Washington, D.C. 20549
Form
10-K/A
Amendment No. 1
☒ | ||
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Year Ended: December 31, 2019
OR
☐ | ||
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
For the transition period from
to
Commission File Number
001-33299
MELLANOX TECHNOLOGIES, LTD.
(Exact name of registrant as specified in its charter)
Israel | 98-0233400 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |
Mellanox Technologies, Ltd.
Beit Mellanox, Yokneam, Israel 20692
(Address of principal executive offices, including zip code)
+972-4-909-7200
(Registrant'sRegistrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class: | Trading Symbol(s) | Name of Each Exchange on Which Registered: | ||
Ordinary shares, nominal value NIS 0.0175 per share | MLNX | The |
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes xo
☒
No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ox
☐
No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes xo
☒
No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulationand post such files). Yes xoIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
DOCUMENTS INCORPORATED BY REFERENCEPortions
MELLANOX TECHNOLOGIES, LTD.
PART ISPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTSThis report includes forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends affecting the financial condition of our business. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by which, such performance or results will be achieved. Forward-looking statements are based on information available at the time those statements are made and/or management's good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to:the impact of worldwide economic conditions on us, our customers and our vendors;the impact of any acquisitions or investments in other companies;our ability to resume and maintain adequate revenue growth;market adoption of our Ethernet and InfiniBand solutions;our ability to accurately forecast customer demand;our dependence on a relatively small number of customers;competition and competitive factors;our ability to successfully introduce new products and enhance existing products;our dependence on third-party subcontractors;our ability to carefully manage the use of "open source" software in our products;a potential proxy contest for the election of directors at our annual meeting, which could distract our management, divert our resources and, the outcome of which may significantly impact the strategic direction of the Company and the Company's financial performance; andother risk factors included under "Risk Factors" in this report.In addition, in this report, the words "believe," "may," "will," "estimate," "continue," "anticipate," "intend," "expect," "predict," "potential" and similar expressions, as they relate to us, our business and our management, are intended to identify forward-looking statements. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements.You should not put undue reliance on any forward-looking statements. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except to the extent required by applicable laws. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.When used in this report, "Mellanox," the "Company," "we," "our" or "us" refers to Mellanox Technologies, Ltd. and its consolidated subsidiaries unless the context requires otherwise.
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ITEM 1—BUSINESSWe are an integrated supplier of end-to-end high-performance interconnect products and solutions based on the Ethernet and InfiniBand standards. Our products facilitate efficient data transmission between servers, storage systems, communications infrastructure equipment and other embedded systems. We operate our business globally and offer products to customers at various levels of integration. The products we offer include integrated circuits ("ICs"), adapter cards, switch systems, multi-core and network processors, systems on a chip (“SOCs”), cables, modules, software, services and accessories. Together these products form a total end-to-end networking solution focused on computing, storage and communication applications used in multiple markets, including high-performance computing ("HPC"), cloud, Web 2.0, Big Data, machine learning, storage, telecommunications, financial services, and enterprise data centers ("EDC"). These solutions increase performance, application efficiency and improve return on investment. Through the successful development and implementation of multiple generations of our products, we have established significant expertise and competitive advantages.As a leader in developing multiple generations of high-speed interconnect solutions, we have established strong relationships with our customers. Our products are incorporated in servers and associated networking solutions produced by the largest server vendors. We supply our products to leading storage and communications infrastructure equipment vendors, original design manufacturers ("ODMs"), distributors, and large end customers. Additionally, our products are used in embedded solutions.We are one of the pioneers of InfiniBand, an industry-standard architecture for high-performance interconnects. We believe InfiniBand interconnect solutions deliver industry-leading performance, efficiency and scalability for clustered computing and storage systems that incorporate our products. In addition to supporting InfiniBand, our products also support industry-standard Ethernet transmission protocols providing unique product differentiation and connectivity flexibility. Our products serve as building blocks for creating reliable and scalable Ethernet and InfiniBand solutions with leading performance. We also believe that we are one of the major suppliers of 25, 50, and 100Gb/s Ethernet adapters, switches, and cables to the market, and the only end-to-end supplier of these products today. We are the leading provider of adapters at the 25, 40, 50, and 100Gb/s speeds, which helps to drive demand for our switch and cable products and provides us the opportunity to gain share in the Ethernet market as users upgrade from 1Gb/s or 10Gb/s directly to 25, 40, 50 or 100Gb/s.On February 23, 2016, we completed our acquisition of EZchip Semiconductor, Ltd. ("EZchip"), for approximately $782.2 million. The EZchip acquisition is a critical enabler of our strategy to become the leading broad-line supplier of intelligent interconnect solutions for the software-defined data centers. The addition of EZchip’s products and expertise in security, deep packet inspection, video, and storage processing enhances our leadership position, and ability to deliver complete end-to-end, intelligent 10, 25, 40, 50, and 100Gb/s interconnect and processing solutions for advanced data center and edge platforms. The addition of multi-core and network processors allows us to offer our customers diverse and robust solutions to meet the growing demands of data-intensive applications used in high-performance computing, Web 2.0, cloud, secure data center, enterprise, telecom, database, financial services, and storage environments. The transaction closed on February 23, 2016 and was financed with cash on hand, and with $280.0 million in term debt ("Term Debt").We have been shipping our InfiniBand products since 2001 and our Ethernet products since 2007. During 2008, we introduced Virtual Protocol Interconnect, ("VPI"), into our ConnectX family of adapter ICs and cards. VPI provides the ability for an adapter to automatically sense whether a communications port is connected to Ethernet or InfiniBand. In 2015, we introduced the Spectrum family of 25, 50, and 100Gb/s Ethernet switches and the Switch-IB 2 smart InfiniBand switch.In order to accelerate adoption of our high-performance interconnect solutions and our products, we work with leading vendors across related industries, including:processor and accelerator vendors such as AMD, ARM, IBM, Intel, Nvidia, Oracle, and Qualcomm;operating system vendors such as Microsoft and Red Hat; andsoftware applications vendors such as Oracle, IBM and VMware.We are a Steering Committee member of the InfiniBand Trade Association, ("IBTA"), and the OpenFabrics Alliance, ("OFA"), both of which are industry trade organizations that maintain and promote InfiniBand technology. Additionally, OFA supports and promotes Ethernet solutions. We are a founding member of the 25 Gigabit Ethernet consortium. We are also a participating member of the Institute of Electrical and Electronic Engineers ("IEEE"), an organization that facilitates the advancement of the Ethernet standard, Ethernet Alliance and other industry organizations advancing various networking and storage related standards.Our business headquarters are in Sunnyvale, California, and our engineering and manufacturing headquarters are in Yokneam, Israel. Our total assets as of December 31, 2017 and 2016 were approximately $1,401.9 million and $1,473.5 million, respectively. During the years ended December 31, 2017, 2016 and 2015, we generated approximately $863.9 million,
4
$857.5 million and $658.1 million in revenues, respectively, and approximately $(19.4) million, $18.5 million and $92.9 million in net income (loss), respectively.We manage our business based on one reportable segment: the development, manufacturing, marketing and sales of interconnect products. Additional information required by this item is incorporated herein by reference to our consolidated financial statements and Note 13, "Geographic information and revenues by product group," of the Notes to Consolidated Financial Statements, included in Part IV, Item 15 of this report. The risks related to foreign operations and dependence on foreign operations are discussed under the section entitled "Risk Factors—Risks Related to Operations in Israel and Other Foreign Countries" under Part I, Item 1A of this report.Industry BackgroundHigh-Performance Interconnect Market Overview and TrendsComputing and storage systems such as servers, supercomputers and storage arrays in today's data centers face a critical challenge of handling exponentially expanding volumes of transactions and data while delivering improved application performance, high scalability and reliability within economic and power constraints. High-performance interconnect solutions remove bottlenecks in communications between compute and storage resources through fast transfer of data, latency reduction, improved application processing by central processing unit ("CPU") utilization and efficient sharing of resources. The result is higher efficiency and better resource utilization, thereby delivering higher application performance with lower capital expenditures and operating expenses. Leading companies in HPC, cloud, Web 2.0, Big Data, machine learning, storage, telecommunications, financial services, and EDC utilize these technologies to develop distributed applications and services which are able to scale to serve millions of end customers.Demand for computing power and data storage capacity continue to rise, fueled by the increasing reliance by enterprises on information technology ("IT") for everyday operations. Due to greater amounts of information to be processed, stored and retrieved, data centers rely on high-performance computing and high-capacity storage systems to optimize price/performance, minimize total cost of ownership, utilize power efficiently and simplify management. We believe that several IT trends impact the demand for interconnect solutions and the performance required from these solutions. These trends include:Transition to clustered computing and storage using connections among multiple standard components;Transition to multiple and multi-core processors in servers;Use of solid state Flash memory drives for data storage;Increasing deployments of software defined scale out storage;Enterprise data center infrastructure consolidation;Increasing deployments of mission critical, latency, or response time sensitive applications;Increasing deployments of converged and hyperconverged infrastructure;Increasing deployment of virtualized computing and virtualized networking resources to improve server utilization;Requirements by cloud providers to perform system provisioning, workload migrations and support multiple users' requests faster and more efficiently;Requirements by Web 2.0 data centers to increase their hardware utilization and to instantly scale up to large capacities;Big Data Analytics requirements for faster data access and processing to analyze increasingly large datasets and to provide real-time analysis; andIncreasing deployment of artificial intelligence and machine learning applications that utilize massive amounts of data and compute resources and often require generating real-time results.A number of semiconductor-based interconnect solutions have been developed to address different application requirements. These solutions include proprietary technologies as well as standard technologies, including Fibre Channel, Ethernet and InfiniBand, which was specifically created for high-performance computing, storage and embedded applications.Challenges Addressed by High-Performance InterconnectThe trends described above indicate that high-performance interconnect solutions will play an increasingly important role in IT infrastructures and will drive strong growth in unit demand. Performance requirements for interconnect solutions,
5
however, continue to evolve and lead to high demand for solutions that are capable of resolving the following challenges to facilitate broad adoption:Performance limitations. In clustered computing, cloud computing and storage environments, high bandwidth and low latency are key requirements to capture the full performance capabilities of a cluster. With the usage of multiple multi-core processors in server, storage and embedded systems, I/O bandwidth has not been able to keep pace with processor advances, creating performance bottlenecks. Fast data access has become a critical requirement to take advantage of the increased compute power of microprocessors. In addition, interconnect latency has become a limiting factor in a cluster's overall performance.Increasing complexity. The increasing usage of clustered servers and storage systems as a critical IT tool has led to an increase in complexity of interconnect configurations. The number of configurations and connections has also proliferated in EDC, making systems increasingly complicated to manage and expensive to operate. Additionally, managing multiple software applications utilizing disparate interconnect infrastructures has become increasingly complex.Interconnect inefficiency. The deployment of clustered computing and storage has created additional interconnect implementation challenges. As additional computing and storage systems, or nodes, are added to a cluster, the interconnect must be able to scale in order to provide the expected increase in cluster performance. Additionally, increased attention on data center energy efficiency is causing IT managers to look for ways to adopt more energy-efficient implementations.Limited reliability and stability of connections. Most interconnect solutions are not designed to provide reliable connections when utilized in a large clustered environment, causing data transmission interruption. As more applications in EDCs share the same interconnect, advanced traffic management and application partitioning become necessary to maintain stability and reduce system down time. Such capabilities are not offered by most interconnect solutions.Poor price/performance economics. In order to provide the required system bandwidth and efficiency, most high-performance interconnects are implemented with complex, multi-chip semiconductor solutions. These implementations have traditionally been extremely expensive.In addition to Ethernet and InfiniBand, proprietary and other standards-based interconnect solutions, including Fibre Channel, are currently used in EDC, HPC and embedded markets. Performance and usage requirements, however, continue to evolve and are now challenging the capabilities of these interconnect solutions.Proprietary interconnect solutions have been designed for use in supercomputer applications by supporting low latency and increased reliability. These solutions are only supported by a single vendor for product and software support, and there is no standard organization maintaining and facilitating improvements and changes to the technology. The number of supercomputers that use proprietary interconnect solutions has been declining largely due to the required use of proprietary software solutions, a lack of compatible storage systems and the availability of industry standards-based interconnects that offer superior price/performance.Fibre Channel is an industry standard interconnect solution limited to storage applications. The majority of Fibre Channel deployments support 2, 4, 8 and 16Gb/s. Fibre Channel lacks a standard software interface, does not provide server cluster capabilities and remains more expensive relative to other standards-based interconnects. There have been industry efforts to support the Fibre Channel data transmission protocol over interconnect technologies including Ethernet (Fibre Channel over Ethernet) and InfiniBand (Fibre Channel over InfiniBand). The Fibre Channel market is declining as legacy storage area network moves to more modern Web 2.0 and cloud architectures based on converged, software defined, and scale out storage.Ethernet is an industry-standard interconnect solution that was initially designed to enable basic connectivity between a local area network of computers or over a wide area network, where latency, connection reliability and performance limitations due to communication processing are non-critical. While Ethernet has a broad installed base at 1/10Gb/s and lower data rates, its overall efficiency, scalability and reliability have been less optimal than other interconnect solutions in high-performance computing, storage and communication applications. An increase to 25/40/50/100Gb/s bandwidth, a significant reduction in application latency and more efficient software solutions have improved Ethernet's capabilities to address specific high-performance applications that do not demand the highest performance or scalability.In the HPC, cloud, Web 2.0 and storage markets the predominant interconnects today are Ethernet and InfiniBand. In the EDC and embedded markets, the predominant interconnects today are Ethernet, Fibre Channel and InfiniBand. Based on our
6
knowledge of the industry, we believe there is significant demand for interconnect products that provide high bandwidth and better overall performance in these markets.Advantages of InfiniBandWe believe that InfiniBand-based solutions have advantages compared to solutions based on alternative interconnect architectures. InfiniBand addresses the significant challenges within IT infrastructures by providing solutions for more demanding requirements of the high-performance interconnect market. More specifically, we believe that InfiniBand has the following advantages:Superior performance. Compared to other interconnect technologies that were architected to have a heavy reliance on communication processing, InfiniBand was designed for implementation in an IC that relieves the CPU of communication processing functions. InfiniBand is able to provide superior bandwidth and latency relative to other existing interconnect technologies and has maintained this advantage with each successive generation of products. For example, our current InfiniBand adapters and switches provide bandwidth up to 100Gb/s, with end-to-end latency lower than a microsecond. In addition, InfiniBand fully leverages the I/O capabilities of PCI Express, a high-speed system bus interface standard.The following table provides a bandwidth comparison of the various high-performance interconnect solutions:
Performance
S-T
during the preceding 12 months (or for such shorter period that the registrant was required to submit ☒
No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a"large“large accelerated filer," "accelerated filer" "smaller” “accelerated filer” “smaller reporting company"company” and "emerging“emerging growth company"company” in Rule
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of 12b-2
of the Exchange Act. (Check one):Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||
Emerging growth company | ☐ | |||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
☐
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Ruleox
12b-2).
Yes ☐
No ☒
The aggregate market value of the registrant'sregistrant’s ordinary shares, nominal value NIS 0.0175 per share, held by2017,2019, the last business day of the registrant'sregistrant’s most recently completed second fiscal quarter, was approximately $2.2$6.1 billion (based on the closing sales price of the registrant'sregistrant’s ordinary shares on that date). Ordinary shares held by each director and executive officer of the registrant, as well as shares held by each holder of more than 10% of the ordinary shares known to the registrant, have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not a determination for other purposes.
non-affiliates
of the registrant on June 30, The total number of shares outstanding of the registrant'sregistrant’s ordinary shares, nominal value NIS 0.0175 per share, as of February 9, 2018,March 31, 2020, was 51,781,340.56,235,157.
EXPLANATORY NOTE
Mellanox Technologies, Ltd. (hereinafter referred to as(“,” the "Proxy Statement"“,” “,” “” or “”) are incorporated by reference in Part III of this report. Such Proxy Statement will be filed withits Annual Report on Form Securities and Exchange Commission not later than 120 days after the conclusion of the registrant's fiscal year ended December 31, 2017.2019 (“”) with the U.S. Securities and Exchange Commission (the “”) on February 20, 2020. The Company is filing this Amendment No. 1 to the Form,” solely for the purpose of including the Part III information. This Form
Mellanox
Company
we
us
our
10-K
for theForm 10-K
SEC
10-K,
or “Form 10-K/A
10-K/A
hereby amends and restates in their entirety Items 10 through 14 of Part III of the Form 10-K.
