Shares of NVIDIA Corp. (NVDA) were up 4% in afterhours trading yesterday after the company reported better-than-expected fourth-quarter fiscal 2015 results.
The company posted adjusted earnings (including stock-based compensation but excluding interest expense related to amortization, other acquisition-related costs, restructuring charges and other one-time items) on a proportionate tax basis of 36 cents per share, which comfortably surpassed the Zacks Consensus Estimate of 29 cents.
On a year-over-year basis, adjusted earnings increased from 26 cents, primarily due to a higher revenue base and encouraging operating performance.
Revenues
Revenues not only increased 9.3% year over year to $1.25 billion but also beat the Zacks Consensus Estimate $1.20 billion. The year-over-year increase was primarily due to better-than-expected growth in GeForce GPU and the launch of Maxwell GTX GPUs. Also, strength in gaming, data center, cloud and automotive platforms drove quarterly result.
Revenues from GeForce GPUs for desktop and notebooks increased 8% year over year, driven by robust demand in high-end Maxwell GPUs coupled with seasonal demand in consumer PCs.
Tegra processor revenues on the other hand deceased 33% from the year-ago quarter, primarily due to lower sales from smartphone and tablets, which more than offset the increase in sale of auto infotainment systems and SHIELD tablets.
Margins
NVIDIA’s adjusted gross margin (including stock-based compensation but excluding other one-time items) expanded 238 basis points (bps) from the year-ago quarter to 55.9%. In dollar terms, gross profit came in at $699.6 million, up 14.1% from the year-ago quarter, primarily due to growth in GPUs for gaming, data center and the cloud platform.
Adjusted operating expenses increased 4.1% from the year-ago quarter to $458.3 million, as the company continued to invest in research and development, and capital expenditures. As a percentage of revenues, operating expenses decreased 183 bps from the year-ago quarter to 36.7% due to better cost management.
This resulted in an encouraging operating performance by the company. NVIDIA’s operating margin was up from 15% in the year-ago quarter to 19.2%, reflecting growth in its GPU business. In dollar terms, adjusted operating income increased from $171.7 million to $240.3 million.
The company’s adjusted net income (including stock-based compensation but excluding interest expense related to amortization, other acquisition-related costs, restructuring charges and other one-time items) on a proportionate tax basis came in at $206.4 million, up 35% from the year-ago quarter.
Balance Sheet & Cash Flow
NVIDIA exited the quarter with cash, cash equivalents and marketable securities of $4.62 billion compared with $4.24 billion in the previous quarter. Free cash flow in the quarter came in at $411.7 million, while cash flow from operations was $442.7 million. NVIDIA’s long-term debt stood at $1.38 billion. During the quarter, the company paid quarterly dividends totaling $46 million. The company also repurchased 0.2 million shares.
Guidance
For the first quarter of fiscal 2016, NVIDIA expects revenues of approximately $1.16 billion (+/-2%), primarily due to growth in the gaming business, the data center, cloud and auto infotainment business. The company’s expectation matches the Zacks Consensus Estimate.
Non-GAAP gross margin is expected to be approximately 56.5%, up sequentially, primarily due to strength in gaming and computing platforms. Non-GAAP operating expenses are expected to be approximately $425 million. Non-GAAP tax rate is expected to be 20% (+/-1%).
Recommendation
NVIDIA reported better-than-expected fourth-quarter fiscal 2015 results, primarily due to growth in GeForce GPUs and strength in gaming, data center, cloud and automotive platforms. The company also provided encouraging first quarter guidance. However, the Tegra segment was negatively impacted during the quarter primarily due to lower sales from smartphone and tablets.
We believe that NVIDIA’s innovative product pipeline and strength in gaming and high-end notebook GPUs remain its strengths. Also, the stabilization in the PC market would positively impact the GPU segment.
Although competition from companies like Intel (INTC) and QUALCOMM Inc. (QCOM) remains a near-term headwind, we believe that higher adoption of NVIDIA’s Tegra processors could act as a catalyst, going forward.
NVIDIA sports a Zacks Rank #1 (Strong Buy).
Investors may also consider Cirrus Logic Inc. (CRUS), which sports the same rank as NVIDIA.
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