SOURCE: Cavium Networks, Inc.

January 23, 2008 16:00 ET

Cavium Networks Announces Financial Results for Q4 2007

Revenue in Q4 2007 Increases 14% Sequentially and 64% Year-Over-Year

MOUNTAIN VIEW, CA--(Marketwire - January 23, 2008) - 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 fourth quarter of 2007 ended December 31, 2007.

Revenue in the fourth quarter of 2007 was $16.2 million, a 14% sequential increase from the $14.2 million reported for the third quarter of 2007 and an increase of 64% from the $9.9 million reported for the fourth quarter of last year.

Generally Accepted Accounting Principles (GAAP) Results

Net income for the fourth quarter of 2007, on a GAAP basis, was $2.0 million, or $0.05 per share (diluted), compared to net income of $1.3 million, or $0.03 per diluted share in the third quarter of 2007, and a net loss of $1.2 million, or $0.15 per share (diluted) in the fourth quarter of last year. Gross margins were 64.2% in the fourth quarter of 2007 compared to 63.2% in the third quarter of 2007. Total cash and cash equivalents were $98.5 million at December 31, 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 fourth quarter of 2007 exclude $0.8 million in stock-based compensation and related payroll tax expense and $0.1 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 fourth quarter of 2007, on a non-GAAP basis, was $2.9 million, or $0.07 per share (diluted), compared with $2.1 million, or $0.05 per share (diluted) in the third quarter of 2007, and a net loss of $0.5 million, or $0.06 per share (diluted) in the fourth quarter of last year. Gross margins, on a non-GAAP basis, were 64.9% in the fourth quarter of 2007 compared to 64.9% in the third quarter of 2007.

Company Highlights

"We were very pleased with the robust sequential growth this quarter as well as the acceleration in our growth on a year-over-year basis," said Syed Ali, president and CEO of Cavium Networks. "Accelerating sales of our flagship OCTEON™ processors and strong gross margins drove healthy expansion in operating margin and net income . Several new designs entered initial production phase this quarter. Design win rates this quarter were extremely strong and continued at the elevated levels we have seen through the second half of 2007."

Fourth Quarter Highlights:

--  October 23, 2007 - Lanbird Delivers WiMAX Wireless Infrastructure
    applications for Cavium Networks' OCTEON™ Multi-core MIPS64 Processor
    Family.
    
--  October 30, 2007 - Wind River announces standard out of the box
    support of OCTEON processors in their latest VxWorks version with SMP
    support.
    
--  November 1, 2007 - Certicom and Cavium announced that ECC Suite B and
    related Certicom APIs will be supported by Cavium Networks processors.
    Certicom is the leading provider of Elliptic Curve Cryptography (ECC)
    technology approved by the NSA for government and commercial use.
    
--  November 5, 2007 - H3C, a leading broad based networking vendor in
    China, has chosen Cavium's OCTEON processors for a broad range of products
    targeting the SMB, Café Router and Service Provider markets.
    
--  November 19 , 2007 - Cavium Networks announced that Aruba Networks, a
    provider of WLAN equipment, has selected OCTEON™ Processors for use in
    their Enterprise Networking Solutions.
    
--  November 28, 2007 - Emerson Network Power announced they are using
    Cavium Networks OCTEON Processors to develop high-performance ATCA,
    AdvancedMC, and MicroTCA Packet processing blades.
    
--  December 3, 2007 - Cavium Networks announced a collaboration with
    Broadcom to offer  a comprehensive set of reference designs targeted at
    intelligent switching and broadband applications. These reference designs
    will utilize Cavium's market-leading OCTEON Multi-core MIPS64® processor
    family along with Broadcom's widely adopted enterprise class StrataXGS®
    and home/SMB ROBOSwitch™ Gigabit Ethernet switches, and FASTPATH®
    networking software. The reference designs aim to reduce engineering
    development cost and time-to-market for intelligent enterprise switches,
    Layer 4+ switches, and SOHO/SMB routers.
    
--  December 10, 2007 - GSA (formerly known as FSA, the Fabless
    Semiconductor Association) announced that Cavium Networks won the Favorite
    Fabless Pick Award.
    
--  January 7, 2008 - Cavium Networks announced the demonstration of
    Broadband  & SOHO Reference Designs at CES 2008, including designs of high-
    performance Triple-Play Gateway with 802.11n WLAN and MoCA for LAN and WAN
    connectivity and NAS functionality, a Broadband Gateway with high
    performance Ultra Wide Band (UWB) WAN and a Broadband Gateway with Jungo
    OpenRG™ software.
    
--  January 7, 2008 - Pulse~Link, a provider of UWB chipsets, announced
    they have selected OCTEON for their UWB over Coax demo for WAN and LAN
    connectivity.
    
--  January 14, 2008 - Packeteer, a leading provider of WAN optimization
    solutions, announced they have chosen OCTEON for their newest series of
    high-throughput, high performance traffic processing solutions that will
    enable fast intelligent application processing for distributed applications
    in environments requiring multi-gigabit traffic monitoring and real time
    policy enforcement response.
    