Pursuant to Rule
12b-15
under the Securities Exchange Act of 1934, as amended, this Form 10-K/A
also contains new certifications by the principal executive officer and the principal financial officer as required by Section 302 of the Sarbanes-Oxley Act of 2002. Accordingly, Item 15(b) of Part IV is amended to include the currently dated certifications as exhibits. Because no financial statements have been included in this Form 10-K/A
and this Form 10-K/A
does not contain or amend any disclosure with respect to Items 307 and 308 of Regulation S-K,
paragraphs 3, 4, and 5 of the certifications have been omitted.Except as expressly noted in this Form
10-K/A,
this Form 10-K/A
does not reflect events occurring after the original filing of the Form 10-K
or modify or update in any way any of the other disclosures contained in the Form 10-K
including, without limitation, the financial statements. Accordingly, this Form 10-K/A
should be read in conjunction with the Company’s Form 10-K
and the Company’s other filings with the SEC.MELLANOX TECHNOLOGIES, LTD.
CONTENTS
Page | ||||
32 | |||||||
PART III
ITEM 10—
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors of the Registrant
The names of each member of our board of directors (our “”), the year in termswhich each director was first elected to the board, the age of latency varies depending on system configurationseach director as of March 31, 2020 and applications. According to independent benchmark reports, latencythe principal occupation of InfiniBand solutions was less than half that of tested Ethernet solutions. Fibre Channel, which is used onlyeach director are as follows:
Board
Name | Year Director First Elected | Age | Principal Occupation | |||||||
Irwin Federman | 1999 | 84 | Chairman of the Board of Directors, Mellanox Technologies, Ltd.; Senior Advisor, U.S. Venture Partners | |||||||
Eyal Waldman | 1999 | 59 | President and Chief Executive Officer, Mellanox Technologies, Ltd. | |||||||
Glenda Dorchak | 2009 | 65 | Advisor to and board member of technology companies | |||||||
Amal M. Johnson | 2006 | 67 | Advisor to and board member of technology companies | |||||||
Jack Lazar | 2018 | 54 | Advisor to and board member of technology companies | |||||||
Jon A. Olson | 2018 | 66 | Advisor to and board member of technology companies | |||||||
Umesh Padval | 2018 | 62 | Partner, Thomvest Ventures | |||||||
David Perlmutter | 2014 | 66 | Advisor to and board member of technology companies | |||||||
Steve Sanghi | 2018 | 64 | President, Chief Executive Officer and Chairman of the Board of Directors of Microchip Technology Incorporated | |||||||
Gregory Waters | 2018 | 59 | Former President, Chief Executive Officer and member of the Board of Directors of Integrated Device Technology, Inc. | |||||||
Irwin Federman
USVP
CEO
non-executive
director, to serve as our lead independent director.Eyal Waldman
co-founder
of Mellanox and has served as our president and CEO and as a member of our Board since March 1999. From March 1999 until June 2013, Mr. Waldman served as the chairman of our Board. From March 1993 to February 1999, Mr. Waldman served as vice president of engineering and was aco-founder
of Galileo Technology, Ltd., a semiconductor company, which was acquired by Marvell Technology Group, Ltd. in January 2001. From August 1989 to March 1993, Mr. Waldman held a number of design and architecture relatedpositions at Intel Corporation (“”), a manufacturer of computer, networking and communications products. Mr. Waldman also serves and previously served on the boards of directors of a number of private companies. Mr. Waldman holds a Bachelor of Science in Electrical Engineering and a Master of Science in Electrical Engineering from the Technion—Israel Institute of Technology (“”). In June 2016, Mr. Waldman was awarded an Honorary Doctorate by Technion. Mr. Waldman is located in Israel.
Intel
Technion
Mr. Waldman’s qualifications to serve on our Board include his decades-long experience in the semiconductor industry, his role as a
co-founder
of Mellanox,twenty-one
years of service as our president and CEO, service as chairman of our Board between March 1999 and June 2013, and his design, engineering and architecture expertise. Our Board particularly values Mr. Waldman’s extensive experience in the semiconductor industry and as our CEO, which gives him unique insights into the Company’s challenges, opportunities and operations.Glenda Dorchak
IBM
Ms. Dorchak’s qualifications to serve on our Board include her executive and director experience in the software and technology industries. Our Board particularly values Ms. Dorchak’s deep knowledge, experience and understanding of global markets gained from over 30 years in the technology industry.
Amal M. Johnson
Author-it
Software Corporation, aSoftware-as-a-Service
private company that provides a platform for creating, maintaining, and distributing single-sourced technical content. Prior to joiningAuthor-it,
Ms. Johnson served as the chairman of MarketTools, Inc., 2
Ms. Johnson’s qualifications to serve on our Board include her extensive executive and Australia.public company director experience in the software and technology industries. Our Board particularly values Ms. Johnson’s significant enterprise infrastructure knowledge acquired from executive leadership roles at software and market research focused companies.
Jack Lazar
Mr. Lazar’s qualifications to serve on our Board include his strong financial, technological and operational expertise gained from his experience as a technology company executive and consultant.
Jon A. Olson
HomeUnion
Xilinx
Mr. Olson’s qualifications to serve on our Board include his more than 30 years of experience in senior roles of financial responsibility in the semiconductor industry, including as chief financial officer of Xilinx, together with his track record of growing profitable businesses and his experience at various semiconductor and technology companies.
Umesh Padval
C-Cube
Microsystems, Inc. (“C-Cube
VLSI
C-Cube
and Entropic Communications, Inc. Mr. Padval holds Master of Science degrees from Stanford University and Pennsylvania State University and a Bachelors of Technology from Indian Institute of Technology, Bombay. Mr. Padval is located in the United States.3
Mr. Padval’s qualifications to serve on our Board include his over 30 years of senior leadership experience in the semiconductor industry. Our Board particularly values Mr. Padval’s strong engineering, marketing and operating expertise based on extensive public and private company board experience.
David Perlmutter
start-ups.
Mr. Perlmutter previously served, since 2009 and until February 2014, as an executive vice president, general manager of Intel’s Architecture Group and chief product officer of Intel. During this period, Mr. Perlmutter was responsible for the business and development of Intel’s platform solutions for all computing and communication segments including datacenters, desktops, laptops, handhelds, embedded devices, and computer electronics. Prior to that period, Mr. Perlmutter served at Intel for 29 years, during which he held various management positions and was instrumental in developing several major products at Intel. Since April 2014, Mr. Perlmutter has served as a board member of several private technology companies, including Screenovate Technologies Ltd., a smartphone display duplication company, OptimaPlus Ltd., a security and investigations company, Weebit Nano LTD, a computer memory technology company, and Teramount Ltd., a silicon photonics company. He also currently chairs two nonprofit organizations, The Israel Innovation Institute, and Tsofen, an organization focused on increasing access of Arab Israeli citizens tohi-tech
jobs, and has been a member of the Board of Governors of Technion since January 2005. Mr. Perlmutter holds patents on branch target buffers and multiprocessing cache coherency protocols. In addition, he received an award for innovation in industrial development from the Israeli president in 1987 for the development of the i387 math coprocessor and was elected as a Fellow of the Institute of Electronics and Electrical Engineers in 2008 for his contributions to the mobile computer industry. Mr. Perlmutter received the Technion Alumni Medal from Technion in 2018. Mr. Perlmutter graduated from the Technion, with a B.Sc. in Electrical Engineering. Mr. Perlmutter is located in Israel.Mr. Perlmutter’s qualifications to serve on our Board include his executive experience in the software and technology industries. Our Board particularly values the significant knowledge he has acquired from executive leadership roles at Intel.
Steve Sanghi
Microchip
®
(For Inspiration and Recognition of Science and Technology) Robotics, anon-profit
company formed to inspire young students in the vital areas of Science, Technology, Engineering and Math from 2007 to 2016. Mr. Sanghi has won numerous industry awards, including “Executive of the Year” by Electronic Engineering Times in 2010 and 2016. He also won the “Arizona Entrepreneur of the Year” award by Ernst and Young in 1994. Mr. Sanghi holds a Master of Science degree in Electrical and Computer Engineering from the University of Massachusetts, and a Bachelor of Science degree in Electronics and Communication from Punjab University, India. Mr. Sanghi is located in the United States.Mr. Sanghi’s qualifications to serve on our Board include over 30 years of operations and senior management experience, leading large-scale organizations and teams in the semiconductor industry. Our Board particularly values Mr. Sanghi’s decades of experience as the president, CEO and chairman of the board of directors of Microchip.
4
Gregory Waters
low-power,
high-performance analog mixed-signal semiconductor solutions for the advanced communications, computing, and consumer industries, from January 2014 until its sale to Renesas Electronics Corporation in March 2019. Prior to that, he served as executive vice president and general manager offront-end
solutions at Skyworks Solutions, Inc., a manufacturer of semiconductors for use in radio frequency and mobile communications systems (“Skyworks
Agere
Mr. Water’s qualifications to serve on our Board include his technological expertise and extensive senior management experience in the semiconductor industry, including as the CEO, president and a director at Integrated Device Technology, Inc.
Information about our Executive Officers
Set forth below is certain information regarding each of our executive officers as of March 31, 2020.
Name | Age | Position(s) | ||||
Eyal Waldman | 59 | President and Chief Executive Officer | ||||
Doug Ahrens | 53 | Chief Financial Officer | ||||
Michael Kagan | 62 | Chief Technology Officer | ||||
Marc Sultzbaugh | 56 | Sr. Vice President of Worldwide Sales | ||||
Amir Prescher | 51 | Sr. Vice President of End-User Sales & Business Development | ||||
Eyal Waldman
co-founder
of Mellanox, and has served as our president and CEO and as a member of our Board since March 1999. From March 1999 until June 2013, Mr. Waldman served as the chairman of our Board. From March 1993 to February 1999, Mr. Waldman served as vice president of engineering and was aco-founder
of Galileo Technology, Ltd., a semiconductor company, which was acquired by Marvell Technology Group, Ltd. in January 2001. From August 1989 to March 1993, Mr. Waldman held a number of design and architecture related positions at Intel, a manufacturer of computer, networking and communications products. Mr. Waldman also serves and previously served on the boards of directors Doug Ahrens
5
Michael Kagan
co-founder
of Mellanox and has served as our chief technology officer since January 2009. Previously, Mr. Kagan served as our vice president of architecture from May 1999 to December 2008. From August 1983 to April 1999, Mr. Kagan held a number of architecture and design positions at Intel. While at Intel, between March 1993 and June 1996, Mr. Kagan managed Pentium MMX design, and from July 1996 to April 1999, he managed the architecture team of the Basic PC product group. Mr. Kagan holds a Bachelor of Science in Electrical Engineering from Technion. Mr. Kagan is located in Israel.Marc Sultzbaugh
Amir Prescher
end-user markets. We have expanded our
sales and business development Tel-Aviv
University with Family Relationships
There are no family relationships among any of our products whichdirectors or executive officers.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires directors, executive officers and persons who own more than 10% of a registered class of our equity securities to file initial reports of ownership and reports of changes in ownership with the SEC and The Nasdaq Stock Market (“”). On April 3, 2019, a Form 4 was filed late for Mr. Ahrens regarding a single transaction that occurred on February 1, 2019.
Nasdaq
Other than as discussed above, based solely on a review of copies of such forms with the SEC with respect to the fiscal year 2019, we believe creates additional demand for our customers' products that incorporate our products.
Audit Committee
Our Board has a standing audit committee, the members of which are Jon A. Olson, chair, Jack Lazar and ultimately the deploymentDavid Perlmutter. All members of our technologyaudit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and Nasdaq. Our Board has determined that each of the members of our audit committee is independent within the meaning of the independent director standards of Nasdaq and the SEC. Our Board has also determined that Messrs. Lazar and Olson are audit committee financial experts as defined by our customers to end users, we have a field applications engineering ("FAE") team and a sales engineering team that provide direct technical assistance during the design-in process. In certain situations, our OEM customers will utilize our expertise to support their end-user customers jointly. Our technical support personnel have expertise in hardware and software,SEC rules and have accessthe requisite financial sophistication as defined by Nasdaq rules and regulations.
Code of Business Conduct and Ethics
We are committed to maintaining the highest standards of business conduct and ethics. Our Code of Business Conduct and Ethics reflects our development teamvalues and the business practices and principles of behavior that support this commitment. The code applies to ensure proper technical expertise is provided to our OEM customers. Our FAE team provides OEM customers with design reviews of their systems in addition to technical training on the technology we have implemented in our products.
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ITEM 11—
EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
We invest our resources to grow our business in a manner that we believe will increase shareholder value. To further this objective, our compensation committee oversees our compensation program to support and generally receive their confirmation that they are able to accommodate our needs on a monthly basis. We have access to online production reports that provide up-to-date status informationreward the achievement of our products as they flow throughfinancial goals and to promote the manufacturing process. On a quarterly basis,attainment of other key business objectives. In order to conduct our business effectively, we generally review lead-time, yield enhancementsmust attract, motivate and pricing with allretain highly qualified employees. Our compensation philosophy is outlined in our Compensation Philosophy statement, last approved by shareholders in July 2019 (and required, under the Companies Law, to be approved every three years unless materially modified in the interim). Following the principles of our suppliersCompensation Philosophy, our compensation program, is fundamentally designed to obtainreward high performance and innovation, to promote accountability and to ensure that executive interests are aligned with the optimal costinterests of our shareholders.
In this Compensation Discussion and Analysis section, we discuss the material elements of our compensation programs and policies, including program objectives and reasons for payment of each element of our executives’ compensation. Following this discussion, you will find a series of tables containing more specific details about the compensation earned by, or awarded to, our named executive officers. This discussion focuses principally on compensation and practices relating to the named executive officers for 2019.
Our named executive officers for 2019 were: Eyal Waldman, president and CEO; Doug Ahrens, chief financial officer; Amir Prescher, senior vice president,
end-use
sales and business development; Michael Kagan, chief technology officer; and Marc Sultzbaugh, senior vice president of worldwide sales. Mr. Ahrens was appointed our chief financial officer effective January 2, 2019.Executive Summary—2019 Performance and Link to Pay Decisions
Company Financial Performance.
Our revenue for 2019 was $1,330.6 million, an increase of 22 percent from revenue in 2018 of $1,088.7 million and a new record high for the Company.
GAAP net income in 2019 was $205.1 million, or $3.62 per diluted share, compared to net income of $134.3 million, or $2.46 per diluted share, in 2018.
Non-GAAP*
net income in 2019 was $393.5 million, or $7.13 per diluted share, compared to a net income of $266.5 million, or $5.01 per diluted share, in 2018.We generated cash from operating activities of $424.8 million for 2019, compared to $264.9 million in 2018.
| * | Please see “Reconciliation of GAAP Net Income to Non-GAAP Net Income” on page 19 of this Form10-K/A for a reconciliation of GAAP net income tonon-GAAP net income. |
Base Salaries.
0-10.6%
over their 2018 levels based on consideration of a competitive market assessment, any increase in role and responsibilities, and the Company’s overall performance during 2018.7
Cash Bonuses Reflected 2019 Company Performance.
non-GAAP
operating income, funded the Company’s annual bonus pool for all eligible employees, including the named executive officers, in accordance with the criteria set forth in our Compensation Philosophy. For 2019, the total profit sharing pool was $42.7 million, representing approximately 10% of ournon-GAAP
operating income, which was $427.0 million, excluding our bonus pool. Bonus awards for our pre-established
revenue andnon-GAAP
operating income (as a percentage of revenue) targets. In January 2020, the Board and compensation committee determined that non-GAAP
operating income goals. The bonuses approved for our other named executive officers ranged between 0% and 73.3% of their base salaries based on the compensation committee’s assessment of corporate and individual performance factors.Equity as a Key Component of Compensation.
