Mellanox Achieves Record Quarterly Revenue in the Third Quarter 2017

Mellanox^® Technologies, Ltd. (NASDAQ:MLNX) today announced financial results for its third quarter ended September 30, 2017.

"We are pleased to achieve a record revenue quarter and resume our growth. Our third quarter Ethernet revenues achieved double digit sequential growth, driven by increasing deployments of our 25 gigabit per second and above products, which demonstrates our leadership position in these markets,” said Eyal Waldman, President and CEO of Mellanox Technologies. "During the third quarter, InfiniBand revenues declined seven percent sequentially mainly due to a large Department of Energy CORAL deployment in the second quarter. On a year-over-year basis, our InfiniBand high-performance computing and artificial intelligence revenues increased by double digit percentages. We believe Mellanox is well positioned to meet our customers’ expanding performance needs with the introduction of multiple new products. We see multiple growth engines for our Ethernet and InfiniBand products.”

Third Quarter 2017 - Highlights

• Revenues of $225.7 million increased 0.7 percent, compared to $224.2 million in the third quarter of 2016.
• GAAP gross margins of 65.7 percent, compared to 65.1 percent in the third quarter of 2016.
• Non-GAAP gross margins of 70.7 percent, compared to 71.8 percent in the third quarter of 2016.
• GAAP operating income was $6.6 million, compared to $14.5 million in the third quarter of 2016.
• Non-GAAP operating income was $38.5 million, or 17.1 percent of revenue, compared to $49.2 million, or 22.0 percent of revenue in the third quarter of 2016.
• GAAP net income was $3.4 million, compared to $12.0 million in the third quarter of 2016.
• Non-GAAP net income was $36.6 million, compared to $46.2 million in the third quarter of 2016.
• GAAP net income per diluted share was $0.07, compared to $0.24 in the third quarter of 2016.
• Non-GAAP net income per diluted share was $0.71, compared to $0.93 in the third quarter of 2016.
• $53.0 million in cash was provided by operating activities, compared to $43.8 million in the third quarter of 2016.
• Cash and investments totaled $346.2 million at September 30, 2017, compared to $328.4 million at December 31, 2016.

Fourth Quarter 2017 Outlook

We currently project:

• Quarterly revenues of $230 million to $240 million
• Non-GAAP gross margins of 69 percent to 70 percent
• Non-GAAP operating expenses of $125 million to $127 million
• Share-based compensation expense of $18.3 million to $18.8 million
• Non-GAAP diluted share count of 51.7 million to 52.2 million

Recent Mellanox Press Release Highlights

Conference Call

Mellanox will hold its third quarter 2017 financial results conference call today, at 2 p.m. Pacific Time, to discuss the company’s financial results. To listen to the call, dial 1-866-831-8713, or for investors outside the U.S., +1-203-518-9713, approximately 10 minutes prior to the start time.

The Mellanox financial results conference call will be available via live webcast on the investor relations section of the Mellanox website at: http://ir.mellanox.com. Access the webcast 15 minutes prior to the start of the call to download and install any necessary audio software. A replay of the webcast will also be available on the Mellanox website.

About Mellanox

Mellanox Technologies is a leading supplier of end-to-end InfiniBand and Ethernet interconnect solutions and services for servers and storage. Mellanox interconnect solutions increase data center efficiency by providing the highest throughput and lowest latency, delivering data faster to applications and unlocking system performance capability. Mellanox offers a choice of fast interconnect products: adapters, switches, software, cables and silicon that accelerate application runtime and maximize business results for a wide range of markets including high-performance computing, enterprise data centers, Web 2.0, cloud, storage and financial services. More information is available at www.mellanox.com.