Conference Call

Cavium Networks will broadcast its fourth quarter 2007 financial results conference call today, January 23, 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, 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
                                                  December 31,
                                    --------------------------------------
                                           2007                2006
                                    ------------------  ------------------

Revenue                             $           16,231  $            9,870
Cost of revenue (1)                              5,812               3,457
                                    ------------------  ------------------
Gross profit                                    10,419               6,413
                                    ------------------  ------------------
Operating expenses:
     Research and development (2)                5,704               4,368
     Sales, general and
      administrative (3)                         4,021               2,511
                                    ------------------  ------------------
        Total operating expenses                 9,725               6,879
                                    ------------------  ------------------
Income (loss) from operations                      694                (466)
                                    ------------------  ------------------

Other income (expense), net:
    Interest expense                               (50)               (152)
    Warrant revaluation expense (4)                  -                (151)
    Interest income and other                    1,266                 111
                                    ------------------  ------------------
Total other income (expense), net                1,216                (192)
                                    ------------------  ------------------
     Income (loss) before income tax             1,910                (658)
     Income tax (benefit) expense                  (59)                558
                                    ------------------  ------------------
Net income (loss)                   $            1,969  $           (1,216)
                                    ==================  ==================
Net income (loss) per common share,
 basic                              $             0.05  $            (0.15)
Shares used in computing basic net
 income (loss) per common share                 39,522               8,319
Net income (loss) per common share,
 diluted                            $             0.05  $            (0.15)
Shares used in computing diluted
 net income (loss) per common share             42,789               8,319


(1) Cost of revenue:
      Amortization of acquired
       technology                   $               88  $              279
      Stock-based compensation
       and related taxes            $               19  $                3
(2) Research and development expense
      Stock-based compensation
       and related taxes            $              488  $              133
(3) Sales, general and administrative
      Stock-based compensation
       and related taxes            $              337  $              115
(4) Warrant revaluation expense     $                -  $              151



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

                                              Three Months Ended
                                                  December 31,
                                    --------------------------------------
                                           2007                2006
                                    ------------------  ------------------

GAAP net income (loss)              $            1,969  $           (1,216)
Non-GAAP Adjustments:
    Stock-based compensation
     and related taxes:
        Cost of revenue                             19                   3
        Research and development                   488                 133
        Sales, general and
         administrative                            337                 115
    Amortization of acquired
     technology:
        Cost of revenue                             88                 279
    Warrant revaluation expense                      -                 151
                                    ------------------  ------------------
    Total of non-GAAP adjustments                  932                 681
                                    ------------------  ------------------
Non-GAAP net income (loss)          $            2,901  $             (535)
                                    ==================  ==================

GAAP net income (loss) per share
 (diluted)                          $             0.05  $            (0.15)
   Non-GAAP adjustments detailed
    above                                         0.02                0.09
Non-GAAP net income (loss) per
 share (diluted)                    $             0.07  $            (0.06)

GAAP weighted average shares
 (diluted)                                      42,789               8,319
Non-GAAP adjustment                                188                   -
Non-GAAP weighted average shares
 (diluted)                                      42,977               8,319


                                              Three Months Ended
                                                  December 31,
                                    --------------------------------------
                                           2007                2006
                                    ------------------  ------------------
Reconciliation of Non-GAAP gross
 profit:
Revenue                                         16,231               9,870
GAAP gross profit                               10,419               6,413
GAAP gross margin                                 64.2%               65.0%
    Amortization of acquired
     technology:
        Cost of revenue                             88                 279
    Stock-based compensation
     and related taxes:
        Cost of revenue                             19                   3
Non-GAAP gross profit                           10,526               6,695
Non-GAAP gross margin                             64.9%               67.8%



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


                                       December 31,        December 31,
                                    ------------------  ------------------
                                           2007                2006
                                    ------------------  ------------------
Assets
Current assets:
   Cash and cash equivalents        $           98,462  $           10,154
   Accounts receivable, net                      9,768               7,248
   Inventories                                   9,573               5,006
   Prepaid expenses and other
    current assets                                 946                 405
                                    ------------------  ------------------
       Total current assets                    118,749              22,813
Property and equipment, net                     11,608               5,040
Intangible assets, net                           4,096               1,902
Other assets                                       157                 207
                                    ------------------  ------------------
       Total assets                 $          134,610  $           29,962
                                    ==================  ==================

Liabilities, Mandatorily Redeemable
 Convertible Preferred Stock and
 Stockholders' Equity (Deficit)
Current liabilities:
   Accounts payable                 $            5,311  $            2,904
   Accrued expenses and other
    current liabilities                          2,253               2,853
   Deferred revenue                              1,666                 628
   Capital lease and technology
    license obligations, current                 4,471               2,564
   Preferred stock warrant
    liability                                        -                 701
   Current portion of notes payable                  -               1,474
                                    ------------------  ------------------
       Total current liabilities                13,701              11,124
Notes payable, net of current                        -               2,526
Capital lease and technology
 license obligation, net of current              4,059               1,016
Other non-current liabilities                        -                  39
                                    ------------------  ------------------
       Total liabilities                        17,760              14,705
                                    ------------------  ------------------

Mandatorily redeemable convertible
 preferred stock                                     -              72,437
                                    ------------------  ------------------
Stockholders' equity (deficit)
   Common stock                                     40                   9
   Additional paid-in capital                  175,540               3,731
   Accumulated deficit                         (58,730)            (60,920)
                                    ------------------  ------------------
       Total stockholders' equity
        (deficit)                              116,850             (57,180)
                                    ------------------  ------------------
       Total liabilities,
        mandatorily redeemable
        convertible preferred stock
        and stockholders' equity
        (deficit)                   $          134,610  $           29,962
                                    ==================  ==================

Contact Information

  • Cavium Networks Contact:

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

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