Compensation Program Governance
Best Practices We Employ | Practices We Avoid | |||||||
✓ | Executive stock ownership guidelines of 3x salary for all executive officers and holding requirements to help meet ownership guidelines | X | Incentive program designs do not encourage excessive risk taking | |||||
✓ | Change in control severance requires a double trigger | X | Pledging or hedging of shares by officers and directors is not permitted | |||||
✓ | Compensation committee is comprised entirely of independent directors | X | No repricing of underwater options | |||||
✓ | Compensation committee engages an independent consultant | X | No excise tax gross-ups | |||||
✓ | Compensation Philosophy allows the clawback of excess payments based on false and restated financial statements | X | No uncapped short-term incentive award or variable compensation | |||||
Shareholder Advisory Vote to Approve Executive Compensation
At our 2019 annual general meeting of shareholders, our shareholders voted over 97% (reflecting shares represented in person or by proxy at the meeting and EMC (radiation test) which are made availableentitled to vote) in favor of thecustomers. We only use components on these products that are qualified to be on our approved vendor list.
non-binding
advisory vote to approve the compensation of our named executive officers. Our compensation committee reviewed the result of the shareholders’ advisory vote on executive compensation and determined not to implement significant changes to our Compensation Philosophy and Objectives
We generally seek to set base salaries near the market median by reference to benchmarking and/or survey data, where available, but the base salary for each individual named executive officer reflects a number of factors, including past performance, scope of responsibility, experience and qualifications. The risks associatedcompensation committee also uses the same criteria for determining bonus awards, with patents and intellectual property are more fully discussed under the section entitled "Risk Factors" under Part I, Item 1A of this report.
8
We seek to market;
In accordance with our Compensation Philosophy, the maximum annual value of variable compensation components (cash bonuses and equity grants) for the office holders of the Company, in the semiconductor industry. They may be ableaggregate, shall not exceed two percent (2%) of the Company’s market capitalization. The compensation approved for payment to introduce new technologies or devote greater resourcesour office holders for the year 2019 complies with this requirement.
In order to retain the development, marketing and salesfocus of their products than we can. Furthermore,our named executive officers on our business in the event of a manufacturing capacity shortage, these competitors may be able to manufacture products whenpotential change in control, we are unableparty to do so.executive severance benefits agreements with each of our named executive officers that provide for certain payments and other severance benefits in the event their service is terminated following a change in control of our Company. We believe that these executive severance benefits agreements help attract and retain talented executives by ensuring their efforts remain focused on our shareholders’ long term interests without needing to engage in potential short-term employment planning.
We competebelieve that the total cash compensation (including base salary and annual cash bonus awards) of our named executive officers, the incentive and retention benefit of equity awards in the form of restricted share units, and the security provided by executive severance benefits agreements, created a competitive total compensation package for our named executive officers in 2019.
Pursuant to the Companies Law, the compensation of our named executive officers and the compensation of other office holders (who are not directors) who report directly to our CEO must also be approved by our Board following the approval by our compensation committee. In accordance with the Companies Law, our CEO’s compensation must be approved by our compensation committee, Board and shareholders holding a majority of the voting power represented at the general meeting provided that (i) at least
one-half
of the shares ofnon-controlling
shareholders or shareholders that do not have a Personal Interest (as defined in the Companies Law) in the approval voted at the meeting are voted in favor (disregarding abstentions) or (ii) the total number of shares ofnon-controlling
shareholders or shareholders that do not have such Personal Interest voted against the terms of service of the CEO does not exceed two percent of the aggregate voting rights in the Company.Approach for Determining Form and Amount of Compensation
Designing a Competitive Compensation Package.
9
Our 2019 executive compensation program has three primary components: (i) base compensation or salary, (ii) annual cash bonuses and (iii) equity awards consisting of restricted share units. Our program is designed to provide incentives and rewards for our short-term,
mid-term
and long-term performance, and is structured to motivate our named executive officers to meet our strategic objectives, thereby maximizing total return to shareholders. In addition, we provide our named executive officers with benefits that are standard for the local employment market and, therefore, generally made available to all salaried employees in the geographic location where they are based. In Israel, we make contributions on behalf of most of our employees, including our named executive officers, to an education fund and also to a fund known as Managers’ Insurance, which provides a combination of retirement plan, insurance and severance pay benefits to Israeli employees, and we permit employees to participate in the Company’s automobile leasing program, under which we pay for gas, maintenance, insurance and the cost of normal wear and tear of the vehicle over the life of the lease. We make matching 401(k) plan contributions in an amount up to 4% of base salary for all employees based in the United States, including our U.S.-based named executive officers.Recruitment and retention of our named executive officers and other executive management requires a competitive compensation package. Our compensation committee’s approach emphasizes setting the primary elements of total compensation for executives-base salary, annual cash incentive and long-term incentive
awards-at
approximately the median of the market.In making compensation decisions, our compensation committee and Board reference third-party surveys that provide compensation market data as well as compensation data of a peer group of companies.
For 2019 compensation determinations, our compensation committee and Board referred to data from an executive compensation benchmarking analysis of our peer group, as described below, and, with respect to positions in Israel, the Israel-based Zviran survey, an independent third-party survey of compensation practices by large high-tech companies in Israel. The industry data from the Zviran survey consisted of salaries and other compensation paid by companies to executives in positions comparable to those held by our named executive officers to the extent such position was represented in the survey data. The companies covered by the Zviran survey are not identified in the summary reports presented to the compensation committee.
With the assistance of Radford, an independent consultant retained by the compensation committee for purposes of evaluating our executive compensation program, in September 2018 the compensation committee approved the following peer group consisting of 16 publicly traded companies from the semiconductor industry (the “”):
Peer Group
Arista Networks, Inc. | Infinera Corporation | |
Cirrus Logic Inc. | Marvell Technology Group Ltd | |
Cray Inc. | Monolithic Power Systems, Inc. | |
Cree, Inc. | Nice Ltd. | |
CyberArk Software Ltd. | Pure Storage, Inc. | |
Cypress Semiconductor Corporation | Semtech Corporation | |
Extreme Networks, Inc. | Silicon Laboratories Inc | |
Finisar Corporation | Wix.com Ltd. |
For companies within the Peer Group, the median revenues for the preceding four quarters as of September 2018 were approximately $1.08 billion, and the median
30-day
average market capitalization as of September 28, 2018 was approximately $4.19 billion. The Company’s revenues for the preceding four quarters as of September 2018 were at the 47th percentile of the Peer Group and the Company’s30-day
average market capitalization as of September 28, 2018 was at the 47th percentile of the Peer Group.10
In October 2018, Radford performed an executive compensation benchmarking analysis based on InfiniBand, Ethernet, Fibre Channelthe Peer Group. Radford’s analysis of the compensation of our named executive officers (other than Mr. Ahrens, who joined in 2019) as compared to the Peer Group data indicated that their total cash compensation (comprised of their 2018 salaries and proprietary technologies. With2017 performance bonuses paid in 2018) was at or below the median total cash compensation of the Peer Group and that their total annual equity awards were above the 75
th
percentile of the Peer Group, resulting in a pay mix weighted toward equity incentives, consistent with our emphasis on pay for performance. The Compensation Committee considered this benchmarking analysis in setting 2019 compensation for our named executive officers.The Role of the Compensation Committee Consultant
The Role of Our Chief Executive Officer.
Base Salary
In March 2019, our CEO finalized the 2019 compensation of each of our named executive officers reporting to him and made recommendations to our compensation committee regarding base salary adjustments and equity awards for 2019. Our compensation committee evaluated the CEO’s recommendations considering the Radford Peer Group analysis and, as applicable, the Zviran survey, any increase in role and responsibilities, and the Company’s overall performance during 2018. Our compensation committee and Board each then approved the following annual base salaries for the following named executive officers, effective April 1, 2019: for Mr. Prescher, $300,000, an increase of 10.6% over his 2018 base salary; for Mr. Kagan, $290,000, an increase of 6.9% over his 2018 base salary; and for Mr. Sultzbaugh, $400,000, reflecting the same base salary as in 2018.
Mr. Ahrens’ base salary of $430,000 was established in connection with his appointment as our Chief Financial Officer in January 2019 and was the result of arm’s length negotiations.
Following its review of our CEO’s 2018 performance and the Radford Peer Group analysis, in early 2019, our compensation committee approved a base salary increase for Mr. Waldman of 6.6% to $650,000, which was subsequently approved by our board of directors. Our compensation committee and board of directors determined the increase in base salary was appropriate given it positioned the base salary for our CEO at approximately the Peer Group median, and the increase reflected our CEO’s significant contributions to our Company in 2018. The leading IC vendorsbase salary increase was approved by our shareholders at our extraordinary general meeting in June 2019 and was effective retroactive to April 1, 2019.
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Annual Cash Bonus Program
Under our annual cash bonus award program, our employees in good performance standing, including our named executive officers, are eligible to receive an award, in accordance with the criteria set forth in our Compensation Philosophy from a bonus pool in an amount that is targeted by our compensation committee at generally up to 10% of our
non-GAAP
operating income, excluding bonus expenses. In accordance with our Compensation Philosophy, the maximum annual value of the cash bonus payable for each of our office holders shall not exceed two times such office holder’s annual base salary.Our compensation committee may adjust the available annual bonus pool based on its assessment of our achievement of our operating plan and company profitability. In January 2020, the Board determined that the total profit sharing pool for the fiscal year ended December 31, 2019 was $42.7 million and represented approximately 10% of our
non-GAAP
operating income, which was $427.0 million, excluding this bonus expense.In June 2019, our shareholders approved a performance-based cash incentive award structure for our CEO. For 2019, the incentive award was subject to a formula-based payout based on the Company’s achievement of a target revenue goal of $1.35 billion and a target
non-GAAP
operating income (as a percentage of revenue) goal of 30% for 2019, each weighted 50%. The award was targeted at 100% of our CEO’s base salary, with a maximum payment of 200%. No amount was payable for achievement below target, and any payout was determined linearly based on the amount of achievement over target. In January 2020, the Board approved the Company’s achievement of revenue andnon-GAAP
operating income (as a percentage of revenue) for 2019, resulting in a payout to our CEO of 64.8% of his annual base salary, or $421,241. The Company’s achievement of the applicable performance goals and their weighted achievement percentage are set forth in the table below.Performance Goal | Weighting | Threshold (0% payout) | Target (100% payout) | Maximum (200% payout) | Actual Achievement | Weighted Achievement Percentage | ||||||||||||||||||
Revenue | 50 | % | $ | 1.215 billion | $ | 1.35 billion | $ | 1.485 billion | $ | 1.331 billion | 42.8 | % | ||||||||||||
Non-GAAP operating income (as a percentage of revenue)* | 50 | % | 28 | % | 30 | % | 32 | % | 28.9 | % | 22.0 | % | ||||||||||||
Total | 64.8 | % | ||||||||||||||||||||||
| * | Non-GAAP operating income is adjusted from results based on GAAP excluding share-based compensation expense, amortization expense of acquired intangible assets, acquisition and other charges and restructuring and impairment charges. |
The size of each other named executive officer’s bonus for 2019 was determined in January 2020 in the discretion of our compensation committee based upon its assessment of a number of factors, including overall company performance in 2019, each named executive officer’s individual performance in 2019 and ability to influence our Company’s performance, the relative scope of each named executive officer’s responsibilities and internal equity and the CEO’s recommendations. Pursuant to Mr. Ahrens’ employment agreement, his 2019 bonus is the greater of $100,000 or the amount he would have earned under the 2019 annual bonus program. The following bonuses were approved for our other named executive officers based on their individual contributions to our financial performance for fiscal year 2019: Mr. Ahrens was awarded $150,000, which represents approximately 34.9% of his 2019 annual base salary; Mr. Prescher was awarded $220,000, which represents approximately 73.3% of his 2019 annual base salary; and Mr. Kagan was awarded $200,000, which represents approximately 69.0% of his 2019 annual base salary. Mr. Sultzbaugh did not receive a bonus for 2019 due to his decreasing oversight role following the initiation of sales organization restructuring in December 2018.
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Equity Compensation Awards
We provide Ethernet and Fibre Channel productsequity awards to our named executive officers in order to align their interests with the interests of our shareholders by tying the value delivered to our named executive officers to the value of our ordinary shares. Annual equity award grants provide our named executive officers with long-term incentives that aid in retaining executive talent and reward executives for creating shareholder value over the long term. We may also make grants of equity awards at the discretion of our Board and the compensation committee in connection with the hiring or promotion of new executive officers.
Our annual awards of service-vesting restricted share units made to existing executive employees generally vest over four years at the rate of 1/4th of the shares on the first anniversary of the vesting commencement date, and thereafter at the rate of 1/16th of the original number of shares on the first day of each quarterly period thereafter, so long as the restricted share unit holder remains an officer or employee of the applicable employing member. We set these vesting schedules in order to provide an incentive to our employees, including our named executive officers, to continue their employment with us over the long term and generally to provide them the opportunity to sell their vested shares to cover taxes incurred with vesting during a period following the public release of our prior quarter’s fiscal operating results.
As with the other components of our compensation program, we generally determine the size of each equity award to a named executive officer after considering, among other things, the role of each named executive officer within our Company, the criticality of their function within the organization, and the Peer Group data. Since long-term incentive compensation levels fluctuate from year to year across the companies for whom market include Intel Corporation (“Intel”data are collected, including the Peer Group (depending on each company’s granting patterns, valuation assumptions, and stock price), we generally review the market data under both a value approach, which is based on the fair value of long-term incentive awards, and a percentage of common shares outstanding approach, which compares the number of shares subject to each long-term incentive award to the number of shares outstanding for each company. The ability of each executive officer to influence our Company’s performance and internal parity are also principal considerations for our compensation committee when determining grant size.
In March 2019, in connection with its annual focal review of executive officers, our compensation committee approved the grant of 55,696 restricted share units to Mr. Waldman, 13,164 restricted share units to Mr. Prescher, 12,151 restricted share units to Mr. Kagan, and 4,556 restricted share units to Mr. Sultzbaugh, effective April 1, 2019. The annual grants to Messrs. Waldman, Sultzbaugh and Prescher were originally approved in part as performance share units (50% in the case of Mr. Waldman and 25% in the case of Messrs. Prescher and Sultzbaugh), which were to vest based on the Company’s achievement of total shareholder return relative to that of the companies comprising the PHLX Semiconductor Sector. However, pursuant to the Merger Agreement, we modified such awards to be time-vesting restricted share unit awards, which modifications were approved prior to the effective date of grant for such awards. The annual restricted share unit grants to our named executive officers vest as described above with a vesting commencement date of May 1, 2019 other than the grant to Mr. Waldman, which has a vesting commencement date of August 1, 2019. Mr. Waldman’s equity award grant was subject to the approval of our shareholders, which was obtained at our extraordinary general meeting in June 2019.
In connection with Mr. Ahrens’ appointment as our Chief Financial Officer in January 2020 and pursuant to his offer letter, we granted to Mr. Ahrens 33,000 restricted share units, which vested as to 1/4
th
of the restricted share units on February 1, 2020 and will vest as to 1/16th
of the restricted share units on each quarterly anniversary thereafter, subject to his continued employment with the Company. Mr. Ahrens’ new hire restricted share unit grant was the result of arm’s length negotiations with Mr. Ahrens in connection with his commencement of employment and was granted in lieu of an annual award.Change in Control Severance Arrangements
Executive Severance Benefits Agreements
In 2019, we were a party to executive severance benefits agreements with each of our named executive officers which provide for certain severance benefits in the event of an executive’s separation of service following a change in control (a
so-called
“double trigger” requirement).13
Pursuant to the terms of the executive severance benefits agreements with each of our named executive officers other than Mr. Waldman, if the executive’s employment with our Company is terminated without cause or if the executive is constructively terminated (as defined below), in each case during theBroadcom Limited ("Broadcom")and the executive provides us a general release of all claims, then the executive is entitled to receive the following payments and benefits, in addition to statutory benefits and entitlements of our Israeli named executive officers:
12-month
period following a change in control (as defined in the agreements) of our Company (each, a “qualifying termination”), an amount equal to the sum of the executive’s annual base salary and target bonus (or if no target bonus was established, then the average of the three most recent annual bonuses paid to the executive), Marvell Technology Group,paid in a lump sum to the extent such payment would not incur any penalties under Section 409A of the Code, provided that for Mr. Ahrens, the bonus portion shall be the payment of his first annual bonus up to $150,000 and Cavium. The leading Ethernet switch system vendors include Cisco Systems, Inc.afterward, the average of the three most recent bonuses paid to him;
in the case of a named executive officer who resides in the United States, if the named executive officer elects COBRA coverage under our group health plan, payment for the cost to continue COBRA coverage for the named executive officer and his eligible dependents for up to 12 months following the termination date; and
for each executive other than Mr. Ahrens, full accelerated vesting of all outstanding and unvested equity awards, and for Mr. Ahrens, accelerated vesting of the following percentage of unvested shares subject to outstanding equity awards: (i) 25% if such termination occurred before July 2, 2019; (ii) 50% if such termination occurs between July 2, 2019 and April 2, 2020; and (iii) 100% if such termination occurs after April 2, 2020.
