SOURCE: Cavium Networks, Inc.

July 16, 2008 16:10 ET

Cavium Networks Announces Financial Results for Q2 2008

Cavium Announces Record Quarterly Revenue in Q2 2008; Revenue Increased 18% Sequentially and 70% Year-Over-Year

MOUNTAIN VIEW, CA--(Marketwire - July 16, 2008) - Cavium Networks (NASDAQ: CAVM), a leading provider of highly integrated semiconductor products that enable intelligent processing for networking, communications, storage, wireless and security applications, today announced financial results for the second quarter of 2008 ended June 30, 2008.

Revenue in the second quarter of 2008 was $21.6 million, an 18% sequential increase from the $18.3 million reported for the first quarter of 2008 and an increase of 70% from the $12.7 million reported for the second quarter of last year.

Generally Accepted Accounting Principles (GAAP) Results

Net income for the second quarter of 2008, on a GAAP basis, was $2.1 million, or $0.05 per share (diluted), compared to net income of $2.0 million, or $0.05 per diluted share in the first quarter of 2008, and a net loss of $0.1 million, or $0.00 per share in the second quarter of last year. Gross margins were 63.8% in the second quarter of 2008 compared to 64.1% in the first quarter of this year. Total cash and cash equivalents were $99.3 million at June 30, 2008, $3.7 million higher than the balance at the end of the first quarter of this year.

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 second quarter of 2008 exclude $1.8 million in stock-based compensation and related payroll tax expense, and 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 second quarter of 2008, on a non-GAAP basis, was $3.8 million, or $0.09 per share (diluted), compared with $2.9 million, or $0.07 per share (diluted) in the first quarter of the year and $1.0 million, or $0.03 per share (diluted) in the second quarter of last year. Gross margins, on a non-GAAP basis, were 64.2% in the second quarter of 2008 compared to 64.7% in the first quarter of this year.

"The second quarter was another strong quarter for us, which continued our history of record quarterly sales as well as strong sequential and year-over-year growth," said Syed Ali, president and CEO of Cavium Networks. "We continue to experience strong design win traction and growth across all markets that we serve. We have continued to expand non-GAAP operating margins every quarter since our IPO. Non-GAAP operating margins have increased from just above breakeven in the first quarter of 2007 to 12.6% in the first quarter of 2008 and to 16.8% in the second quarter of 2008. Furthermore, non-GAAP operating income, which we consider to be an important measure of the health of our business, increased this year 42% sequentially from Q4 2007 to Q1 2008 and 56% sequentially from Q1 2008 to Q2 2008, due to the strength in our business and leverage in our business model."

Second Quarter 2008 Highlights:

--  July 16, 2008 - Sumitomo Electric Networks Inc. selected OCTEON to
    power Triple-Play Home Gateways for Next Generation Fiber to the Home
    (FTTH) Service.
    
--  July 16, 2008 - Cavium Networks signed a definitive agreement on July
    15, 2008 to acquire certain assets and the business of Star Semiconductor,
    a Taiwan corporation. This acquisition for a net purchase price of
    approximately $9 million in cash will enable Cavium to deliver highly
    optimized, cost effective and low power SOC processors to address a
    significantly broader range of network connected, triple-play enabled
    devices for the digitally connected home and office. Cavium Networks will
    continue to ship and sell Star's existing product lines.
    
--  June 23, 2008 - Cavium Networks' CEO Syed Ali was named Ernst & Young
    Entrepreneur of the Year® 2008 Award Recipient in Northern California.
    
--  June 17, 2008 - Emerson Network Power announced AdvancedTCA Leadership
    with new high performance OCTEON based processing blade.
    
--  June 16, 2008 - Cavium Networks and Effnet announce collaboration to
    offer robust header compression (RoHC) software on OCTEON. RoHC is used in
    3G/4G wireless infrastructure equipment.
    
--  June 12, 2008 - Interphase announced availability of ispan 36CA
    AdvancedMC™ and the ispan 55CA PCI-X Packet Accelerator Cards that use
    OCTEON processors.
    
--  June 12, 2008 - Kontron debuted its portfolio of AdvancedMC
    Intelligent IO modules based on OCTEON™ Plus CN56xx multi-core
    processors.
    
--  May 20, 2008 - Palo Alto Networks PA-4000 Series next generation
    firewall that uses Cavium's OCTEON processor won the highly coveted Interop
    Grand Prize Award as well as the Best of Show award in the security
    category at the recent Interop 2008 in Las Vegas.
    
--  May 2, 2008 - Sandeep Vij joined Cavium Networks as Vice President of
    Strategic Markets & Business Development. Prior to joining Cavium Networks,
    Mr. Vij held the position of Vice President of Worldwide Marketing,
    Services and Support for Xilinx Inc.
    
--  April 29, 2008 - Cavium Networks introduces New OCTEON Plus Based PCI-
    Express Accelerator Cards for Networking, Storage and Security
    Applications.
    
--  April 28, 2008 - Cavium Networks and its Ecosystem Partners displayed
    multiple leading intelligent networking solutions at INTEROP 2008 in Las
    Vegas, NV.
    

