a live web cast on the investor relations section of the Cavium Networks website at http://www.caviumnetworks.com. Please access the website at least a few minutes prior to the start of the call in order to download and install any necessary audio software. An archived web cast replay of the call will be available on the web site for a limited period of time.

About Cavium Networks

Cavium Networks is a leading provider of highly integrated semiconductor products that enable intelligent processing in networking, communications, and storage and security applications. Cavium Networks offers a broad portfolio of integrated, software compatible processors ranging in performance from 10 Mbps to 10 Gbps that enable secure, intelligent functionality in enterprise, data-center, broadband/consumer and access & service provider equipment. Cavium Networks processors are supported by ecosystem partners that provide operating systems, tool support, reference designs and other services. Cavium Networks principal offices are in Mountain View, CA with design team locations in California, Massachusetts and India. For more information, please visit: http://www.caviumnetworks.com.

Note on Forward-Looking Statements

This press release may contain forward-looking statements regarding future events that involve risks and uncertainties. Readers are cautioned that these forward-looking statements are only predictions and may differ materially from actual future events or results. These forward-looking statements involve risks and uncertainties, as well as assumptions that if they do not fully materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward-looking statements include but are not limited to existing or new competition, the rate of new design wins, the rate at which existing design wins go into production, technological advances, pricing pressures; general economic conditions; development of new products and technologies; manufacturing difficulties; whether Cavium Networks is successful in marketing its products; and other risks and uncertainties described more fully in our documents filed with or furnished to the Securities and Exchange Commission. More information about these and other risks that may impact Cavium's business are set forth in our Registration Statement on Form S-1 filed with the SEC, including the "Risk Factors" section in our final Prospectus dated May 1, 2007 and those filed with its most recent Form 10Q. All forward-looking statements in this press release are based on information available to us as of the date hereof and qualified in their entirety by this cautionary statement, and we assume no obligation to revise or update these forward-looking statements.

                          CAVIUM NETWORKS, INC.
           Unaudited GAAP Consolidated Statements of Operations
                 (In thousands, except per share amounts)

                                                     Three Months Ended
                                                        September 30,
                                                  ------------------------
                                                      2007         2006
                                                  -----------  -----------

Revenue                                           $    14,165  $     9,187
Cost of revenue (1)                                     5,207        3,878
                                                  -----------  -----------
Gross profit                                            8,958        5,309
                                                  -----------  -----------
Operating expenses:
     Research and development (2)                       4,796        4,224
     Sales, general and administrative (3)              3,976        2,594
                                                  -----------  -----------
        Total operating expenses                        8,772        6,818
                                                  -----------  -----------
Income (loss) from operations                             186       (1,509)
                                                  -----------  -----------


Other income (expense), net:
    Interest expense                                      (73)        (271)
    Warrant revaluation expense (4)                         -          (13)
    Interest income and other                           1,307          117
                                                  -----------  -----------
Total other income (expense), net                       1,234         (167)
                                                  -----------  -----------
     Income (loss) before income tax                    1,420       (1,676)
     Income tax expense                                  (110)           -
                                                  -----------  -----------
Net income (loss)                                 $     1,310  $    (1,676)
                                                  ===========  ===========
Net income (loss) per common share, basic         $      0.03  $     (0.21)
Shares used in computing basic net income (loss)
 per common share                                      39,021        8,156
Net income (loss) per common share, diluted       $      0.03  $     (0.21)
Shares used in computing diluted net income
 (loss) per common share                               42,713        8,156


(1) Cost of revenue:
          Amortization of acquired technology     $       215  $       279
          Stock-based compensation                $        16  $         3
(2) Research and development expense
          Stock-based compensation                $       222  $       122
(3)  Sales, general and administrative
          Stock-based compensation                $       287  $       101
(4)  Warrant revaluation expense                  $         -  $        13



                          CAVIUM NETWORKS, INC.
             Unaudited Reconciliation of Non-GAAP Adjustments
                 (In thousands, except per share amounts)