Following the approval of the Board and our shareholders at our extraordinary general meeting in June 2019, we also entered into an amended and restated executive severance benefits agreement with Mr. Waldman. Pursuant to the amended and restated executive severance benefits agreement, if Mr. Waldman experiences a qualifying termination and provides us a general release of all claims, then he will be entitled to receive the following payments and benefits, in addition to any statutory benefits and entitlements under Israeli law:
an amount equal to two times the sum of Mr. Waldman’s annual base salary and target bonus (or if no target bonus was established, then the average of the three most recent bonuses paid to the executive), Juniper Networks, Inc.paid in a lump sum to the extent such payment would not incur any penalties under Section 409A of the Code; and Arista Networks, Inc. In embedded
full accelerated vesting of all outstanding and unvested equity awards.
Prior to such amendment and restatement, we were party to an executive severance agreement with Mr. Waldman, which provided that upon a qualifying termination, he would be eligible to receive: (i) continuation of his base salary for six months at a per annum rate of 120% of his annual base salary in effect on the termination date; and (ii) accelerated vesting as to 50% of the unvested shares subject to outstanding equity awards.
For the purposes of the executive severance benefits agreements,
“” means that, in the reasonable determination of the Company (or the Board, in the case of the CEO), the executive: (a) has committed an act of fraud or embezzlement or has intentionally committed some other illegal act that has a material adverse impact on the Company or any successor or parent or subsidiary thereof; (b) has been convicted of, or entered a plea of “guilty” or “no contest” to, a felony which causes or may reasonably be expected to cause substantial economic injury to or substantial injury to the reputation of the Company or any subsidiary or affiliate of the Company; (c) has made any unauthorized use or disclosure of confidential information or trade secrets of the Company or any successor or parent or subsidiary thereof that has a material adverse impact on any such entity; (d) has committed any other intentional misconduct that has a material adverse impact on the Company or any successor or parent or subsidiary thereof; or (e) has intentionally refused or intentionally failed to act in accordance with any lawful and proper direction or order of the Board or the appropriate individual to whom the executive reports, provided such direction is not materially inconsistent with the executive’s customary duties and responsibilities.
Cause
14
“
markets, we typically compete” means that the executive voluntarily terminates his employment with interconnect technologiesthe Company after any of the following are undertaken without the executive’s express written consent: (a) the removal of or a material reduction in the nature or scope of the executive’s responsibilities, or the assignment to the executive of duties that are developed in-housematerially inconsistent with the executive’s position other than a change in reporting relationship; (b) a change in the executive’s direct reporting relationship so that the executive no longer reports directly to the CEO (or the Board in the case of the CEO); (c) a reduction in the executive’s base salary, unless the base salaries of all other executives are similarly reduced; or (d) a relocation of the executive’s place of employment by system OEM vendors and createdmore than thirty (30) miles from such the executive’s place of employment on the effective date of the severance benefits agreement. The termination of the executive’s employment as a result of the executive’s death or disability shall not be deemed to be a Constructive Termination.AcquisitionIn February 2016, we completed
Constructive termination
“” generally includes each of the following:
Change in Control
A transaction or series of transactions whereby any person or related group of persons directly or indirectly acquires beneficial ownership of securities of the Company possessing more than 50% of the total combined voting power of the Company’s securities outstanding immediately after such acquisition; or
During any period of two consecutive years, individuals who, at the beginning of such period, constitute the Board together with any new director(s) whose election by the Board or nomination for specific applications.election by the Company’s shareholders was approved by a vote of at least two thirds of the directors then still in office who either were directors at the beginning of the
two-
year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; orThe consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination or (y) a sale or other disposition of all or substantially all of the Company’s assets in any single transaction or series of related transactions or (z) the acquisition of EZchip, for approximately $782.2 million. EZchip wasassets or shares of another entity, in each case other than a public company formedtransaction:
| (i) | Which results in the Company’s voting securities outstanding immediately before the transaction continuing to directly or indirectly, at least a majority of the combined voting power of the successor entity’s outstanding voting securities immediately after the transaction, and |
| (ii) | After which no person or group beneficially owns voting securities representing 50% or more of the combined voting power of the successor entity; provided, however, that no person or group shall be treated as beneficially owning 50% or more of combined voting power of the successor entity solely as a result of the voting power held in the Company prior to the consummation of the transaction; or |
The Company’s shareholders approve a liquidation or dissolution of the Company.
The benefits payable under the lawsexecutive severance benefits agreements are in addition to payments or other benefits, if any, that any named executive officer who resides in Israel may be entitled to receive under applicable Israeli law. Israeli law generally requires severance pay equal to one month’s salary for each year of employment upon the retirement, death or termination without cause (as defined in the Israeli Severance Pay Law) of an employee. To satisfy this requirement, we make contributions on behalf of our Israel-based employees to a fund known as Managers’ Insurance or to a pension fund. These funds provide a combination of pension plan, insurance and severance pay benefits to the employee, giving the employee or his or her estate payments upon retirement or death and securing the severance pay, if legally entitled, upon termination of employment. Each
15
full-time
Israeli employee and hourly employee as of September 2012, including each of our Israel-based named executive officers, is entitled to participate in the Managers’ Insurance and/or pension fund. Each employee who participates contributes an amount equal to 6% (as of January 2018) of his or her salary to the Managers’ Insurance and/or pension plan and we contribute up to 6.5% (as of January 2018) to the Managers’ Insurance and/or pension plan, 8.33% for severance payments and up to 2.5% for disability insurance).Within the context of our Compensation Philosophy, the compensation committee believes the terms of our executive severance agreements with our named executive officers will encourage their continued attention and dedication to their assigned duties through and following any change in control of our Company. We believe that the terms of these agreements will further ensure that each of our named executive officers will continue to remain focused on the long-term objective of delivering shareholder value during and following a change in control event if they are assured that their long-term employment interests are reasonably provided for with a competitive market severance arrangement. We believe that these executive severance agreements thus help ensure the best interests of our shareholders.
Global Share Incentive Plan
Additionally, under the Company’s Fourth Amended and Restated Global Share Incentive Plan, in the event of a change in control in the Company, each outstanding award will be assumed or substituted by the successor corporation. If the successor corporation in a change in control refuses to assume or substitute an outstanding award, the award will vest in full. Under the terms of our CEO’s performance share unit award granted in 2018, in the event of a change in control, the number of shares earned will be the greater of target and actual achievement during the performance period, and such number of shares will vest at the end of the Stateoriginal performance period if the award is assumed by the successor or upon the consummation of Israel specializingthe change in network-processing semiconductors. control if the award is not assumed by the successor.
The EZchip acquisition ispotential payments under the executive severance benefits agreements as of December 31, 2019 are set forth below under the heading “—Potential Payments Upon Termination Following a stepChange in our strategyControl.”
Treatment of Equity Awards in the Merger
In addition, pursuant to become the leading broad-line supplierMerger Agreement, at the effective time of intelligent interconnect solutions for the software-defined data centers. The additionMerger (the “Effective Time”), outstanding equity awards granted by the Company will be treated as follows:
Each outstanding option, whether vested or unvested, will be cancelled and converted into the right to receive a cash amount equal to the product of EZchip’s products and expertise in security, deep packet inspection, video, and storage processing enhances our leadership position, and ability(x) the number of ordinary shares subject to deliver complete end-to-end, intelligent interconnect and processing solutions for advanced data center and edge platforms. The combined company has diverse and robust solutions to enable customers to meet the growing demands of data-intensive applications used in high-performance computing, Web 2.0, cloud, secure data center, enterprise, telecom, database, financial services, and storage environments.
Each outstanding option, whether vested or unvested, will be cancelled and converted into the right to receive a cash amount equal to the product of (x) the number of ordinary shares subject to such option, and (y) the excess, if any, of $125.00 over the applicable per share exercise price of the option.full accelerated vesting of all outstanding and unvested equity awards.
Each restricted share units ("RSUs"unit award granted by the Company that is outstanding immediately prior to the Effective Time and (i) that has previously vested in full but not yet been settled or (ii) is held by aEZchip onthe holder to receive an amount in cash equal to the product of (x) the number of ordinary shares subject to such restricted share unit award and (y) $125.00.
non-employee
director (each, a“Cashed-Out
Company RSU”) will be cancelled and converted into the right of Each restricted share unit award that is outstanding immediately prior to the Effective Time and is not aapplicable to such EZchip option or RSUs (includingissuable with respect to vesting)the restricted share unit award immediately prior to the Effective Time multiplied by a fraction (the “Exchange Ratio”), the numerator of which is $125.00 and the denominator of which is the volume weighted average price for a common share of NVIDIA on Nasdaq, calculated based on the 10 consecutive trading days ending on the third complete trading day prior to (and excluding) the closing date of the Merger.
Cashed-Out
Company RSU will be assumed by NVIDIA and converted automatically into a restricted share unit award covering common shares of NVIDIA having substantially the same terms and conditions as the Company restricted share unit award, including vesting schedule and payment timing, but entitling the holder to a number of NVIDIA common shares equal to the product of the number of ordinary shares that were 16
At the Effective Time, the level at which the performance goals are satisfied with respect to each outstanding Company performance share unit award will be determined by the compensation committee and approved by the Board in accordance with its terms, which will be the greater of (i) the target number of performance share units and (ii) such number determined based on the Company’s actual achievement of the applicable performance goals as of the closing date of the Merger (such final amount, the “Performance Satisfied PSUs”). The resulting Performance Satisfied PSUs will be assumed by NVIDIA and converted itautomatically at the Effective Time into a restricted share unit award covering common shares of NVIDIA having substantially the same terms and conditions as the Company performance share unit award, other than the performance goals, but entitling the holder to an equivalent equity awarda number of NVIDIA common shares equal to receive ourthe product of the number of ordinary shares appropriately adjustedthat were issuable with respect to take into account the transaction consideration.Performance Satisfied PSUs multiplied by the Exchange Ratio.
For a further description of the treatment of Company equity awards and certain payments and benefits that may be received by our named executive officers in connection with the Merger, see our Proxy Statement on Schedule 14A filed with the SEC on May 8, 2019.
Perquisites and Other Benefits
Historically, from time to time, our compensation committee and Board have provided certain of our named executive officers with perquisites that we believe are reasonable. We do not view perquisites as a significant element of our comprehensive compensation structure, but do believe that these additional benefits may assist our executive officers in neutralizing personal costs associated with performing their duties as expected by the Company and provide time efficiencies for our executive officers in appropriate circumstances, particularly when we require frequent or lengthy travel.
In 2019, our CEO received housing and housing-related expense reimbursements, as well as related tax reimbursements, which our compensation committee determined were appropriate in order to facilitate his efforts on behalf of our Company while at our California headquarters.
At our extraordinary general meeting held in June 2019, following approval by our Board and compensation committee, our shareholders also approved certain tax equalization reimbursements to Mr. Waldman, in the amount of $54,000 for the 2018 tax year and up to $125,000 for the 2019 tax year. Mr. Waldman is an Israeli citizen and resident and primarily performs services for the Company in Israel, but is also required to spend a significant portion of his business time at the Company’s offices in the United States. As a result, he is subject to U.S. taxation on amounts earned by him from the Company in proportion to his time spent in the United States. The difference in tax treatment between the United States and Israel causes Mr. Waldman to incur an additional tax expense, and our Board and compensation committee deem it reasonable and appropriate to reimburse him for such taxes.
In addition, automobile-related expense reimbursement, insurance reimbursement, retirement fund contributions, severance fund contributions and education fund contributions are provided to all of our Israel-based employees on a
non-discriminatory
basis including our named executive officers based in Israel.In the future, we may provide additional perquisites to our named executive officers as an element of their overall compensation structure. We do not expect these perquisites to be a significant element of our compensation structure. All vested, in-the-money EZchip stock optionsfuture practices regarding perquisites will be approved and RSUs, after giving effectsubject to periodic review by our compensation committee and/or Board.
17
In addition to the termination-related benefits provided to our Israeli employees under Israeli law, each
full-time
Israeli employee, including each of our Israel-based named executive officers, is entitled to participate in an education fund plan, pursuant to which each employee who participates in the plan contributes an amount equal to 2.5% of his or her salary to the education fund and we contribute 7.5% of his or her salary up to the maximum amount exempted from tax (currently a contribution from a monthly salary of NIS 15,712). In addition, the Company pays directly to the employee via his or her salary or as additional contribution to the education fund, per the employee’s choice, 7.5% of the portion of the employee’s salary which exceeds the aforesaid maximum salary exempt from tax.Shareholder-approved Compensation Philosophy
We maintain a Compensation Philosophy for our office holders that addresses certain items prescribed by the Companies Law. At our 2019 annual general meeting held on July 25, 2019, our shareholders
re-approved
our Compensation Philosophy for our office holders with the implementation of certain clarifications and revisions based on mitigations enacted under the Companies Law and the experience gained in its implementation by the Company since the Compensation Philosophy was previously approved by shareholders. Our compensation committee reviews its Compensation Philosophy annually and reserves the discretion to amend it from time to time. Regardless of whether the compensation committee amends the Compensation Philosophy or not, pursuant to the Companies Law, our Compensation Philosophy must generally be approved by the Board (after considering the recommendations of the compensation committee) and the shareholders every three years.Tax Considerations
Section 162(m) of the U.S. Internal Revenue Code establishes a limitation on the deductibility of compensation payable in any acceleration or vestingparticular tax year to our named executive officers. Section 162(m) provides that occurspublicly-held companies cannot deduct compensation paid to certain named executive officers (other than, prior to the Tax Cuts and Jobs Act of 2017, our CFO) to the extent that such compensation exceeds $1 million per officer. Prior to the Tax Cuts and Jobs Act of 2017, compensation that is “performance-based” compensation within the meaning of Section 162(m) did not count toward the $1 million limit. As part of the Tax Cuts and Jobs Act of 2017, the ability to rely on this “qualified performance-based compensation” exception was eliminated and the limitation on deductibility was generally expanded to include all NEOs. Historically, the deductibility of compensation under Section 162(m) has not been a factor in the compensation committee’s compensation determination process and as a result of the transaction,Tax Cuts and Jobs Act of 2017, subject to the Act’s grandfathering rules, the Company may no longer take a deduction for any compensation paid to its NEOs in excess of $1 million.
Other Policies
Share Ownership and Holding Policy.
twenty-five
percent (25%) of the gross number of shares acquired upon an exercise, vesting or settlement or (ii) fifty percent (50%) of the number of shares remaining after satisfying the exercise price, if any, and tax withholding requirements. Each of our named executive officers either were Clawback Policy.
Non-GAAP measures.
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, settlement costs, acquisition and non-operating
foreign exchange gains and 18
effects and adjustments. Settlement costs represent the debt financing, see Note 15charges related to the consolidated financial statements. Acquisition-relatedsettlement of a contingent royalty obligation. Acquisition and other charges include expenses related to acquisitions of other companies, expenses related to the proxy contest, and expenses related to the pending acquisition of the Company by NVIDIA. Restructuring and impairment charges include impairment charges related to our investment in privately-held companies, as well as costs that are the result of restructuring, consisting of employee termination and severance costs, facilities related costs, contract cancellation charges, and impairment of long-lived assets. Gain on investments in privately-held companies represents the realized and unrealized gain related to our private company investees.