Conference Call

Cavium Networks will broadcast its second quarter 2008 financial results conference call today, July 16, 2008 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, storage, wireless 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, California 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, 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. In addition, there can be no assurance that the company will be able to continue to expand non- GAAP operating margins for the foreseeable future. More information about these and other risks that may impact Cavium's business are set forth in the "Risk Factors" section of our Form 10K filed with the Securities and Exchange Commission on March 10, 2008 and our Form 10Q filed on May 2 2008. 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
                                                    June 30,    March 31,
                                                      2008         2008
                                                  -----------  -----------

Revenue                                           $    21,562  $    18,342
Cost of revenue (1)                                     7,808        6,587
                                                  -----------  -----------
Gross profit                                           13,754       11,755
                                                  -----------  -----------
Operating expenses:
     Research and development (2)                       6,461        5,820
     Sales, general and administrative (3)              5,454        4,555
                                                  -----------  -----------
        Total operating expenses                       11,915       10,375
                                                  -----------  -----------
Income from operations                                  1,839        1,380
                                                  -----------  -----------

Other income, net:
    Interest expense                                     (135)        (153)
    Interest income and other                             609          992
                                                  -----------  -----------
Total other income, net                                   474          839
                                                  -----------  -----------
     Income before income tax                           2,313        2,219
     Income tax expense                                   240          247
                                                  -----------  -----------
Net income                                        $     2,073  $     1,972
                                                  ===========  ===========
Net income per common share, basic                $      0.05  $      0.05
Shares used in computing basic net income per
 common share                                          40,300       39,966
Net income per common share, diluted              $      0.05  $      0.05
Shares used in computing diluted net income per
 common share                                          42,992       42,135


(1) Cost of revenue:
       Amortization of acquired technology                 32           88
       Stock-based compensation and related taxes          55           29
(2) Research and development expense
       Stock-based compensation and related taxes         821          372
(3)  Sales, general and administrative
       Stock-based compensation and related taxes         866          446




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

                                                     Three Months Ended
                                                  ------------------------
Reconciliation of GAAP gross profit & margin to     June 30,    March 31,
 non-GAAP:                                            2008         2008
                                                  -----------  -----------

Revenue                                           $    21,562  $    18,342
GAAP gross profit                                      13,754       11,755
GAAP gross margin                                        63.8%        64.1%
          Amortization of acquired technology:
                Cost of revenue                            32           88
          Stock-based compensation and related
           taxes:
                Cost of revenue                            55           29
                                                  -----------  -----------
Non-GAAP gross profit                             $    13,841  $    11,872
                                                  ===========  ===========
Non-GAAP gross margin                                    64.2%        64.7%
                                                  ===========  ===========

                                                     Three Months Ended
                                                  ------------------------
Reconciliation of GAAP income from operations       June 30,    March 31,
 to non-GAAP:                                         2008         2008
                                                  -----------  -----------
GAAP income from operations                       $     1,839  $     1,380
          Amortization of acquired technology              32           88
          Stock-based compensation and related
           taxes                                        1,742          847
                                                  -----------  -----------
Non-GAAP income from operations                   $     3,613  $     2,315
                                                  ===========  ===========
Non-GAAP income from operations as a percentage
 of revenue                                              16.8%        12.6%
                                                  ===========  ===========

                                                     Three Months Ended
                                                  ------------------------
Reconciliation of GAAP net income to non-GAAP:      June 30,    March 31,
                                                      2008         2008
                                                  -----------  -----------
GAAP net income                                   $     2,073  $     1,972
Non-GAAP adjustments:
      Stock-based compensation and related taxes:
          Cost of revenue                                  55           29
          Research and development                        821          372
          Sales, general and administrative               866          446
      Amortization of acquired technology:
          Cost of revenue                                  32           88
                                                  -----------  -----------
      Total of non-GAAP adjustments                     1,774          935
                                                  -----------  -----------
Non-GAAP net income                               $     3,847  $     2,907
                                                  ===========  ===========

GAAP net income per share (diluted)               $      0.05  $      0.05
                                                  ===========  ===========
   Non-GAAP adjustments detailed above                   0.04         0.02
Non-GAAP net income per share (diluted)           $      0.09  $      0.07
                                                  ===========  ===========

GAAP weighted average shares (diluted)                 42,992       42,135
    Non-GAAP adjustment                                   775          534
Non-GAAP weighted average shares (diluted)             43,767       42,669





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

                                                    June 30,    March 31,
                                                      2008         2008
                                                  -----------  -----------
Assets
Current assets:
   Cash and cash equivalents                      $    99,284  $    95,612
   Accounts receivable, net                            10,867       13,747
   Inventories                                         12,913       10,767
   Prepaid expenses and other current assets            1,287          952
                                                  -----------  -----------
       Total current assets                           124,351      121,078
Property and equipment, net                            11,041       11,498
Intangible assets, net                                  3,963        3,774
Goodwill                                                  807            -
Other assets                                              410          295
                                                  -----------  -----------
       Total assets                               $   140,572  $   136,645
                                                  ===========  ===========

Liabilities and Stockholders' Equity
Current liabilities:
   Accounts payable                               $     5,444  $     4,985
   Accrued expenses and other current liabilities       2,700        2,449
   Deferred revenue                                     1,980        2,506
   Capital lease and technology license
    obligations, current                                3,120        3,501
                                                  -----------  -----------
       Total current liabilities                       13,244       13,441
Capital lease and technology license obligations,
 net of current                                         2,792        3,432
Other non-current liabilities                             508            -
                                                  -----------  -----------
       Total liabilities                               16,544       16,873
                                                  -----------  -----------

Stockholders' equity
   Common stock                                            41           40
   Additional paid-in capital                         178,672      176,490
   Accumulated deficit                                (54,685)     (56,758)
                                                  -----------  -----------
       Total stockholders' equity                     124,028      119,772
                                                  -----------  -----------
       Total liabilities and stockholders' equity $   140,572  $   136,645
                                                  ===========  ===========

Contact Information

  • Cavium Networks Contacts:
    Art Chadwick
    VP and Chief Financial Officer
    Tel: (650) 623-7063
    Email: Email Contact

    Angel Atondo
    Marketing Communications Manager
    Tel: (650) 623-7033
    Email: Email Contact