NVDA: Earnings Report for the Quarter Ending January 31, 2021

NVIDIA reported after the market closed on February 24, 2021, it earned $2.31 per diluted share in the quarter that ended on January 31, 2021, up 51 percent from earnings of $1.53 in the equivalent 14 weeks of the previous year. These figures are the earnings determined in accordance with U.S. Generally Accepted Accounting Principles (GAAP). 

Non-GAAP earnings rose 64 percent to $3.10 per share from $1.89 one year earlier, a much better change than the GAAP percentage. The most significant exclusions contributing to the $0.79 per share difference in the latest quarter between the GAAP and Non-GAAP earnings were: Stock-based compensation [$0.58 per share], Acquisition-related costs [$0.23 per share], and Gains) from non-affiliated investments [$0.01 per share].  Non-GAAP earnings, by excluding unusual and non-cash items that could obscure the results of a business's primary, ongoing operations, are intended to be cleaner measures of corporate profits.

This post compares the quarterly Income Statement published by NVIDIA to the estimates I made in a previous “Look Ahead” post.  My estimates were based on publicly available guidance provided by NVIDIA's management to financial analysts, news reports, and trends in the company's historical results.  Unless otherwise mentioned, all reported values mentioned below are GAAP figures.

First, a little background about the company:  NVIDIA develops high-speed integrated circuits and cards for demanding data-processing applications, such as gaming, data centers, visualization, artificial intelligence, and even cryptocurrency mining.  NVIDIA announced in September 2020 that it plans to acquire UK-based Arm Limited, a company that has been very successful at licensing designs for integrated circuits, from Softbank for $40 billion in cash and new NVIDIA shares. But, it's uncertain whether regulators will approve this deal and allow it to proceed.  NVIDIA was able to acquire Mellanox Technologies, a maker of high-performance computer networking products for data centers, for $7 billion in April 2020.  

The following table is a simplified version of NVIDIA's Income Statement for the quarter that ended in January 2021, with company-reported numbers along side my predictions.  Figures from the year-earlier quarter are also provided to facilitate comparisons.

Revenue in the January 2021 quarter totaled $5.0 billion, 61 percent more than last year.  The Gaming business was responsible for 50 percent of overall revenue, and this unit's revenue grew by 67.3 percent compared to the year-earlier result.  The Data Center business contributed 38 percent of revenue, and this unit's revenue increased by 96.6 percent.  The Professional Visualization unit supplied 6 percent of revenue, and this business's revenue fell by 7.3 percent.

I was expecting NVIDIA to report revenue of $4.8 billion for the January 2021 quarter.  The actual amount surpassed my estimate by $203.0 million (4.2 percent).

The Cost of Revenue (also known as Cost of Goods Sold) was $1.8 billion in the latest quarter, which translates into a Gross Margin of 63.1 percent of revenue. Since it was lower than the 64.9 percent Gross Margin achieved in the year-earlier quarter, it's a sign that NVIDIA sold its products and services at less profitable prices relative to production costs. I was expecting the Gross Margin to be 62.8 percent in the January 2021 quarter, and NVIDIA exceeded that prediction by 0.3 percent.

NVIDIA spent $1.1 billion on Research and Development in the latest quarter, up from $738 million one year ago. I had estimated that R&D expenses would be $1.1 billion.  R&D was 22.9 percent of Revenue.

Sales, General, and Administrative expenses totaled $503 million in the January 2021 quarter, up 75.3 percent from one year ago.  SG&A expenses increased from 9.2 percent to 10.1 percent of quarterly revenue, which shows NVIDIA spent more per dollar of sales on indirect operational costs, such as marketing. I had estimated that SG&A expenses would be 11.3 percent of revenue, and the actual percentage turned out to be lower than the prediction.

NVIDIA's Operating Income was $1.5 billion in the quarter, up 52.2 percent from the year-earlier period.  Operating Income exceeded my $1.4 billion estimate by $133 million.

Interest and other non-operating items summed to a net expense of $37 million.  My estimate for non-operating items was $55 million.

The effective income tax rate fell by 5.6 percent to 0.9 percent, which had a positive effect on net income.  I expected the tax rate to be 8.0 percent.

Net income attributable to NVIDIA was $1.5 billion, $2.31 per share in the quarter ending January 2021.  The figures for the year-earlier quarter were $950 million, $1.53/share. My earnings estimate for  the latest quarter was $1.2 billion ($1.92/share), so NVIDIA earned $0.39 per share more than I had predicted.

