nvidia · nvidia is the world leader in visual computing. beginning as a standard pc graphics chip...
TRANSCRIPT
November 2015
NVIDIA
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SAFE HARBOR Forward-Looking Statements Except for the historical information contained herein, certain matters in this presentation including, but not limited to, statements as to: our strategies, growth and opportunities; the performance and benefits of our products and technologies; our FY2016 and FY 2017 capital return program; and other predictions and estimates are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements and any other forward-looking statements that go beyond historical facts that are made in this presentation are subject to risks and uncertainties that may cause actual results to differ materially. Important factors that could cause actual results to differ materially include: global economic conditions; our reliance on third parties to manufacture, assemble, package and test our products; the impact of technological development and competition; development of new products and technologies or enhancements to our existing product and technologies; market acceptance of our products or our partners products; design, manufacturing or software defects; changes in consumer preferences and demands; changes in industry standards and interfaces; unexpected loss of performance of our products or technologies when integrated into systems and other factors. For a complete discussion of factors that could materially affect our financial results and operations, please refer to the reports we file from time to time with the SEC, including our Form 10-Q for the quarterly period ended July 26, 2015. Copies of reports we file with the SEC are posted on our website and are available from NVIDIA without charge. These forward-looking statements are not guarantees of future performance and speak only as of November 11, 2015, based on information currently available to us. Except as required by law, NVIDIA disclaims any obligation to update these forward-looking statements to reflect future events or circumstances.
Financial Measures This presentation contains historical revenue amounts for certain of our market platforms and businesses which provides investors with additional information to supplement the segment reporting information contained in our Form 10-K for the fiscal period ended January 25, 2015. In addition to U.S. GAAP financials, this presentation includes non-GAAP financial measures. These non-GAAP financial measures are in addition to, and not a substitute for or superior to, measures of financial performance prepared in accordance with U.S. GAAP. See the Appendix for a reconciliation between each non-GAAP measure and the most comparable GAAP measure. Where we present non-GAAP financial measures, including non-GAAP gross margin, non-GAAP operating income and non-GAAP operating margin, we generally exclude stock-based compensation, restructuring and other charges, warranty charges associated with a product recall and acquisition-related items, where applicable. We also present non-GAAP free cash flow which is calculated as GAAP net cash provided by operating activities less purchases of property and equipment and intangible assets.
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Summary
NVIDIA is the world leader in visual computing
Our platform strategy is delivering growth
We have an experienced and diverse board of directors
We have a strong commitment to stockholder rights
Our compensation is founded on best practices and is aligned with stockholders
We welcome your feedback
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Visual computing is more important than ever — revolutionizing industries from VR gaming to cloud services, enterprise virtualization to autonomous vehicles. A singular focus on visual computing — leveraging one core investment into platforms with deep domain expertise — Gaming, Professional Visualization, Datacenter and Auto. Platform strategy has opened a 10x growth opportunity. Growth platforms are growing over 25% annually and gross margins expanded to over 56%. Operating income growth to 20% — management team expects to drive continued expansion.
NVIDIA PLATFORMS DELIVERING GROWTH
Gross Margin and Operating Income are Non-GAAP measures.
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ENTERPRISE AUTO GAMING DATACENTER PRO VISUALIZATION
NVIDIA is the world leader in visual computing. Beginning as a standard PC graphics chip company, NVIDIA has transformed into a specialized platform company that targets four very large markets — Gaming, Professional Visualization, Datacenter and Auto — where visual computing is essential and deeply valued. We are singularly focused on the field of visual computing with the ability to deliver our value through PC, mobile and cloud architectures. We are vertically integrated and bring together GPUs, system software, algorithms, systems and services to create unique value for the markets we serve.
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FY14 FY15FY14 FY15
Driving growth
Gross Margin is a Non-GAAP measure.