GAAP to Non-GAAP Reconciliation

To supplement our consolidated financial statements presented in accordance with generally accepted accounting principles (GAAP), Mellanox uses non-GAAP measures of net income which are adjusted from results based on GAAP to exclude share-based compensation expense, amortization expense of acquired intangible assets, acquisition related expense, settlement costs, and income tax effects and adjustments. The purpose of income tax effects and adjustments is to exclude tax consequences associated with the above excluded expenses items, as well as the non-cash impact on the tax provision pertaining to changes in deferred tax assets associated with carryforward losses of group entities subject to tax holiday in Israel. The company believes the non-GAAP results provide useful information to both management and investors, as these non-GAAP results exclude expenses that are not indicative of our core operating results. Management believes it is useful to exclude share-based compensation expense, amortization expense of acquired intangible assets, acquisition related expense, settlement costs, and income tax effects and adjustments because it enhances investors' ability to understand our business from the same perspective as management, which believes that such items are not directly attributable to nor reflect the underlying performance of the company's business operations. Further, management believes certain non-cash charges such as share-based compensation, amortization of acquired intangible assets, changes related to recognition of deferred taxes and the net impact on the company's tax provision for non-GAAP adjustments do not reflect the cash operating results of the business. These measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results. These non-GAAP measures may be different than the non-GAAP measures used by other companies. A reconciliation of GAAP to non-GAAP condensed consolidated statements of operations is also presented in the financial statements portion of this release and is posted under the "Investor Relations" section on our website.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

All statements included or incorporated by reference in this release, other than statements or characterizations of historical fact, are forward-looking statements, including the outlook for the three months ended December 31, 2017, statements related to trends in the market for our solutions and services, opportunities for our company in 2017 and beyond, and future product capabilities. These forward-looking statements are based on our current expectations, estimates and projections about our industry and business, management's beliefs and certain assumptions made by us, all of which are subject to change.

Forward-looking statements can often be identified by words such as "projects," "anticipates," "expects," "intends," "plans," "predicts," "believes," "seeks," "estimates," "may," "will," "should," "would," "could," "potential," "continue," "ongoing," similar expressions and variations or negatives of these words. These forward-looking statements are not guarantees of future results and are subject to risks, uncertainties and assumptions that could cause our actual results to differ materially and adversely from those expressed in any forward-looking statement. The risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward-looking statements include the continued expansion of our product line, customer base and the total available market of our products, the continued growth in demand for our products, the continued, increased demand for industry standards-based technology, our ability to react to trends and challenges in our business and the markets in which we operate, our ability to anticipate market needs or develop new or enhanced products to meet those needs, the adoption rate of our products, our ability to establish and maintain successful relationships with our OEM partners, our ability to effectively compete in our industry, fluctuations in demand, sales cycles and prices for our products and services, our success converting design wins to revenue-generating product shipments, the continued launch and volume ramp of large customer sales opportunities, our ability to protect our intellectual property rights, our ability to successfully acquire businesses and technologies and to successfully integrate and operate these acquired businesses, our success in realizing the anticipated benefits of mergers and acquisitions, and our ability to obtain debt at competitive rates or in sufficient amounts in order to fund our contractual commitments. Furthermore, the majority of our quarterly revenues are derived from customer orders received and fulfilled in the same quarterly period. We have limited visibility into actual end-user demand as such demand impacts us and our OEM customer inventory balances in any given quarter. Consequently, this introduces risk and uncertainty into our revenue and production forecasts and business planning and could negatively impact our financial results. In addition, current uncertainty in the global economic environment poses a risk to the overall economy as businesses may defer purchases in response to tighter credit conditions, changing overall demand for our products, and negative financial news. Consequently, our results could differ materially from our prior results due to these general economic and market conditions, political events and other risks and uncertainties described more fully in our documents filed with or furnished to the Securities and Exchange Commission.

More information about the risks, uncertainties and assumptions that may impact our business is set forth in our annual report on Form 10-K filed with the SEC on February 17, 2017. All forward-looking statements in this press release, including the outlook for the three months ended December 31, 2017, are based on information available to us as of the date hereof, and we assume no obligation to update these forward-looking statements.

Mellanox is a registered trademark of Mellanox Technologies, Ltd. All other trademarks are property of their respective owners.

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