In conclusion, the following list shows where the reported results differed from my expectations:

      – Better than expected:  Revenue growth + SG&A/Revenue + Income tax rate 

      – Worse than expected:

      – Met or close to expectations:  Gross Margin + R&D + SG&A + Interest 

This post is not investment advice, and the accuracy of the information, tables, charts, and any commentary presented is not guaranteed.  Readers are encouraged to independently verify all data using information from original sources. The Income Statements discussed in these blog posts have not been audited and may differ in material respects from those published by the subject company.  These differences are intended to facilitate analysis and cross-company comparisons. Complete financial statements with notes can usually be found in the 10-Q and 10-K filings companies submit to the Securities and Exchange Commission (SEC).

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NVDA: Look Ahead to January Quarterly Results

This "look-ahead" post discusses how I came up with an estimate for NVIDIA's earnings for fiscal year 2021's fourth quarter, which ended on January 31, 2021, by predicting each element of its Income Statement, from top-line Revenue to bottom-line Earnings Per Share (EPS) and everything in between.

Once the company’s official results become available later this month, I will compare the published Income Statement to the prediction and identify any surprises, positive or negative.  Examining these differences can identify what factors (e.g., profit margins, non-GAAP expenses, tax rates, share buybacks) are driving changes to a company's financial performance.

But, before getting into the details, let's take a step back and start with background information about NVIDIA.

NVIDIA develops high-speed integrated circuits and cards for demanding data-processing applications, such as gaming, data centers, visualization, artificial intelligence, and even cryptocurrency mining.  NVIDIA announced in September 2020 that it plans to acquire UK-based Arm Limited, a company that has been very successful at licensing designs for integrated circuits, from Softbank for $40 billion in cash and new NVIDIA shares. But, it's uncertain whether regulators will approve this deal and allow it to proceed.  NVIDIA was able to acquire Mellanox Technologies, a maker of high-performance computer networking products for data centers, for $7 billion in April 2020. 

Shares of NVIDIA now trade for about $566 each, giving the company a market value of $356 billion. These shares can be found in the Standard and Poors 500, Standard and Poors 100, NASDAQ 100, and Russell 1000 stock indices.

NVIDIA recorded profits of $4 billion on revenue of $15 billion during the last year. In the quarter that ended on October 25, 2020, NVIDIA earned $2.91 per share (excluding certain items), which significantly beat the $2.58 Wall Street consensus forecast. See NVIDIA's most recent quarterly report.

My starting point, if available, when estimating earnings is guidance provided by the company's management to financial analysts.  It's true that the company may downplay expectations somewhat to avoid disappointments, but the top managers ought to know better than anyone else how well their products and services are selling.  I also look for other information about the company in the news, and I take advantage of trends in the company's historical results.  While it makes my task a little more difficult, I also try to estimate earnings that conform to Generally Accepted Accounting Principles (GAAP).  Non-GAAP results, which most professionals focus on, are somewhat arbitrary and often exclude meaningful items.

NVIDIA's management communicated their expectations for the January quarter when they last reported results in November 2020.  Note that this period is 14 weeks long.

NVIDIA’s outlook for the fourth quarter of fiscal 2021 is as follows:

•Revenue is expected to be $4.80 billion, plus or minus 2 percent.

•GAAP and non-GAAP gross margins are expected to be 62.8 percent and 65.5 percent, respectively, plus or minus 50 basis points.

•GAAP and non-GAAP operating expenses are expected to be approximately $1.64 billion and $1.18 billion, respectively.

•GAAP and non-GAAP other income and expense are both expected to be an expense of approximately $55 million.

•GAAP and non-GAAP tax rates are both expected to be 8 percent, plus or minus 1 percent, excluding any discrete items. GAAP discrete items include excess tax benefits or deficiencies related to stock-based compensation, which are expected to generate variability on a quarter-by-quarter basis.

NVIDIA expects its Revenue in the fourth quarter will be $4.7 billion and $4.9 billion.  I'm assuming the figure will be in the middle of this range.

I'm also using the 62.8 percent of Revenue midpoint for the GAAP Gross Margin.  The Cost of Goods Sold in, therefore, estimated to be be $4.8 billion * (1 - 0.628) = $1.79 billion.

Operating expenses include Research and Development and Sales, General, and Administrative costs.  Based on historical data, I'm assuming R&D will be about 2/3 of the $1.64 billion GAAP guidance figure and the other 1/3 will be SG&A.

The numbers above combine to produces an estimate for Operating Income of $1.37 billion, which is 39 percent higher than the equivalent quantity in the year-earlier quarter.