FY14 FY15
RECORD REVENUE RECORD GROSS MARGIN EPS
$4.1B
$4.7B
55.1%
55.8%
70BPS
$0.74
$1.12
51%
13%
7
-4%
13%
5%
17%
29% 27%
-10%
0%
10%
20%
30%
40%
GROWTH MIX (Y-Y)
Transformation
FY13 Q3 FY16
Gaming, Pro Visualization, Datacenter, Auto
85% 52% 42%
10%
BUSINESS MIX
6% 5%
Total revenue Growth platforms
FY14 FY15 YTD Q3 FY16
IP PC & Tegra OEM
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Growing into large markets
0
600
1200
1800
2400
FY14 FY15
36%
0
50
100
150
200
FY14 FY15
85%
0
225
450
675
900
FY14 FY15
1%
0
75
150
225
300
375
FY14 FY15
60%
(Revenue, in millions)
PROFESSIONAL VISUALIZATION GAMING DATACENTER AUTO
9
0%
5%
10%
15%
20%
25%
$-
$200
$400
$600
$800
$1,000
FY14 FY15 YTD Q3FY16
Operating margin expansion
Operating Income Operating Margin
Operating Income and Operating Margin are Non-GAAP measures.
16%
Mill
ions
20% 21%
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Since FY 2005: $4.3B ~70% FCF
617M
568M
545M 541M
500
600
700
0
200
400
600
800
1000
1200
FY13 FY14 FY15 FY16F FY17F
Capital return
$1.0B $1.1B
$147M
Free Cash Flow is a Non-GAAP measure.
$604M thru YTD Q3 FY16
$800M
(S in
mill
ions
)
(sha
res
in m
illio
ns)
Share Repurchase Dividend Shares Outstanding
$1.0B
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NVIDIA’s Experienced and Diverse Board
ROB BURGESS Independent Director; considered financial expert Former CEO/Chairman, Macromedia
TENCH COXE Independent director Managing Director, Sutter Hill Ventures
JAMES C. GAITHER Independent director Managing Director, Sutter Hill Ventures Former President, Board of Trustees, Stanford
DAWN HUDSON Independent director; considered financial expert CMO, NFL Former CEO, PepsiCo, North America
HARVEY C. JONES Independent director; considered financial expert Former CEO, Synopsys Former Chairman, Tensilica
WILLIAM J. MILLER Lead independent director; considered financial expert Former CEO/Chairman, Avid and Quantum
MARK L. PERRY Independent director; considered financial expert Former CEO, Aerovance Former CFO, Gilead
BROOKE SEAWELL Independent director; considered financial expert Venture Partner, New Enterprise Associates Former CFO, Synopsys
MARK A. STEVENS Independent director Venture Capitalist Former Managing Partner, Sequoia Capital
JEN-HSUN HUANG Co-Founder, CEO and President, NVIDIA
PERSIS S. DRELL Independent director Dean & Professor, Stanford School of Engineering
MIKE McCAFFERY Independent director; considered financial expert Chairman/Managing Director, Makena Capital Former President/CEO, Stanford Management Co.
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Our Board is Committed to Sound Governance
All committees are 100% independent
4 new directors appointed in the last 4 years Rob Burgess, Persis Drell, Dawn Hudson, Mike McCaffery
Directors/CEO are required to hold NVIDIA stock with a value equal to 6x their annual cash retainer/salary Directors own approximately 5% of our common stock
Directors have until the later of fiscal 2016 or within 5 years of joining the Board to reach this threshold
Strong director engagement All directors attend over 75% of board and committee
meetings
Director compensation is based on market rates
Committed to stockholder engagement
Annual board and committee self-evaluations
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We have a Strong Commitment to
Stockholder Rights
We have a single class of Common Stock outstanding, no priority voting rights
All directors elected by stockholders annually
Majority voting provision in bylaws (other than contested elections)
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Our Compensation Practices are Founded on Best
Practices and are Aligned with stockholders
Annual say-on-pay proposal has passed with over 96% in each of last 3 years
Our equity plans require stockholder approval for re-pricing; no evergreen provisions
Claw back policy
Executives are subject to stock ownership guidelines
Policy prohibiting the hedging or pledging of company stock
No multi-year guaranteed bonuses, income tax gross-ups, or change-in control agreements
In response to stockholder feedback, made changes to fiscal 2016 compensation metrics for PSUs and variable cash
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Although we Leverage Industry Peer Data, our
Culture and Values Drive our Compensation Program
Our peer companies are companies that:
We compete with for executive talent
Have an established business, market presence and complexity similar to ours
Are similar size to us as measured by revenue and market capitalization at roughly .5-2X NVIDIA.
