SOURCE: Cavium Networks, Inc.

October 20, 2008 16:00 ET

Cavium Networks Announces Financial Results for Q3 2008

Cavium Announces Record Quarterly Revenue in Q3 2008; Revenue Increased 14% Sequentially and 73% Year-Over-Year

MOUNTAIN VIEW, CA--(Marketwire - October 20, 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 third quarter of 2008 ended September 30, 2008.

Revenue in the third quarter of 2008 was $24.5 million, a 14% sequential increase from the $21.6 million reported for the second quarter of 2008 and an increase of 73% from the $14.2 million reported for the third quarter of last year.

Generally Accepted Accounting Principles (GAAP) Results

Net income for the third quarter of 2008, on a GAAP basis, was $1.8 million, or $0.04 per share (diluted), compared to net income of $2.1 million, or $0.05 per diluted share in the second quarter of 2008, and net income of $1.3 million, or $0.03 per share in the third quarter of last year. Gross margins were 58.8% in the third quarter of 2008 compared to 63.8% in the second quarter of this year. Total cash and cash equivalents were $91.9 million at September 30, 2008.

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. These measures should only be used to evaluate the Company's results of operations in conjunction with the corresponding GAAP measures. Non-GAAP financial measures in the third quarter of 2008 exclude $2.8 million in stock-based compensation and related payroll tax expense, amortization of acquired intangible assets and adjustments related to the acquisition of Star Semiconductor. The reconciliation between GAAP and non-GAAP financial results is provided in the financial statements portion of this release.

Net income for the third quarter of 2008, on a non-GAAP basis, was $4.6 million, or $0.11 per share (diluted), compared with $3.8 million, or $0.09 per share (diluted) in the second quarter of the year and $2.1 million, or $0.05 per share (diluted) in the third quarter of last year. Gross margins, on a non-GAAP basis, were 62.8% in the third quarter of 2008 compared to 64.2% in the second quarter of this year.

"The third quarter was yet another strong quarter for us across all key metrics. We continue to deliver strong sequential and year-over-year growth along with robust expansion in operating margins," said Syed Ali, president and CEO of Cavium Networks. "Non-GAAP operating margins have increased from 12.6% in the first quarter of 2008 to 16.8% in the second quarter of 2008, to 19.2% in the third quarter of 2008. Furthermore, non-GAAP income from operations increased 30.3% sequentially from Q2 2008 to Q3 2008, due to the strength in our business and leverage in our business model. We also continue to experience record design win rates with traction across all markets that we serve."

Conference Call

Cavium Networks will broadcast its third quarter 2008 financial results conference call today, October 20, 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 20 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, India and Taiwan. 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. 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 latest Form 10Q filed on August 8, 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

                                  September 30, 2008      June 30, 2008

Net revenue                       $            24,525  $            21,562
Cost of revenue (1)                            10,099                7,808
                                  -------------------  -------------------
Gross profit                                   14,426               13,754
                                  -------------------  -------------------
Operating expenses:
   Research and development (2)                 6,593                6,461
   Sales, general and
    administrative (3)                          5,944                5,454
                                  -------------------  -------------------
      Total operating expenses                 12,537               11,915
                                  -------------------  -------------------
Income from operations                          1,889                1,839
                                  -------------------  -------------------

Other income, net:
  Interest expense                               (115)                (135)
  Interest income and other                       499                  609
                                  -------------------  -------------------
Total other income, net                           384                  474
                                  -------------------  -------------------
  Income before income tax                      2,273                2,313
  Income tax expense                              454                  240
                                  -------------------  -------------------
Net income                        $             1,819  $             2,073
                                  ===================  ===================
Net income per common share,
 basic                            $              0.04  $              0.05
Shares used in computing basic
 net income per common share                   40,578               40,300
Net income per common share,
 diluted                          $              0.04  $              0.05
Shares used in computing diluted
 net income per common share                   42,628               42,992


(1) Cost of revenue includes:
         Amortization of acquired
          intangibles             $               814  $                32
         Fair value adjustment of
          acquired inventory                      153                    -
         Stock-based compensation
          and related taxes                        20                   55
(2) Research and development
     includes:
         Stock-based compensation
          and related taxes                       810                  821
(3) Sales, general and
     administrative includes:
         Stock-based compensation
          and related taxes                     1,016                  866
         Amortization of acquired
          intangibles                $              7  $                 -