Non-operating
foreign exchange gains and losses include the gains and losses as a result of remeasuring our balance sheet items denominated in foreign currencies and the gains and losses associated with the related hedging instruments. The purpose of income tax effects and adjustments is to exclude tax consequences associated with the above excluded income and expense items, thenon-cash
impact on the tax provision pertaining to changes in deferred tax assets associated with carryforward losses, and reversals of valuation allowances. Shares used in computingnon-GAAP
diluted earnings per share represents GAAP basic shares plus total options vested and exercisable. The Company believes thenon-GAAP
results provide useful information to both management and investors, as thesenon-GAAP
results exclude income and 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, settlement costs, acquisition and other charges, restructuring and impairment charges, gain on investments in privately-held companies,non-operating
foreign exchange gains and losses, 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 certainnon-cash
charges such as share-based compensation, amortization of acquired intangible assets, impairment charges, changes related to the utilization of deferred taxes and the net impact on the Company’s tax provision fornon-GAAP
adjustments do not reflect the cash operating results of the business.Reconciliation of GAAP Net Income to
Non-GAAP
Net IncomeYear ended December 31, | ||||||||
2019 | 2018 | |||||||
Reconciliation of GAAP net income to non-GAAP: | ||||||||
GAAP net income | $ | 205,095 | $ | 134,258 | ||||
Adjustments: | ||||||||
Share-based compensation expense | ||||||||
Cost of revenues | 3,493 | 1,950 | ||||||
Research and development | 61,315 | 38,922 | ||||||
Sales and marketing | 26,614 | 17,042 | ||||||
General and administrative | 20,696 | 13,428 | ||||||
Total share-based compensation expense | 112,118 | 71,342 | ||||||
Amortization of acquired intangibles: | ||||||||
Cost of revenues | 38,970 | 41,978 | ||||||
Research and development | 778 | 778 | ||||||
Sales and marketing | 6,544 | 8,330 | ||||||
Total amortization of acquired intangibles | 46,292 | 51,086 | ||||||
Settlement costs: | ||||||||
Cost of revenues | — | 9,161 | ||||||
Total settlement costs | — | 9,161 | ||||||
Acquisition and other charges: | ||||||||
Cost of revenues | 41 | — | ||||||
Research and development | 382 | 558 | ||||||
Sales and marketing | 150 | 268 | ||||||
General and administrative | 15,901 | 15,423 | ||||||
Total acquisition and other charges | 16,474 | 16,249 | ||||||
19
Restructuring and impairment charges: | ||||||||
Operating expense | 1,457 | 10,329 | ||||||
Other loss | 1,755 | 1,494 | ||||||
Total restructuring and impairment charges | 3,212 | 11,823 | ||||||
Gain on investments in privately-held companies: | ||||||||
Interest and other, net | (9,569 | ) | — | |||||
Non-operating foreign exchange losses: | ||||||||
Interest and other, net | 7,070 | — | ||||||
Income tax effects and adjustments | 12,802 | (27,442 | ) | |||||
Non-GAAP net income | $ | 393,494 | $ | 266,477 | ||||
Reconciliation of GAAP Income from Operations to
Non-GAAP
Income from OperationsYear ended December 31, | ||||||||
2019 | 2018 | |||||||
GAAP income from operations | $ | 207,920 | $ | 112,074 | ||||
GAAP income from operations % | 15.6 | % | 10.3 | % | ||||
Share-based compensation expense | 112,118 | 71,342 | ||||||
Settlement costs | — | 9,161 | ||||||
Amortization of acquired intangibles | 46,292 | 51,086 | ||||||
Acquisition and other charges | 16,474 | 16,249 | ||||||
Restructuring and impairment charges | 1,457 | 10,329 | ||||||
Non-GAAP income from operations | $ | 384,261 | $ | 270,241 | ||||
Non-GAAP income from operations % | 28.9 | % | 24.8 | % | ||||
Reconciliation of GAAP Diluted Net Income Per Share to
Non-GAAP
Diluted Net Income Per ShareYear ended December 31, | ||||||||
2019 | 2018 | |||||||
GAAP diluted net income per share | $ | 3.62 | $ | 2.46 | ||||
Adjustments: | ||||||||
Share-based compensation expense | 1.98 | 1.30 | ||||||
Amortization of acquired intangibles | 0.82 | 0.93 | ||||||
Settlement costs | — | 0.17 | ||||||
Acquisition and other charges | 0.29 | 0.30 | ||||||
Restructuring and impairment charges | 0.06 | 0.22 | ||||||
Gain on investments in privately-held companies | (0.17 | ) | — | |||||
Non-operating foreign exchange losses | 0.11 | — | ||||||
Income tax effects and adjustments | 0.23 | (0.50 | ) | |||||
Effect of dilutive securities under GAAP | 0.22 | 0.16 | ||||||
Total options vested and exercisable | (0.03 | ) | (0.03 | ) | ||||
Non-GAAP diluted net income per share | $ | 7.13 | $ | 5.01 | ||||
20
REPORT OF THE COMPENSATION COMMITTEE
Our compensation committee has reviewed and discussed the Compensation Discussion and Analysis for the EZchip acquisitionyear ended December 31, 2019 with management. In reliance on the reviews and discussion referred to above, our compensation committee recommended to our Board that the Compensation Discussion and Analysis be included in the Annual Report on Form
10-K,
as amended, for the year ended December 31, 2019.The foregoing report is provided by the undersigned members of our compensation committee.
Umesh Padval, Chair |
Amal M. Johnson |
Jack R. Lazar |
The Report of the Compensation Committee is not “soliciting material,” is not deemed “filed” with the SEC and is not to be incorporated by reference in any filing of the Company under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.
EXECUTIVE COMPENSATION TABLES
2019 Summary Compensation Table
The following table summarizes the compensation awarded to, earned by, or paid to each named executive officer for the years ended December 31, 2019, 2018 and 2017.
Name and Principal Position | Year | Salary ($) | Bonus ($) (1) | Stock Awards ($) (2) | Non-equity Incentive Plan Compensation ($) (3) | All Other Compensation ($) | Total ($) (1) | |||||||||||||||||||||
Eyal Waldman (9) | 2019 | 640,000 | — | 6,288,635 | 421,241 | 431,037 | (4) | 7,780913 | ||||||||||||||||||||
President & Chief | 2018 | 608,668 | — | 6,315,168 | 738,710 | 235,312 | 7,897,858 | |||||||||||||||||||||
Executive Officer | 2017 | 604,072 | — | 4,585,500 | — | 234,988 | 5,424,560 | |||||||||||||||||||||
Doug Ahrens | 2019 | 428,371 | 150,000 | 3,155,460 | — | 11,651 | (5) | 3,745,482 | ||||||||||||||||||||
Chief Financial Officer | ||||||||||||||||||||||||||||
Amir Prescher (9) | 2019 | 292,634 | 220,000 | 1,553,352 | — | 67,545 | (6) | 2,133,531 | ||||||||||||||||||||
Senior Vice President of Business Development | ||||||||||||||||||||||||||||
Michael Kagan (9) | 2019 | 285,094 | 200,000 | 1,433,818 | — | 63,145 | (7) | 1,982,057 | ||||||||||||||||||||
Chief Technology Officer | 2018 | 267,286 | 140,000 | 1,202,250 | — | 57,072 | 1,666,608 | |||||||||||||||||||||
2017 | 264,680 | 50,000 | 866,150 | — | 58,670 | 1,239,500 | ||||||||||||||||||||||
Marc Sultzbaugh | 2019 | 400,000 | — | 537,608 | — | 11,651 | (8) | 949,259 | ||||||||||||||||||||
Senior Vice President of | 2018 | 385,000 | 150,000 | 1,242,325 | — | 11,440 | 1,788,765 | |||||||||||||||||||||
Worldwide Sales | 2017 | 365,000 | 30,000 | 866,150 | — | 43,055 | 1,304,205 | |||||||||||||||||||||
| (1) | These amounts reflect bonuses earned in each fiscal year and paid in the subsequent fiscal year as approved by the compensation committee and the Board. |
| (2) | Amounts shown in this column for 2019 represent the aggregate grant date fair value of restricted share units, as calculated under FASB ASC Topic 718. The valuation methodology used in determining the value of the restricted share units is described in Note 10 to our consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2019. |
| (3) | Represents the amount earned by our CEO under his 2019 cash incentive award based on the Company’s achievement of pre-established revenue andnon-GAAP operating income (as a percentage of revenue) targets, the terms of which were approved by our compensation committee and Board and, subsequently, our shareholders at our extraordinary general meeting in June 2019. |
| (4) | Includes $162,240 in tax equalization payments (including $54,000 for 2018, which amounts were approved in 2019, and $108,240 for 2019), $53,679 contributed to a severance fund, which is mandated by Israeli law, $48,312 in housing and housing-related expense reimbursements, $49,063 in the reimbursement of taxes relating to his housing and housing-related expense reimbursements, $56,755 contributed to an employee education fund on behalf of Mr. Waldman, $41,115 contributed to a retirement fund on behalf of Mr. Waldman, which is mandated by Israeli law, $10,671 for automobile related expenses pursuant to the Company’s automobile leasing program, $2,816 for 401(k) plan matching contribution, $1,069 for a recuperation fund, which is required under Israeli law, $4,740 for Company events and related tax reimbursements, and $577 in the value of the cash cards given to all Israeli employees for the holidays. |
21
| (5) | Includes 401(k) plan matching contribution of $11,200 and $451 in the value of the cash card given to all US employees for the holidays. |
| (6) | Includes $24,376 contributed to a severance fund, which is mandated by Israeli law, $21,948 contributed to an employee education fund on behalf of Mr. Prescher, $17,119 contributed to a retirement fund on behalf of Mr. Prescher, which is mandated by Israeli law, $1,518 for automobile related expenses pursuant to the Company’s automobile leasing program, $1,069 for a recuperation fund, which is mandated by Israeli law, $1,309 for Company events, and $206 in the value of the cash cards given to all Israeli employees for the holidays. |
| (7) | Includes $22,876 contributed to a severance fund, which is mandated by Israeli law, $20,597 contributed to an employee education fund on behalf of Mr. Kagan, $16,011 contributed to a retirement fund on behalf of Mr. Kagan, which is mandated by Israeli law, $1,069 for a recuperation fund, which is mandated by Israeli law, $2,286 for Company events, and $306 in the value of the cash cards given to all Israeli employees for the holidays. |
| (8) | Includes 401(k) plan matching contribution of $11,200 and $451 in the value of the cash card given to all US employees for the holidays. |
| (9) | Amounts reported for Messrs. Waldman, Prescher and Kagan in 2019, other than bonuses, are converted from New Israeli Shekels to U.S. dollars using the 2019 average exchange rate of 3.56 New Israeli Shekels to 1 U.S. dollar. Amounts reported for Messrs. Waldman and Kagan in 2018, other than bonuses, are converted from New Israeli Shekels to U.S. dollars using the 2018 average exchange rate of 3.64 New Israeli Shekels to 1 U.S. dollar. Amounts reported for Messrs. Waldman and Kagan in 2017, other than bonuses, are converted from New Israeli Shekels to U.S. dollars using the 2017 average exchange rate of 3.57 New Israeli Shekels to 1 U.S. dollar. |
2019 Grants of Plan-Based Awards
The table below sets forth information regarding grants of plan-based awards made to our named executive officers during the year ended December 31, 2019.
Name | Grant Date | Board/ Committee Action Date | Estimated Future Payouts Under Non-Equity Incentive Awards (1) | All Other Stock Awards: Number of Shares of Stock or Units(#) | Grant Date Fair Value of Stock and Option Awards ($) (2) | |||||||||||||||||||||||
Threshold ($) | Target ($) | Maximum ($) | ||||||||||||||||||||||||||
Eyal Waldman | 650,000 | 1,300,000 | ||||||||||||||||||||||||||
6/20/2019 | 3/26/2019 | 55,696 | (3) | 6,288,635 | ||||||||||||||||||||||||
Doug Ahrens | 2/1/2019 | 12/18/2018 | 33,000 | (4) | 3,155,460 | |||||||||||||||||||||||
Amir Prescher | 4/1/2019 | 3/26/2019 | 13,164 | (5) | 1,553,352 | |||||||||||||||||||||||
Michael Kagan | 4/1/2019 | 3/6/2019 | 12,151 | (5) | 1,433,818 | |||||||||||||||||||||||
Marc Sultzbaugh | 4/1/2019 | 3/26/2019 | 4,556 | (5) | 537,608 | |||||||||||||||||||||||
| (1) | Represents the threshold, target and maximum amounts payable to Mr. Waldman pursuant to his 2019 cash incentive award, which is earned 50% based on 2019 revenue goals and 50% based on 2019 non-GAAP operating income (as a percentage of revenue) goals. The target and maximum amounts of his award were 100% and 200%, respectively, of his annual base salary. The cash incentive award does not provide for any payout unless target goals are attained. |
| (2) | Represents the grant date fair value calculated in accordance with the provisions of FASB ASC Topic 718. |
| (3) | Represents restricted share units which vest with respect to 1/4th of the original number of ordinary shares subject thereto on August 1, 2020 and thereafter at a rate of 1/16th of the original number of shares on the first day of each quarterly vesting period of November, February, May and August commencing on November 1, 2020, with the last 1/16th of the original number of shares vesting on August 1, 2023, subject to continued employment with the Company. Mr. Waldman’s 2019 equity awards were approved by the Board and the compensation committee in March 2019, and thereafter by the Company’s shareholders on June 20, 2019. The grant date reflects the date of such shareholder approval. |
| (4) | Represents restricted share units which vest with respect to 1/4th of the original number of ordinary shares subject thereto on February 1, 2020 and thereafter at a rate of 1/16th of the original number of shares on the first day of each quarterly vesting period of May, August, November and February, commencing on May 1, 2020, with the last 1/16th of the original number of shares vesting on February 1, 2023, subject to continued employment with the Company. |
| (5) | Represents restricted share units which vest with respect to 1/4th of the original number of ordinary shares subject thereto on May 1, 2020 and thereafter at a rate of 1/16th of the original number of shares on the first day of each quarterly vesting period of August, November, February and May, commencing on August 1, 2020, with the last 1/16th of the original number of shares vesting on May 1, 2023, subject to continued employment with the Company. |
22
2019 Outstanding Equity Awards at Fiscal
Year-End
TableThe following table provides information on the stock options and restricted share units held by each of our named executive officers as of December 31, 2019.
Stock Awards | ||||||||||||||||||||
Name | Vesting Commencement Date | Number of Shares or Units of Stock that Have Not Vested (#) | Market Value of Shares or Units of Stock that Have Not Vested ($) (1) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that Have Not Vested (#) (2) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights that Have Not Vested ($) (1) | |||||||||||||||
Eyal Waldman | 5/1/2016(3) | 12,500 | 1,464,750 | |||||||||||||||||
5/1/2017(4) | 33,750 | 3,954,825 | ||||||||||||||||||
8/1/2018(5) | 24,749 | 2,900,088 | 63,000 | (6) | 7,382,340 | |||||||||||||||
5/1/2019(7) | 55,696 | 6,526,457 | ||||||||||||||||||
Doug Ahrens | 2/1/2019(8) | 33,000 | 3,866,940 | |||||||||||||||||
Amir Prescher | 5/1/2016(3) | 2,250 | 263,655 | |||||||||||||||||
5/1/2017(4) | 6,375 | 747,023 | ||||||||||||||||||
8/1/2018(5) | 10,656 | 1,248,670 | ||||||||||||||||||
2/1/2019(8) | 5,000 | 585,900 | ||||||||||||||||||
5/1/2019(7) | 13,164 | 1,542,558 | ||||||||||||||||||
Michael Kagan | 5/1/2016(3) | 2,000 | 234,360 | |||||||||||||||||
5/1/2017(4) | 6,375 | 747,023 | ||||||||||||||||||
8/1/2018(5) | 10,312 | 1,208,360 | ||||||||||||||||||
5/1/2019(7) | 12,151 | 1,423,854 | ||||||||||||||||||
Marc Sultzbaugh | 5/1/2016(3) | 2,500 | 292,950 | |||||||||||||||||
5/1/2017(4) | 6,375 | 747,023 | ||||||||||||||||||
8/1/2018(5) | 10,656 | 1,248,670 | ||||||||||||||||||
5/1/2019(7) | 4,556 | 533,872 | ||||||||||||||||||
| (1) | Amounts are calculated by multiplying the number of units shown by $117.18 per share, which was the closing price of our ordinary shares on December 31, 2019. |
| (2) | Represents performance share units granted in 2018. Because such performance share units were tracking at above target as of December 31, 2019, the maximum number of units is shown. |
| (3) | Restricted share units with a vesting commencement date of May 1, 2016 vest with respect to 1/4th of the original number of ordinary shares subject thereto on May 1, 2017 and thereafter at a rate of 1/16th of the original number of shares on the first day of each quarterly vesting period of May, August, November, and February, commencing on August 1, 2017, with the last 1/16th of the original number of shares vesting on May 1, 2020, subject to continued service on each applicable vesting date. |
| (4) | Restricted share units with a vesting commencement date of May 1, 2017 vest with respect to 1/4th of the original number of ordinary shares subject thereto on May 1, 2018 and thereafter at a rate of 1/16th of the original number of shares on the first day of each quarterly vesting period of May, August, November, and February, commencing on August 1, 2018, with the last 1/16th of the original number of shares vesting on May 1, 2021, subject to continued service on each applicable vesting date. |
| (5) | Restricted share units with a vesting commencement date of August 1, 2018 vest with respect to 1/4th of the original number of ordinary shares subject thereto on August 1, 2019 and thereafter at a rate of 1/16th of the original number of shares on the first day of each quarterly vesting period of November, February, May and August commencing on November 1, 2019, with the last 1/16th of the original number of shares vesting on August 1, 2022, subject to continued employment with the Company. |
| (6) | Performance share units vest with respect to 25% based on total shareholder return relative to that of the companies listed on the Philadelphia Semiconductor Index as of the date of grant and as to 75% based on the Company’s average net operating margin, in each case measured over a three-year performance period beginning on January 1, 2018 and ending on December 31, 2020 (or if earlier, upon the occurrence of a change in control of the Company), subject to continued service. Upon achievement of each performance metric at (i) the threshold level, 50% of the shares subject to such performance metric will vest, (ii) the target level, 100% of the shares subject to such performance metric will vest, or (iii) the maximum level, 175% of the shares subject to such performance metric will vest. No shares subject to a performance metric will vest if the applicable performance metric is achieved at below the threshold level. |
| (7) | Restricted share units with a vesting commencement date of May 1, 2019 vest with respect to 1/4th of the original number of ordinary shares subject thereto on May 1, 2020 and thereafter at a rate of 1/16th of the original number of shares on the first day of each quarterly vesting period of August, November, February and May, commencing on August 1, 2020, with the last 1/16th of the original number of shares vesting on May 1, 2023, subject to continued employment with the Company. |
| (8) | Restricted share units with a vesting commencement date of February 1, 2019 vest with respect to 1/4th of the original number of ordinary shares subject thereto on February 1, 2020 and thereafter at a rate of 1/16th of the original number of shares on the first day of each quarterly vesting period of May, August, November and February, commencing on May 1, 2020, with the last 1/16th of the original number of shares vesting on February 1, 2023, subject to continued employment with the Company. |
2019 Option Exercises and Share Vested Table
The following table summarizes the share option exercises by our named executive officers in 2019 and restricted share unit awards that vested during 2019.