For non-operating gains and losses, I used the $55 million net expense from the guidance and the 8 percent (!) effective income tax rate.   

With these figures, the estimate for Net Income (GAAP) in the quarter is $1.2 billion ($1.92 per share).  

The following Income Statement summarizes the estimates made as discussed above. 

This post is not investment advice, and the accuracy of the information, tables, charts, and any commentary presented is not guaranteed.  Readers are encouraged to independently verify all data using information from original sources. The Income Statements discussed in these blog posts have not been audited and may differ in material respects from those published by the subject company.  These differences are intended to facilitate analysis and cross-company comparisons. Complete financial statements with notes can usually be found in the 10-Q and 10-K filings companies submit to the Securities and Exchange Commission (SEC).

#nvidia  #nvda  #gauges #gcfr  #gcfr2 #lookahead #nac_financialanalysis

NVIDIA: Earnings Report for the Quarter Ending October 25, 2020

NVIDIA reported (https://tinyurl.com/y4ms3avm) after the market closed on 18 November 2020 it earned $2.12 per diluted share in the quarter that ended on 25 October 2020, up 46% percent from earnings of $1.45 in the equivalent 13 weeks of the previous year. These figures are the earnings determined in accordance with U.S. Generally Accepted Accounting Principles (GAAP), which are described at https://tinyurl.com/yy2nwv8n. 

NVIDIA develops high-speed integrated circuits and cards for demanding data-processing applications, such as gaming, data centers, visualization, and even cryptocurrency mining.  NVIDIA acquired Mellanox Technologies, a maker of computer networking products, for $6.9 billion in April 2020.  It announced in October that it plans to acquire semiconductor-designer Arm Limited for $40 billion. 

Non-GAAP earnings rose 63% to $2.91 per share from $1.78 one year earlier, a percent change much better than seen with the GAAP figures. Non-GAAP earnings, by excluding unusual and non-cash items that could obscure the results of a business's principal, ongoing operations, are intended to be cleaner measures of corporate profits. However, caution is warranted when analyzing these figures because management has considerable leeway in choosing which GAAP-required items to exclude.

The exclusions responsible for the $0.79 per share difference in the latest quarter between GAAP earnings and Non-GAAP earnings were: Stock-based compensation [$0.50 per share], Acquisition-related costs [$0.25 per share], and Legal settlement [$0.03 per share].

Non-GAAP earnings of $2.91 per share in the latest quarter significantly beat the $2.58 average ("consensus") of estimates made by Wall Street analysts. See https://tinyurl.com/y5flwujv for NVIDIA's earnings record and forecasts.

Although NVIDIA's earnings were better than expected, stock market traders still weren't satisfied. The price of the company's shares fell 0.9% during after-hours trading following the report.

Looking deeper into the GAAP results, "top-line" revenue in the October 2020 quarter totaled $4.7 billion, 57% more than last year's $3.0 billion. The Gaming business was responsible for 48% of overall revenue, and this unit's revenue grew by 36.9% compared to the year-earlier result. The Data Center business contributed 40% of revenue, and this unit's revenue grew by 161.7%. The Professional Visualization unit supplied 5% of revenue, and the amount fell by 27.2%.

The gross margin weakened from 63.6% of revenue to 62.6%, a sign that NVIDIA sold its output and services at less profitable prices relative to production costs. Sales, general, and administrative expenses increased from 9.2% to 10.9% of quarterly revenue, which shows the company spent more per dollar of sales on other operational costs, such as marketing. The effective income tax rate fell by 5.4% to 0.9%, which had a positive effect on net income.

NVIDIA's operating activities generated $1.3 billion in cash during the last quarter, down 22.0% from $1.6 billion in the year-earlier period. The cash flow delta was, therefore, much worse than the change in earnings. Notable uses for cash included $99 million to pay dividends to shareholders, $1.4 billion for corporate acquisitions,  and $473 million to acquire property, plant and capital equipment. 

Free cash flow over the last 12 months totaled $4.2 billion, or $6.71 per share using the latest share count. At the current market price per share of $537.15, this translates into a weak Free Cash Flow Yield of 1.2%.

The accompanying charts illustrate several trends in NVIDIA's financial results, taken from data in regulatory filings. The text and the charts are intended to provide some limited historical context for readers interested in the company’s finances. No investment advice is provided, and no investment offer of any kind is made or solicited. The accuracy of the information presented is not guaranteed, and readers are encouraged to independently verify all data.

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