                          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 non-GAAP:              September 30, 2008    June 30, 2008
                                    ------------------  ------------------
Net revenue                         $           24,525  $           21,562
GAAP gross profit                               14,426              13,754
GAAP gross margin                                 58.8%               63.8%
   Amortization of acquired
    intangibles:
      Cost of revenue                              814                  32
   Stock-based compensation
    and related taxes:
      Cost of revenue                               20                  55
   Fair value adjustment of
    acquired inventory                             153                   -
                                    ------------------  ------------------
Non-GAAP gross profit               $           15,413  $           13,841
                                    ==================  ==================
Non-GAAP gross margin                             62.8%               64.2%
                                    ==================  ==================

                                              Three Months Ended
                                    --------------------------------------
Reconciliation of GAAP income from
 operations to non-GAAP:            September 30, 2008    June 30, 2008
                                    ------------------  ------------------
GAAP income from operations         $            1,889  $            1,839
   Amortization of acquired
    intangibles                                    821                  32
   Stock-based compensation
    and related taxes                            1,846               1,742
   Fair value adjustment of
    acquired inventory                             153                   -
                                    ------------------  ------------------
Non-GAAP income from operations     $            4,709  $            3,613
                                    ==================  ==================
Non-GAAP income from operations as
 a percentage of revenue                          19.2%               16.8%
                                    ==================  ==================

                                              Three Months Ended
                                    --------------------------------------
Reconciliation of GAAP net income
 to non-GAAP:                       September 30, 2008    June 30, 2008
                                    ------------------  ------------------

GAAP net income                     $            1,819  $            2,073
Non-GAAP adjustments:
   Stock-based compensation and
    related taxes:
      Cost of revenue                               20                  55
      Research and development                     810                 821
      Sales, general and
       administrative                            1,016                 866
   Amortization of acquired
    intangibles:
      Cost of revenue                              814                  32
      Sales, general and
       administrative                                7                   -
   Fair value adjustment of
    acquired inventory                             153                   -
                                    ------------------  ------------------
   Total of non-GAAP adjustments                 2,820               1,774
                                    ------------------  ------------------
Non-GAAP net income                 $            4,639  $            3,847
                                    ==================  ==================

GAAP net income per share (diluted) $             0.04  $             0.05
                                    ==================  ==================
   Non-GAAP adjustments detailed
    above                                         0.07                0.04
Non-GAAP net income per share
 (diluted)                          $             0.11  $             0.09
                                    ==================  ==================

GAAP weighted average shares
 (diluted)                                      42,628              42,992
    Non-GAAP adjustment                            920                 775
Non-GAAP weighted average shares
 (diluted)                                      43,548              43,767




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



                                  September 30, 2008      June 30, 2008
Assets
Current assets:
   Cash and cash equivalents      $            91,918  $            99,284
   Accounts receivable, net                    13,483               10,867
   Inventories                                 15,301               12,913
   Prepaid expenses and other
    current assets                              1,276                1,287
                                  -------------------  -------------------
       Total current assets                   121,978              124,351
Property and equipment, net                    10,836               11,041
Intangible assets, net                          8,212                3,963
Goodwill                                        4,186                  807
Other assets                                      385                  410
                                  -------------------  -------------------
       Total assets               $           145,597  $           140,572
                                  ===================  ===================

Liabilities and Stockholders'
 Equity
Current liabilities:
   Accounts payable               $             7,116  $             5,444
   Accrued expenses and other
    current liabilities                         3,447                2,700
   Deferred revenue                             1,685                1,980
   Capital lease and technology
    license obligations, current                2,666                3,120
                                  -------------------  -------------------
       Total current liabilities               14,914               13,244
Capital lease and technology
 license obligations, net of
 current                                        2,255                2,792
Other non-current liabilities                     616                  508
                                  -------------------  -------------------
       Total liabilities                       17,785               16,544
                                  -------------------  -------------------

Stockholders' equity
   Common stock                                    41                   41
   Additional paid-in capital                 180,637              178,672
   Accumulated deficit                        (52,866)             (54,685)
                                  -------------------  -------------------
       Total stockholders' equity             127,812              124,028
                                  -------------------  -------------------
       Total liabilities and
        stockholders' equity      $           145,597  $           140,572
                                  ===================  ===================

Contact Information

  • Cavium Networks Contact:

    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