Option Awards | Share Awards | |||||||||||||||
Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) (1) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) (2) | ||||||||||||
Eyal Waldman | — | — | 68,751 | 7,591,999 | ||||||||||||
Doug Ahrens | — | — | — | — | ||||||||||||
Amir Prescher | — | — | 15,563 | 1,723,590 | ||||||||||||
Michael Kagan | — | — | 14,907 | 1,650,829 | ||||||||||||
Marc Sultzbaugh | 47,056 | 3,768,861 | 16,344 | 1,809,203 | ||||||||||||
23
| (1) | Represents the difference between the option exercise price and the sale price of the underlying shares at exercise multiplied by the number of shares covered by the exercised option. |
| (2) | Represents the vesting date closing market price of our ordinary shares multiplied by the number of restricted share units that vested. |
Pension Benefits
None of our named executive officers participate in or have account balances in qualified or
non-qualified
defined benefit plans sponsored by us.Nonqualified Deferred Compensation
None of our named executives participate in or have account balances in
non-qualified
defined contribution plans or other deferred compensation plans maintained by us.Potential Payments Upon Termination Following a Change in Control
The following table sets forth quantitative estimates of the benefits to be received by each of our named executive officers under the executive severance benefits agreements described under “Compensation Discussion and Analysis—Change in Control Severance Arrangements,” if his employment were terminated without cause or constructively terminated (as these terms are defined in the executive severance benefits agreements) on December 31, 2019, assuming that such termination occurred during the
12-month
period following a change in control (as such term is defined in the executive severance benefits agreements) of our Company. Such benefits are in addition to any payments or other benefits that our employees, including our named executive officers, who reside in Israel may be entitled to receive under applicable Israeli law. For more information, see “Compensation Discussion and Analysis—Change in Control Severance Arrangements.”Name | Salary Severance ($) | Bonus Severance ($) | COBRA Coverage ($) | Israeli Severance and Benefits ($) (1) | Value of Accelerated Equity Awards ($) (2) | Total ($) | ||||||||||||||||||
Eyal Waldman | 1,300,000 | 1,300,000 | — | 1,058,980 | 22,228,460 | (3) | 25,887,440 | |||||||||||||||||
Doug Ahrens | 430,000 | 150,000 | 30,411 | — | 1,933,470 | 2,543,881 | ||||||||||||||||||
Amir Prescher | 300,000 | 93,333 | — | 226,609 | 4,387,805 | 5,007,747 | ||||||||||||||||||
Michael Kagan | 290,000 | 96,667 | — | 577,271 | 3,613,597 | 4,577,535 | ||||||||||||||||||
Marc Sultzbaugh | 400,000 | 93,333 | 29,762 | — | 2,822,515 | 3,345,610 | ||||||||||||||||||
| (1) | Includes severance pay and benefits in accordance with Israeli law. The executives are also entitled to such payments and benefits upon retirement, death or termination without cause (as defined in the Israeli Severance Pay Law) not in connection with a change in control. |
| (2) | The value of accelerated equity awards is calculated based on the closing price of our common stock on December 31, 2019, which was $117.18 per share. |
| (3) | Upon a change in control, the performance share units granted to Mr. Waldman in 2018 will vest based on the greater of target or actual achievement. The value of such performance share units reflected in the table is based on maximum achievement because such performance share units were tracking at approximately the maximum as of December 31, 2019. |
Additionally, under the Company’s Fourth Amended and Restated Global Share Incentive Plan, in the event of a change in control of the Company, each outstanding award will be assumed or substituted by the successor corporation. If the successor corporation in a change in control refuses to assume or substitute an outstanding award, the award will vest in full. In addition, under the terms of the performance share unit award granted to our CEO in 2018, in the event of a change in control, the number of shares earned will be the greater of target and actual achievement during the performance period, and such number of shares will vest at the end of the original performance period if the award is assumed by the successor or upon the consummation of the change in control if the award is not assumed by the successor. Assuming that a change in control occurred as of December 31, 2019 and that the outstanding awards were not assumed or substituted, the value of the accelerated equity awards for Messrs. Waldman, Ahrens, Prescher, Kagan and Sultzbaugh would be $22,228,460 , $1,933,470, $4,387,805, $3,613,597, and $2,822,515.
24
Pay Ratio Disclosure
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation”). The median of the annual total compensation of all employees of our Company (other than our CEO) was $191,413 and the annual total compensation of our CEO was $ 7,780,913. As permitted by SEC rules, the median employee was the same median employee the Company identified for 2017. The Company is using the same median employee as in 2017 because there have been no changes to the Company’s employee population or employee compensation arrangements that the Company reasonably believes would significantly affect the Pay Ratio. In identifying this median employee, the Company chose October 1, 2017 as the date for establishing the employee population used in identifying the median employee and used January 1, 2017 through September 30, 2017 as the measurement period. We identified the median employee using the sum of base salary or wages (based on our payroll records) earned, annual bonus actually paid, and grant date fair value of RSUs approved by the compensation committee during the measurement period for each employee (U.S. and2016permanent employees who were $0.3 millionon leave during 2017 were assumed to have worked for the entire measurement period. We captured all full-time, part-time, seasonal and $8.3 million, respectively,temporary employees located in the U.S., Israel, China and primarily consistedDenmark as of investment banking, consulting,October 1, 2017, consisting of approximately 2,566 individuals, with approximately 17% of these individuals located in the U.S., approximately 77% located in Israel, and other professional fees.approximately 6% located in China and Denmark. As permitted by SEC rules, under the 5% “de minimis” exemption, we excluded 100For employees, as described in further discussiondetail below. Earnings of our acquisitions, see Note 3employees outside the U.S. were converted to U.S. dollars using the currency exchange rate as of September 30, 2017. No
S-K,
we are providing the following information about the relationship of the annual total compensation of our employees and the annual total compensation of Mr. Waldman, our CEO. For 2019, our last completed fiscal year, the total compensation in 2019 of our CEO was approximately 40.6 times the median total compensation in 2019 of all of our other employees (the “Pay Ratio
non-U.S.)
employed as of October 1, 2017. Permanent employees who joined in 2017 and non-U.S.
cost-of-living
adjustments were made. The annual total compensation of the median employee and the annual total compensation of the CEO were calculated in accordance with the requirements of Item 402(c)(2)(x) of RegulationS-K.
The
non-U.S.
excluded employees and their employee populations were as follows: Japan (9 employees); Netherlands (6 employees); Singapore (6 employees); Switzerland (1 employee); Taiwan (11 employees); U.K. (17 employees); Argentina (1 employee); Australia (5 employees); Czech Republic (2 employees); Greece (2 employees); India (5 employees); Indonesia (1 employee); Malaysia (2 employees); Norway (1 employee); Russia (14 employees); South Korea (3 employees); Thailand (5 employees); Turkey (2 employees); and Canada (7 employees).Risk Assessment and Compensation Practices
Our management assessed and discussed with our compensation committee and board of directors the Company’s compensation policies and practices for our employees as they relate to our risk management and, based upon this assessment, we believe that any risks arising from such policies and practices are not reasonably likely to have a material adverse effect on the Company in the future.
Our employees’ base salaries are fixed in amount and thus we do not believe that they encourage excessive risk-taking. While performance-based cash bonuses and sales commissions focus on achievement of short-term and
mid-term
or annual goals, which may encourage the taking of short-term and mid-term
risks at the expense of long-term results, we believe that our internal controls help mitigate this risk and our performance-based cash bonuses and sales commissions are limited, representing a small portion of the total compensation opportunities available to most employees. We also believe that our performance-based cash bonuses and sales commissions appropriately balance risk and the desire to focus our employees on specific short-term and mid-term
goals important to our success and do not encourage unnecessary or excessive risk-taking.25
A significant proportion of the compensation provided to our employees andconsolidated financial statements.long-term performance of our ordinary shares. Certain specified executive officers and our
non-employee
directors is in the form of long-term equity-based incentives that are important to help further align our employees’ and directors’ interests with those of our shareholders. We do not believe that these equity-based incentives encourage unnecessary or excessive risk taking because their ultimate value is tied to our share price. In addition, we generally stagger grants of equity-based awards and, in the case of employees, subject them to long-term vesting schedules to help ensure that employees have significant value tied to the non-employee
directors are also subject to share ownership guidelines and holding requirements to further align our employees’ and directors’ interests with our shareholders’ interests.DIRECTOR COMPENSATION
We were incorporatedmaintain a compensation program for
non-employee
directors which was last approved by shareholders at our 2019 annual general meeting of shareholders held on July 25, 2019. The annual cash compensation amounts payable to eachnon-employee
member of our Board for their annual Board services under our program as of the beginning of 2019 and as amended in July 2019 are set forth in the table below:Annual Fees (as of July 25, 2019) | Annual Fees (January 1, 2017 to July 25, 2019) | |||||||
Board membership | $ | 50,000 | $ | 45,000 | ||||
Additional amounts, as applicable, payable to: | ||||||||
Chairperson of the Board | $ | 50,000 | $ | 30,000 | ||||
Chairperson of the audit committee | $ | 25,000 | $ | 25,000 | ||||
Chairperson of the compensation committee | $ | 18,000 | $ | 15,000 | ||||
Chairperson of the nominating and corporate governance committee | $ | 10,000 | $ | 10,000 | ||||
Member of the audit committee (other than chairperson) | $ | 10,000 | $ | 10,000 | ||||
Member of the compensation committee (other than chairperson) | $ | 10,000 | $ | 7,400 | ||||
Member of the nominating and corporate governance committee (other than chairperson) | $ | 5,000 | $ | 5,000 | ||||
Our
non-employee
directors are reimbursed for expenses incurred in connection with attending Board and committee meetings, and are entitled to insurance, exemption and indemnification as customary for officers in the Company.In addition to cash compensation, under the lawscurrent director compensation program as amended effective July 25, 2019, each of IsraelourMarch 1999.equal monthly increments over 12 months, such that they are fully vested on the first anniversary of the grant date provided the director continues to serve as a
non-employee
directors receives an annual automatic,non-discretionary
award of restricted share units based on a value of $250,000. For 2019, the number of restricted share units granted under our program was determined by dividing $250,000 by $98.75, which was the average closing price of the Company’s common stock from February 1, 2019 to February 15, 2019, consistent with the formula for determining restricted share units for our 2019 annual grants to employees, including our named executive officers. The awards vest in non-employee
director, and are further subject to full accelerated vesting in the event of a change in control of the Company. The consummation of the Merger will be deemed a change in control of the Company. Prior to the amendment in July 2019, our directors received an annual grant of 4,200 restricted share units with the same vesting schedule.In addition, each of our
non-employee
directors is subject to a policy requiring that he or she hold shares of the Company in the value of at least three times his or her annual retainer fees. Ournon-employee
directors have until the fifth anniversary of the later of the date that the policy was first adopted or their election to the Board. This policy is set forth in our Executive Officer and Director Share Ownership Policy and our Corporate Governance Guidelines. In January 2017, the Board also adopted a holding policy whereby, in the case that anon-employee
director (or specified employee) does not hold the minimum share ownership by his or her fifth anniversary of becoming subject to the ownership policy, he or she will be required to retain the lesser of (i) twenty-five percent (25%) of the gross number of shares acquired upon an exercise, vesting or settlement or (ii) fifty percent (50%) of the number of shares remaining after satisfying the exercise price, if any, and tax withholding requirements.At our extraordinary general meeting in June 2019, following the approval of our Board and compensation committee, our shareholders also approved the payment of a
one-time
cash bonus in the amount of $25,000 to Greg Waters in recognition of his services with respect to the Company’s sale process and the Merger, which bonus was paid following the meeting.26
The table below sets forth information regarding compensation provided by us to our
non-employee
directors during the year ended December 31, 2019.Director Compensation in Fiscal Year 2019
Name | Fees Earned or Paid in Cash ($) | Share Awards ($) (1) | All Other Compensation ($) | Total ($) | ||||||||||||
Glenda Dorchak | 51,024 | 286,344 | — | 337,368 | ||||||||||||
Irwin Federman | 79,812 | 286,344 | — | 366,156 | ||||||||||||
Amal Johnson | 53,924 | 286,344 | — | 340,267 | ||||||||||||
Jack R. Lazar | 63,924 | 286,344 | — | 350,267 | ||||||||||||
Jon A. Olson | 64,682 | 286,344 | — | 351,025 | ||||||||||||
Umesh Padval | 61,614 | 286,344 | — | 347,958 | ||||||||||||
David Perlmutter | 51,736 | 286,344 | — | 338,080 | ||||||||||||
Steve Sanghi | 56,024 | 286,344 | — | 342,368 | ||||||||||||
Gregory L. Waters | 76,024 | 286,344 | 25,000 | (3) | 387,368 | |||||||||||
Thomas Weatherford (2) | 29,199 | — | — | 29,199 | ||||||||||||
| (1) | Amounts shown in this column represent the grant date fair value of restricted share units granted during 2019, in accordance with FASB ASC Topic 718. The valuation methodology used in determining the value of the RSUs is described in Note 1 to our consolidated financial statements included in this Annual Report on Form 10-K. |
| (2) | Pursuant to the agreement entered into between the Company, Starboard Value LP and certain of its affiliates, Mr. Weatherford resigned from the Board effective March 2, 2019. |
| (3) | Represents the one-time cash bonus paid to Mr. Waters in recognition of his services with respect to the Company’s sale process and the Merger. |
The aggregate number of ordinary shares began trading on The NASDAQ Global Marketsubject to outstanding options and restricted share units awards for each of our directors as of February 8, 2007 underDecember 31, 2019 is as follows:
Name | Shares Subject to Outstanding Options as of 12/31/19 (#) | Shares Subject to Unvested Restricted Share Units as of 12/31/19 (#) | ||||||
Glenda Dorchak | — | 1,477 | ||||||
Irwin Federman | — | 1,477 | ||||||
Amal Johnson | — | 1,477 | ||||||
Jack R. Lazar. | — | 1,477 | ||||||
Jon A. Olson | — | 1,477 | ||||||
Umesh Padval | — | 1,477 | ||||||
David Perlmutter | — | 1,477 | ||||||
Steve Sanghi | — | 1,477 | ||||||
Thomas Weatherford | — | 1,477 | ||||||
Gregory L. Waters | — | 1,477 | ||||||
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our Board has a standing compensation committee, the symbol "MLNX". Priormembers of which are Umesh Padval, chair, Amal Johnson and Jack Lazar. None of the members of our compensation committee has at any time been one of our executive officers or employees. None of our executive officers currently serves, or in the past fiscal year has served, as a member of the Board or compensation committee of any entity that has one or more executive officers serving on the Board or compensation committee.
27
ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
Equity Compensation Plan Information
The following table provides certain information with respect to February 8,all of our equity compensation plans in effect as of December 31, 2019.
Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights(a) | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights ($) (b) (1) | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (c) | |||||||||
Equity compensation plans approved by security holders (2) | 3,589,353 | (3) | 63.46 | 4,879,613 | (4) | |||||||
Equity compensation plans not approved by security holders | — | — | — | |||||||||
Total | 3,589,353 | 4,879,613 | ||||||||||
| (1) | Reflects weighted average price of options only. |
| (2) | Consists of the Fourth Amended and Restated Global Share Incentive Plan (2006), the Global Share Incentive Assumption Plan (2010), the Kotura, Inc. Second Amended and Restated 2003 Stock Plan, the IPtronics, Inc. 2013 Restricted Stock Unit Plan, the EZchip Semiconductor Ltd. 2003 Amended and Restated Equity Incentive Plan, the EZchip Semiconductor Ltd. 2007 U.S. Equity Incentive Plan, the Amended and Restated EZchip Semiconductor Ltd. 2009 Equity Incentive Plan, and the Amended and Restated Employee Share Purchase Plan. |
| (3) | Consists of 274,005 options and 3,315,348 restricted share units. |
| (4) | Includes 2,625,623 shares available for issuance under the Amended and Restated Employee Share Purchase Plan as of December 31, 2019, of which 2,472,654 shares were issued with respect to the purchase period in effect as of December 31, 2019, which ended on February 29, 2020. |
Security Ownership of Certain Beneficial Owners and Management
The following table provides information relating to the beneficial ownership of our ordinary shares were not traded on any public exchange.as of March 31, 2020, by:
each of the named executive officesofficers named in the United States are located at 350 Oakmead Parkway, Suite 100, Sunnyvale, California 94085, and our principal executive offices in Israel are located at Beit Mellanox, Yokneam, Israel 20692. The majoritysummary compensation table on page 21;
each of our assetsdirectors; and
all of our current executive officers and current directors as a group.
There were no shareholders known by us to own beneficially more than 5% of our ordinary shares (based on information supplied in Schedules 13D and 13G filed with the SEC). Beneficial ownership is determined according to the rules of the SEC and generally means that a person has beneficial ownership of a security if he, she or it possesses sole or shared voting or investment power of that security, and includes options that are located in Israel. Our telephone number in Sunnyvale, California is (408) 970-3400,currently exercisable or exercisable within 60 days of March 31, 2020. Except as indicated by footnote, and our telephone number in Yokneam, Israel is +972-4-909-7200. Jacob Shulman, our Chief Financial Officer, is our agent for service of processsubject to community property laws where applicable, we believe the persons named in the United States,table have sole voting and is located at our principal executive offices ininvestment power with respect to all ordinary shares shown as beneficially owned by them.
28
Unless otherwise indicated below, the United States. Our website address is www.mellanox.com. Information contained on our website is not a part of this report and the inclusion of our website address in this report is an inactive textual reference only.
Beneficial Ownership | ||||||||||||||||||||
Name of Beneficial Owner | Ordinary Shares | Options Exercisable within 60 Days | Restricted share Units Vesting or Settled within 60 Days | Shares Beneficially Owned | Percentage of Shares Outstanding (1) | |||||||||||||||
Named Executive Officers and Directors: | ||||||||||||||||||||
Eyal Waldman (2) | 1,900,974 | — | 14,126 | 1,915,100 | 3.4 | % | ||||||||||||||
Doug Ahrens | 5,457 | — | 2,063 | 7,520 | * | |||||||||||||||
Michael Kagan | 168,912 | — | 6,038 | 174,950 | * | |||||||||||||||
Marc Sultzbaugh | 89,908 | — | 4,419 | 94,327 | * | |||||||||||||||
Amir Prescher | 62,470 | — | 6,759 | 69,229 | * | |||||||||||||||
Irwin Federman | 45,121 | — | 422 | 45,543 | * | |||||||||||||||
Glenda Dorchak | 15,671 | — | 422 | 16,093 | * | |||||||||||||||
Amal M. Johnson | 44,088 | — | 422 | 44,510 | * | |||||||||||||||
Jack Lazar | 6,238 | — | 422 | 6,660 | * | |||||||||||||||
Jon A. Olson | 6,738 | — | 422 | 7,160 | * | |||||||||||||||
Umesh Padval | 7,638 | — | 422 | 8,060 | * | |||||||||||||||
David Perlmutter | 19,088 | 45,000 | 422 | 64,510 | * | |||||||||||||||
Steve Sanghi | 27,638 | — | 422 | 28,060 | * | |||||||||||||||
Gregory Waters | 6,238 | — | 422 | 6,660 | * | |||||||||||||||
All current executive officers and current directors as a group (14 persons) | 2,406,179 | 45,000 | 37,203 | 2,488,382 | 4.4 | % | ||||||||||||||
| * | Represents beneficial ownership of less than one percent (1%) of the outstanding ordinary shares. |
| (1) | The applicable percentage ownership for 5% shareholders, members of our Board, named executive officers and all current executive officers and current directors as a group is based on 56,235,157 ordinary shares outstanding as of March 31, 2020, together with applicable options and restricted share units for such shareholder. The applicable percentage ownership for the other beneficial owners listed in the table is based on the number of outstanding shares as of the dates indicated in the relevant Schedules 13D and 13G filings described in footnote 2 below. Beneficial ownership is determined in accordance with the rules of the SEC, based on factors including voting and investment power with respect to shares. Ordinary shares subject to the options currently exercisable, or exercisable within 60 days of March 31, 2020, and ordinary shares underlying restricted share units that vest within 60 days of March 31, 2020 are deemed outstanding for computing the percentage ownership of the person holding such options but are not deemed outstanding for computing the percentage ownership of any other person. |
| (2) | Includes 1,426,041 ordinary shares held by Waldo Holdings 2, a general partnership formed pursuant to the laws of Israel, of which Mr. Waldman is a general partner. Mr. Waldman has sole voting and dispositive power over all of these shares. |
ITEM 13—
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Certain Relationships and Related Transactions
Since the beginning of our last fiscal year, there has not been, nor is there currently proposed, any transaction or by emailing us at: ir@mellanox.com. All these documents and filingsseries of similar transactions to which we were or are available free of charge. Please note that information contained on our website is not incorporated by reference in, or considered to be a part of, this report. Further, a copy of this report on Form 10-K is located atparty in which the SEC's Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxyamount involved exceeds $120,000 and information statements and other information regarding our filings at www.sec.gov.
In addition, our production of existing and development of new products can involve multiple iterations and unforeseen manufacturing difficulties, resulting in reduced manufacturing yields, delays and increased expenses. The evolving nature of our products requires usaudit committee, pursuant to modify our manufacturing specifications,its written charter which may result in delays in manufacturing output and product deliveries. We rely on a limited number of third parties to manufacture our products. Our ability to offer new products dependsis available on our manufacturers' ability to implement our revised product specifications, whichwebsite as described below, is costly, time-consumingresponsible for reviewing and, complex.
related party transactions
S-K
under the Exchange Act, for potential conflict of interest situations on an ongoing basis. The Company follows internal written procedures to review potential related party transactions, bring these potential related party transactions to the attention of the audit committee and review, approve or ratify, as necessary and appropriate, related party transactions. Under the Companies Law, our audit committee must also approve specified actions and transactions with office holders and controlling shareholders or in which an office holder or controlling shareholder has 29
Contents
non-negligible
transactions with an interested party
| Israel | United States | Other | Total | ||||
Leased facilities (in thousands of square feet) | 1,002 | 120 | 63 | 1,185 | |||
| 2017 | High | Low | |||||
| First quarter | $ | 52.80 | $ | 40.70 | |||
| Second quarter | $ | 52.65 | $ | 41.55 | |||
| Third quarter | $ | 47.95 | $ | 42.05 | |||
| Fourth quarter | $ | 65.90 | $ | 42.25 | |||
| 2016 | High | Low | |||||
| First quarter | $ | 55.80 | $ | 37.54 | |||
| Second quarter | $ | 55.45 | $ | 40.54 | |||
| Third quarter | $ | 52.15 | $ | 39.53 | |||
| Fourth quarter | $ | 46.20 | $ | 38.75 | |||
| 12/31/2012 * | 12/31/2013 | 12/31/2014 | 12/31/2015 | 12/31/2016 | 12/31/2017 | ||||||||||||
| Mellanox Technologies | 100.00 | 67.31 | 71.96 | 70.97 | 68.88 | 108.96 | |||||||||||
| NASDAQ Composite Index | 100.00 | 138.32 | 156.85 | 165.84 | 178.28 | 228.63 | |||||||||||
| Philadelphia Semiconductor Index | 100.00 | 139.31 | 178.84 | 172.75 | 236.02 | 326.26 | |||||||||||
| Year ended December 31, | |||||||||||||||||||
| 2017 | 2016 (1) | 2015 | 2014 | 2013 | |||||||||||||||
| (In thousands, except per share data) | |||||||||||||||||||
| Consolidated Statement of Operations Data: | |||||||||||||||||||
| Total revenues | $ | 863,893 | $ | 857,498 | $ | 658,140 | $ | 463,649 | $ | 390,436 | |||||||||
| Cost of revenues | 300,450 | 301,986 | 189,209 | 148,672 | 134,282 | ||||||||||||||
| Gross profit | 563,443 | 555,512 | 468,931 | 314,977 | 256,154 | ||||||||||||||
| Operating expenses: | |||||||||||||||||||
| Research and development | 365,878 | 322,620 | 252,175 | 208,877 | 169,382 | ||||||||||||||
| Sales and marketing | 150,457 | 133,780 | 97,438 | 76,860 | 70,544 | ||||||||||||||
| General and administrative | 52,170 | 68,522 | 44,212 | 36,431 | 37,046 | ||||||||||||||
| Impairment of long-lived assets | 12,019 | — | — | — | — | ||||||||||||||
| Total operating expenses | 580,524 | 524,922 | 393,825 | 322,168 | 276,972 | ||||||||||||||
| Income (loss) from operations | (17,081 | ) | 30,590 | 75,106 | (7,191 | ) | (20,818 | ) | |||||||||||
| Interest expense | (7,937 | ) | (7,352 | ) | — | — | — | ||||||||||||
| Other income (loss), net | 3,115 | 1,090 | (524 | ) | 1,449 | 1,228 | |||||||||||||
| Interest and other, net | (4,822 | ) | (6,262 | ) | (524 | ) | 1,449 | 1,228 | |||||||||||
| Income (loss) before taxes on income | (21,903 | ) | 24,328 | 74,582 | (5,742 | ) | (19,590 | ) | |||||||||||
| Provision for (benefit from) taxes on income | (2,478 | ) | 5,810 | (18,312 | ) | 18,267 | 3,752 | ||||||||||||
| Net income (loss) | $ | (19,425 | ) | $ | 18,518 | $ | 92,894 | $ | (24,009 | ) | $ | (23,342 | ) | ||||||
| Net income (loss) per share — basic | $ | (0.39 | ) | $ | 0.38 | $ | 2.00 | $ | (0.54 | ) | $ | (0.54 | ) | ||||||
| Net income (loss) per share — diluted | $ | (0.39 | ) | $ | 0.37 | $ | 1.94 | $ | (0.54 | ) | $ | (0.54 | ) | ||||||
| Shares used in computing net income (loss) per share: | |||||||||||||||||||
| Basic | 50,310 | 48,145 | 46,365 | 44,831 | 43,421 | ||||||||||||||
| Diluted | 50,310 | 49,526 | 47,778 | 44,831 | 43,421 | ||||||||||||||
| December 31, | |||||||||||||||||||
| 2017 | 2016 (1) | 2015 | 2014 (2) | 2013 (2) | |||||||||||||||
| (In thousands) | |||||||||||||||||||
| Consolidated Balance Sheet Data: | |||||||||||||||||||
| Cash and cash equivalents | $ | 62,473 | $ | 56,780 | $ | 263,199 | $ | 51,326 | $ | 63,164 | |||||||||
| Short-term investments | 211,281 | 271,661 | 247,314 | 334,038 | 263,528 | ||||||||||||||
| Working capital | 310,286 | 340,511 | 540,108 | 396,591 | 344,825 | ||||||||||||||
| Long-term assets | 895,015 | 920,427 | 376,144 | 348,982 | 363,939 | ||||||||||||||
| Total assets | 1,401,934 | 1,473,505 | 1,053,382 | 863,218 | 806,826 | ||||||||||||||
| Current liabilities | 196,633 | 212,567 | 137,130 | 117,645 | 98,062 | ||||||||||||||
| Long-term liabilities | 147,853 | 285,208 | 49,571 | 43,821 | 41,953 | ||||||||||||||
| Total liabilities | 344,486 | 497,775 | 186,701 | 161,466 | 140,015 | ||||||||||||||
| Total shareholders' equity | $ | 1,057,448 | $ | 975,730 | $ | 866,681 | $ | 701,752 | $ | 666,811 | |||||||||
| Year ended December 31, | |||||||
| 2014 | 2013 | ||||||
| (in thousands) | |||||||
| Working capital decrease | $ | (2,271 | ) | $ | (7,336 | ) | |
| Long-term assets increase | 2,271 | 7,336 | |||||
| Year ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Total revenues | 100 | % | 100 | % | 100 | % | |||||
| Cost of revenues | (35 | ) | (35 | ) | (29 | ) | |||||
| Gross profit | 65 | 65 | 71 | ||||||||
| Operating expenses: | |||||||||||
| Research and development | 42 | 38 | 38 | ||||||||
| Sales and marketing | 17 | 16 | 15 | ||||||||
| General and administrative | 6 | 7 | 7 | ||||||||
| Impairment of long-lived assets | 2 | — | — | ||||||||
| Total operating expenses | 67 | 61 | 60 | ||||||||
| Income (loss) from operations | (2 | ) | 4 | 11 | |||||||
| Interest expense | (1 | ) | (1 | ) | — | ||||||
| Other income (loss), net | — | — | — | ||||||||
| Interest and other, net | (1 | ) | (1 | ) | — | ||||||
| Income (loss) before taxes on income | (3 | ) | 3 | 11 | |||||||
| Provision for (benefit from) taxes on income | (1 | ) | 1 | (3 | ) | ||||||
| Net income (loss) | (2 | ) | % | 2 | % | 14 | % | ||||
| Year Ended December 31, | |||||||||||||
| 2017 | % of Revenues | 2016 | % of Revenues | ||||||||||
| (In thousands) | (In thousands) | ||||||||||||
| ICs | $ | 161,216 | 18.7 | % | $ | 170,641 | 19.9 | % | |||||
| Boards | 325,845 | 37.7 | % | 337,304 | 39.3 | % | |||||||
| Switch systems | 222,836 | 25.8 | % | 204,083 | 23.8 | % | |||||||
| Cables, accessories and other | 153,996 | 17.8 | % | 145,470 | 17.0 | % | |||||||
| Total Revenue | $ | 863,893 | 100.0 | % | $ | 857,498 | 100.0 | % | |||||
| Year Ended December 31, | |||||||||||||
| 2017 | % of Revenues | 2016 | % of Revenues | ||||||||||
| (In thousands) | (In thousands) | ||||||||||||
| InfiniBand: | |||||||||||||
| EDR | $ | 194,261 | 22.5 | % | $ | 125,249 | 14.6 | % | |||||
| FDR | 181,465 | 21.0 | % | 302,093 | 35.2 | % | |||||||
| QDR/DDR/SDR | 31,599 | 3.6 | % | 49,987 | 5.9 | % | |||||||
| Total | 407,325 | 47.1 | % | 477,329 | 55.7 | % | |||||||
| Ethernet | 401,005 | 46.4 | % | 317,241 | 37.0 | % | |||||||
| Other | 55,563 | 6.5 | % | 62,928 | 7.3 | % | |||||||