One change to our executive peers for fiscal 2016
Avago replaced LSI due to acquisition
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A significant portion of NEO pay is provided through performance based elements; equity is a significant component of total compensation
We grant PSUs to our CEO and a mix of PSUs and RSUs to our other NEOs
Introduced in fiscal 2016
Separate metrics for variable cash (tied to annual revenue) vs. single-year PSUs (tied to annual operating income)
Multi-year PSUs tied to total shareholder return performance vs. the S&P 500 over a 3 year period
We Have a Strong Pay for Performance Culture
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CEO Pay
Variable Pay
54% Fixed Pay
46% Variable Pay
87% Fixed Pay
13% Variable Pay
88% Fixed Pay
12%
13%
20%
34%
34%
FY14
BASE LVP PSU Options
13%
9%
79%
FY15
BASE LVP PSU
12%
12%
49%
27%
FY16
BASE LVP PSU MY-PSU
Variable pay includes variable cash compensation tied to corporate performance, PSUs and multi-year PSUs tied to 3 year Total Shareholder Return vs. the S&P 500. Fixed pay includes base salary, stock options and RSUs.
Began granting PSUs based on corporate performance.
Introduced PSUs based upon Total Shareholder Return vs. S&P 500
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NEO Pay
Variable Pay
16% Fixed Pay
84% Variable Pay
47% Fixed Pay
53% Variable Pay
51% Fixed Pay
49%
15%
16%
69%
FY14
BASE LVP Options
30%
9%
23%
38%
FY15
BASE LVP RSU PSU
28%
9%
21%
39%
4%
FY16
BASE LVP RSU PSU MY-PSU
Variable pay includes variable cash compensation tied to corporate performance, PSUs and multi-year PSUs tied to 3 year Total Shareholder Return vs. the S&P 500. Fixed pay includes base salary, stock options and RSUs.
Began granting PSUs based on corporate performance.
Introduced PSUs based upon Total Shareholder Return vs. S&P 500
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We welcome your feedback
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APPENDIX
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RECONCILIATION OF NON-GAAP TO GAAP FINANCIAL MEASURES
Footnotes A. Consists of release of the remaining warranty reserve balance as of January 26, 2014 related to the weak die/packaging material set that was used in certain versions of our previous generation chips B. Consists of a legal settlement charge.
NON-GAAP STOCK-BASED COMPENSATION
NET WARRANTY CHARGES (A) OTHER (B) GAAP
FY14 Gross margin 55.1% (0.3) 0.2 (0.1) 54.9%
FY15 Gross margin 55.8% (0.3) — — 55.5%
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RECONCILIATION OF NON-GAAP TO GAAP FINANCIAL MEASURES (Contd.)
NON-GAAP
STOCK-BASED COMPENSATION (A)
ACQUISITION-RELATED ITEMS (B) OTHER (C) GAAP
FY14 Operating income
& Operating margin
$664 (137) (32) 1 $496
16% (3) (1) — 12%
FY15 Operating income
& Operating margin
$954 (158) (37) — $759
20% (3) (1) — 16%
YTD Q3FY16
Operating income &
Operating margin
$769 (144) (18) (112) $495
21% (4) (-) (3) 14%
Footnotes A. Stock-based compensation charge was allocated to cost of goods sold, research and development expense, and sales, general and administrative expense. B. Acquisition-related items are comprised of amortization of acquisition-related intangible assets and other acquisition-related costs such as transaction costs, compensation charges and restructuring costs
relating to the acquisitions. C. Comprised of restructuring and other charges and warranty charges associated with a product recall.
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RECONCILIATION OF NON-GAAP TO GAAP FINANCIAL MEASURES (Contd.)
in millions FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 YTD Q3FY16
GAAP net cash flow provided by operating activities $132 $446 $587 $1,270 $249 $488 $676 $909 $824 $835 $906 $664
Purchases of property and equipment and intangible assets (67) (80) (145) (188) (408) (78) (98) (139) (183) (255) (122) (71)
Free cash flow $65 $367 $442 $1,082 ($158) $410 $578 $770 $641 $580 $783 $593