                                                     Three Months Ended
                                                        September 30,
                                                  ------------------------
                                                      2007         2006
                                                  -----------  -----------

GAAP net income (loss)                            $     1,310  $    (1,676)
Non-GAAP Adjustments:
      Stock-based compensation:
          Cost of revenue                                  16            3
          Research and development                        222          122
          Sales, general and administrative               287          101
      Amortization of acquired technology:
          Cost of revenue                                 215          279
      Warrant revaluation  expense                          -           13
                                                  -----------  -----------
      Total of non-GAAP adjustments                       740          518
                                                  -----------  -----------
Non-GAAP net income (loss)                        $     2,050  $    (1,158)
                                                  ===========  ===========

GAAP net income (loss) per share (diluted)        $      0.03  $     (0.21)
   Non-GAAP adjustments detailed above                   0.02         0.07
Non-GAAP net income (loss) per share (diluted)    $      0.05  $     (0.14)

GAAP weighted average shares (diluted)                 42,713        8,156
Non-GAAP adjustment                                       231            -
Non-GAAP weighted average shares (diluted)             42,944        8,156


                                                     Three Months Ended
                                                        September 30,
                                                  ------------------------
                                                      2007         2006
                                                  -----------  -----------
Reconciliation of Non-GAAP gross profit:
Revenue                                                14,165        9,187
GAAP gross profit                                       8,958        5,309
GAAP gross margin                                        63.2%        57.8%
          Amortization of acquired technology:
                Cost of revenue                           215          279
          Stock-based compensation:
                Cost of revenue                            16            3
Non-GAAP gross profit                                   9,189        5,591
Non-GAAP gross margin                                    64.9%        60.9%



                          CAVIUM NETWORKS, INC.
           Unaudited GAAP Condensed Consolidated Balance Sheets
                              (In thousands)


                                              September 30,  December 31,
                                              -------------  -------------
                                                  2007           2006
                                              -------------  -------------
Assets
Current assets:
   Cash and cash equivalents                  $     101,504  $      10,154
   Accounts receivable, net                           7,762          7,248
   Inventories                                        6,799          5,006
   Prepaid expenses and other current assets            971            405
                                              -------------  -------------
       Total current assets                         117,036         22,813
Property and equipment, net                           5,890          5,040
Intangible assets, net                                3,911          1,902
Other assets                                            156            207
                                              -------------  -------------
       Total assets                           $     126,993  $      29,962
                                              =============  =============

Liabilities, Mandatorily Redeemable Convertible
 Preferred Stock and Stockholders' Equity (Deficit)
Current liabilities:
   Accounts payable                           $       4,003  $       2,904
   Accrued expenses and other current
    liabilities                                       2,330          2,853
   Deferred revenue                                   2,585            628
   Capital lease and technology license
    obligations, current                              3,884          2,564
   Preferred stock warrant liability                      -            701
   Current portion of notes payable                       -          1,474
                                              -------------  -------------
       Total current liabilities                     12,802         11,124
Notes payable, net of current                             -          2,526
Capital lease and technology license
 obligation, net of current                             800          1,016
Other non-current liabilities                             -             39
                                              -------------  -------------
       Total liabilities                             13,602         14,705
                                              -------------  -------------

Mandatorily redeemable convertible preferred
 stock                                                    -         72,437
                                              -------------  -------------
Stockholders' equity (deficit)
   Common stock                                          40              9
   Additional paid-in capital                       174,050          3,731
   Accumulated deficit                              (60,699)       (60,920)
                                              -------------  -------------
       Total stockholders' equity (deficit)         113,391        (57,180)
                                              -------------  -------------
       Total liabilities, mandatorily
        redeemable convertible preferred
        stock and stockholders' equity
        (deficit)                             $     126,993  $      29,962
                                              =============  =============

Contact Information

  • Cavium Networks Contact:

    Art Chadwick
    VP and Chief Financial Officer
    Tel: (650) 623-7033

    Deborah Stapleton/Alexis Pascal
    Stapleton Communications Inc.
    Tel : (650) 470-0200