| Total revenue | $ | 863,893 | 100.0 | % | $ | 857,498 | 100.0 | % | |||||
| Year Ended December 31, | |||||||||||||
| 2016 | % of Revenues | 2015 | % of Revenues | ||||||||||
| (In thousands) | (In thousands) | ||||||||||||
| ICs | $ | 170,641 | 19.9 | % | $ | 92,214 | 14.0 | % | |||||
| Boards | 337,304 | 39.3 | % | 265,249 | 40.3 | % | |||||||
| Switch systems | 204,083 | 23.8 | % | 179,977 | 27.3 | % | |||||||
| Cables, accessories and other | 145,470 | 17.0 | % | 120,700 | 18.4 | % | |||||||
| Total Revenue | $ | 857,498 | 100.0 | % | $ | 658,140 | 100.0 | % | |||||
| Year Ended December 31, | |||||||||||||
| 2016 | % of Revenues | 2015 | % of Revenues | ||||||||||
| (In thousands) | (In thousands) | ||||||||||||
| InfiniBand: | |||||||||||||
| EDR | $ | 125,249 | 14.6 | % | $ | 39,009 | 5.9 | % | |||||
| FDR | 302,093 | 35.2 | % | 347,760 | 52.8 | % | |||||||
| QDR/DDR/SDR | 49,987 | 5.9 | % | 63,745 | 9.8 | % | |||||||
| Total | 477,329 | 55.7 | % | 450,514 | 68.5 | % | |||||||
| Ethernet | 317,241 | 37.0 | % | 155,221 | 23.6 | % | |||||||
| Other | 62,928 | 7.3 | % | 52,405 | 7.9 | % | |||||||
| Total revenue | $ | 857,498 | 100.0 | % | $ | 658,140 | 100.0 | % | |||||
| Year ended December 31, | ||||||||||||||||||||
| 2017 | % of Revenues | 2016 | % of Revenues | 2015 | % of Revenues | |||||||||||||||
| (In thousands) | (In thousands) | (In thousands) | ||||||||||||||||||
| Salaries and benefits | $ | 200,125 | 23.2 | % | $ | 174,462 | 20.3 | % | $ | 130,255 | 19.8 | % | ||||||||
| Share-based compensation | 40,278 | 4.7 | % | 40,475 | 4.7 | % | 28,821 | 4.4 | % | |||||||||||
| Development and tape-out costs | 39,001 | 4.5 | % | 36,091 | 4.2 | % | 36,305 | 5.5 | % | |||||||||||
| Other | 86,474 | 10.0 | % | 71,592 | 8.4 | % | 56,794 | 8.6 | % | |||||||||||
| Total Research and development | $ | 365,878 | 42.4 | % | $ | 322,620 | 37.6 | % | $ | 252,175 | 38.3 | % | ||||||||
| Year ended December 31, | ||||||||||||||||||||
| 2017 | % of Revenues | 2016 | % of Revenues | 2015 | % of Revenues | |||||||||||||||
| (In thousands) | (In thousands) | (In thousands) | ||||||||||||||||||
| Salaries and benefits | $ | 90,419 | 10.5 | % | $ | 76,774 | 9.0 | % | $ | 58,204 | 8.8 | % | ||||||||
| Share-based compensation | 15,693 | 1.8 | % | 15,183 | 1.8 | % | 10,309 | 1.6 | % | |||||||||||
| Trade shows and promotions | 19,593 | 2.3 | % | 19,893 | 2.3 | % | 15,996 | 2.4 | % | |||||||||||
| Other | 24,752 | 2.8 | % | 21,930 | 2.5 | % | 12,929 | 2.0 | % | |||||||||||
| Total Sales and marketing | $ | 150,457 | 17.4 | % | $ | 133,780 | 15.6 | % | $ | 97,438 | 14.8 | % | ||||||||
| Year Ended December 31, | ||||||||||||||||||||
| 2017 | % of Revenues | 2016 | % of Revenues | 2015 | % of Revenues | |||||||||||||||
| (In thousands) | (In thousands) | (In thousands) | ||||||||||||||||||
| Salaries and benefits | $ | 21,476 | 2.5 | % | $ | 20,976 | 2.4 | % | $ | 16,050 | 2.4 | % | ||||||||
| Share-based compensation | 10,893 | 1.3 | % | 13,085 | 1.5 | % | 9,268 | 1.4 | % | |||||||||||
| Professional services | 13,179 | 1.5 | % | 26,602 | 3.1 | % | 12,348 | 1.9 | % | |||||||||||
| Other | 6,622 | 0.7 | % | 7,859 | 1.0 | % | 6,546 | 1.0 | % | |||||||||||
| Total General and administrative | $ | 52,170 | 6.0 | % | $ | 68,522 | 8.0 | % | $ | 44,212 | 6.7 | % | ||||||||
| Year ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| (in thousands) | |||||||||||
| Cost of goods sold | $ | 2,000 | $ | 2,375 | $ | 2,366 | |||||
| Research and development | 40,278 | 40,475 | 28,821 | ||||||||
| Sales and marketing | 15,693 | 15,183 | 10,309 | ||||||||
| General and administrative | 10,893 | 13,085 | 9,268 | ||||||||
| $ | 68,864 | $ | 71,118 | $ | 50,764 | ||||||
| Year ended December 31, | |||||||
| 2017 | 2016 | ||||||
| (in thousands) | |||||||
| Cash and cash equivalents | $ | 62,473 | $ | 56,780 | |||
| Short-term investments | 211,281 | 271,661 | |||||
| Total | $ | 273,754 | $ | 328,441 | |||
| Working capital | $ | 310,286 | $ | 340,511 | |||
| Contractual Obligations | |||||||||||||||
| Total | Non-cancelable operating lease commitments | Purchase commitments | Term debt including interest | ||||||||||||
| (in thousands) | |||||||||||||||
| 2018 | $ | 178,682 | $ | 23,028 | $ | 153,358 | $ | 2,296 | |||||||
| 2019 | 95,220 | 18,453 | 2,447 | 74,320 | |||||||||||
| 2020 | 15,284 | 14,740 | 544 | — | |||||||||||
| 2021 | 13,492 | 12,950 | 542 | — | |||||||||||
| 2022 | 10,184 | 9,648 | 536 | — | |||||||||||
| Thereafter | 60,091 | 60,091 | — | — | |||||||||||
| Total | $ | 372,953 | $ | 138,910 | $ | 157,427 | $ | 76,616 | |||||||
| Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 (1) | ||||||||||||||||||||||||
| 2017 | 2017 | 2017 | 2017 | 2016 | 2016 | 2016 | 2016 | ||||||||||||||||||||||||
| (in thousands, except per share data) | |||||||||||||||||||||||||||||||
| Total revenues | $ | 237,581 | $ | 225,699 | $ | 211,962 | $ | 188,651 | $ | 221,676 | $ | 224,211 | $ | 214,801 | $ | 196,810 | |||||||||||||||
| Cost of revenues | 85,238 | 77,335 | 73,427 | 64,450 | 73,507 | 78,191 | 79,807 | 70,481 | |||||||||||||||||||||||
| Gross profit | 152,343 | 148,364 | 138,535 | 124,201 | 148,169 | 146,020 | 134,994 | 126,329 | |||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||||
| Research and development | 94,123 | 90,916 | 92,348 | 88,491 | 85,651 | 83,611 | 82,324 | 71,034 | |||||||||||||||||||||||
| Sales and marketing | 38,761 | 37,829 | 38,110 | 35,757 | 35,568 | 34,408 | 32,576 | 31,228 | |||||||||||||||||||||||
| General and administrative | 14,136 | 13,039 | 12,476 | 12,519 | 13,589 | 13,501 | 13,494 | 27,938 | |||||||||||||||||||||||
| Impairment of long-lived assets | 12,019 | — | — | — | — | — | — | — | |||||||||||||||||||||||
| Total operating expenses | 159,039 | 141,784 | 142,934 | 136,767 | 134,808 | 131,520 | 128,394 | 130,200 | |||||||||||||||||||||||
| Income (loss) from operations | (6,696 | ) | 6,580 | (4,399 | ) | (12,566 | ) | 13,361 | 14,500 | 6,600 | (3,871 | ) | |||||||||||||||||||
| Interest expense | (1,932 | ) | (2,016 | ) | (1,996 | ) | (1,993 | ) | (1,944 | ) | (2,195 | ) | (2,215 | ) | (998 | ) | |||||||||||||||
| Other income (loss), net | 649 | 956 | 827 | 683 | 108 | 606 | 315 | 61 | |||||||||||||||||||||||
| Interest and other, net | (1,283 | ) | (1,060 | ) | (1,169 | ) | (1,310 | ) | (1,836 | ) | (1,589 | ) | (1,900 | ) | (937 | ) | |||||||||||||||
| Income (loss) before taxes on income | (7,979 | ) | 5,520 | (5,568 | ) | (13,876 | ) | 11,525 | 12,911 | 4,700 | (4,808 | ) | |||||||||||||||||||
| Provision for (benefit from) taxes on income | (5,386 | ) | 2,117 | 2,423 | (1,632 | ) | 2,530 | 874 | 46 | 2,360 | |||||||||||||||||||||
| Net income (loss) | $ | (2,593 | ) | $ | 3,403 | $ | (7,991 | ) | $ | (12,244 | ) | $ | 8,995 | $ | 12,037 | $ | 4,654 | $ | (7,168 | ) | |||||||||||
| Net income (loss) per share — basic | $ | (0.05 | ) | $ | 0.07 | $ | (0.16 | ) | $ | (0.25 | ) | $ | 0.18 | $ | 0.25 | $ | 0.10 | $ | (0.15 | ) | |||||||||||
| Net income (loss) per share — diluted | $ | (0.05 | ) | $ | 0.07 | $ | (0.16 | ) | $ | (0.25 | ) | $ | 0.18 | $ | 0.24 | $ | 0.09 | $ | (0.15 | ) | |||||||||||
Director Independence
The Board currently consists of ten directors. Our Corporate Governance Guidelines require that the Board be comprised of a majority of directors who qualify as independent directors as required under the rules of Nasdaq. The Board has determined that each of our directors, other than Mr. Waldman, our president and CEO, is independent under the director independence standards of Nasdaq.
The Companies Law provides that the Board is required to or waiversdetermine how many of our members of the CodeBoard should be required to have financial and accounting expertise. The Board has determined that at least one member of Business Conductthe Board should be required to have financial and Ethics will be disclosed onaccounting expertise. Each member of the same website.audit committee of the Board has financial and accounting expertise as defined under the Companies Law.
Item 14—
Principal Accountant Fees and Services
Audit and
Non-Audit
ServicesSubject to be filed withshareholder approval of the SEC in connection withaudit committee’s authority to determine remuneration for their services, the Annual General Meetingaudit committee is directly responsible for the appointment, compensation and oversight of our Shareholders, orindependent auditors. In addition to its retention of Kost Forer Gabbay & Kasierer, the Proxy Statement, which is expectedIsrael-based member of Ernst & Young Global (“”) to be filed no later than 120 days afteraudit our consolidated financial statements for the end of our fiscal year ended December 31, 2017, under2019, the sections titled “Proposal - Electionaudit committee retained EY Israel to provide otherDirectors,” “Security Ownership,”such“Corporate Governancethat such independence has not been impaired.
EY Israel
non-audit
and advisory services in 2019. The audit committee has reviewed allnon-audit
services provided by EY Israel in 2019 and has concluded that the provision of non-audit
services was compatible with maintaining EY Israel’s independence and Set forth below are the aggregate fees billed for professional services rendered for the fiscal years ended December 31, 2018 and Board2019 by EY Israel.
Fiscal Year Ended December 31, | ||||||||
Service Category | 2019 | 2018 | ||||||
Audit Fees | $ | 1,121,000 | $ | 867,000 | ||||
Audit-Related Fees | 86,200 | 21,200 | ||||||
Tax Fees | 189,100 | 80,000 | ||||||
All Other Fees | 3,500 | 17,000 | ||||||
Total | $ | 1,399,800 | $ | 985,200 | ||||
In the above table, in accordance with the SEC’s definitions and rules, “audit fees” are fees for professional services for the audit and review of Director Matters”our annual consolidated financial statements, as well as fees for issuance of consents and is incorporatedfor services that are normally provided by the accountant in this reportconnection with statutory and regulatory filings or engagements except those not required by reference.statute or regulation; “audit-related fees” are fees for assurance and related services that were reasonably related to the performance of the audit or review of our financial statements, including attestation services that are not required by statute or regulation, due diligence and any services related to acquisitions; “tax fees” are fees for tax compliance, tax advice and tax planning; and “all other fees” are fees for any services not included in the first three categories.
30
The Sarbanes-Oxley Act of 2002 and the auditor independence rules of the SEC require all issuers to obtain
pre-approval
from their respective audit committees in order for their independent registered public accounting firms to provide professional services without impairing independence. As such, the audit committee has a policy and has established procedures by which itpre-approves
all audit and other permitted professional services to be provided by the Company’s independent registered public accounting firm. From time to time, the Company may desire additional permitted professional services for which specificpre-approval
is obtained from the audit committee before provision of such services commences. The audit committee has considered and determined that the provision of the services other than audit services referenced above is compatible with maintenance of the auditors’ independence.31
PART IV
Item 15—EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Exhibits and Financial Statement Schedules
| (a) | Documents filed as part of this report. |
1.The following financial statements and report of the independent registered public accounting firm arehave been included in Part II, Item 8:8 of our Annual Report on Form
Financial Statements.
10-K
filed on February 20, 2020.2.
10-K
filed on February 20, 2020 or they are All other schedules have been omitted because they are not applicable or not required, or the information is included in the Consolidated Financial Statements or Notes thereto.
3.See Item 15(b) below. Each management contract or compensatory plan or arrangement required to be filed has been identified.
Exhibits.
| (b) | Exhibits. |
INDEX TO EXHIBITS
Exhibit No. | Description of Exhibit | |||||||
2.1 | (1) | * | ||||||
3.1 | (2) | |||||||
4.1 | (3) | |||||||
10.1 | (4) | ** | ||||||
10.2 | (5) | ** | ||||||
10.3 | (6) | ** | ||||||
10.3 | (7) | ** | ||||||
10.4 | (8) | ** | ||||||
10.5 | (9) | ** | ||||||
10.6 | (10) | ** | ||||||
10.7 | (11) | ** | ||||||
10.8 | (12) | ** | ||||||
10.9 | (13) | ** | ||||||
| Exhibit No. | Description of Exhibit | ||||
| 2.1 | (1) | ||||
| 2.2 | (2) | ||||
| 3.1 | (3) | ||||
| 10.1 | (4) | * | |||
| 10.2 | (5) | * | |||
| 10.3 | (6) | * | |||
| 10.4 | (7) | * | |||
| 10.5 | (8) | * | |||
| 10.6 | (9) | * | |||
| 10.7 | (10) | * | |||
| 10.8 | (11) | * | |||
| 10.9 | (12) | * | |||
| 10.10 | (13) | * | |||
| 10.11 | (14) | * | |||
| 10.12 | (15) | * | |||
| 10.13 | (16) | * | |||
| 10.14 | (17) | * | |||
| 10.15 | (18) | * | |||
| 10.16 | (19) | * | |||
| 10.17 | (20) | * | |||
| 10.18 | (21) | ||||
| 10.19 | (22) | ||||
| 10.20 | † | ||||
| 10.21 | † | ||||
| 21.1 | |||||
| 23.1 | |||||
| 23.2 | |||||
| 24.1 | |||||
| 31.1 | |||||
| 31.2 | |||||
| 32.1 | |||||
| 32.2 | |||||
| 101.INS | XBRL Instance Document | ||||
| 101.SCH | XBRL Taxonomy Extension Schema Document | ||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | ||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | ||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | ||||
32
10.10 | (14) | ** | ||||||
10.11 | (15) | ** | ||||||
10.12 | (16) | ** | ||||||
10.13 | (17) | ** | ||||||
10.14 | (18) | ** | ||||||
10.15 | (19) | ** | ||||||
10.16 | (20) | ** | ||||||
10.17 | (21) | ** | ||||||
10.18 | (22) | ** | ||||||
10.19 | (23) | ** | ||||||
10.20 | (24) | ** | ||||||
10.21 | (25) | ** | ||||||
10.22 | (26) | ** | ||||||
10.23 | (27) | ** | ||||||
10.24 | (28) | |||||||
10.25 | (29) | |||||||
10.26 | (30) | |||||||
10.27 | (31) | ** | ||||||
| �� | ||||||||
10.28 | (32) | ** | ||||||
10.29 | (33) | |||||||
10.30 | (34) | *** | ||||||
10.31 | (35) | ** | ||||||
21.1 | (36) |
33
23.1 | (37) | |||||||
24.1 | (38) | |||||||
31.1 | (39) | |||||||
31.2 | (40) | |||||||
31.3 | † | |||||||
31.4 | † | |||||||
32.1 | (41) | |||||||
32.2 | (42) | |||||||
101.INS | (43) | Inline XBRL Instance Document—the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | ||||||
101.SCH | (44) | Inline XBRL Taxonomy Extension Schema Document. | ||||||
101.CAL | (45) | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | ||||||
101.LAB | (46) | Inline XBRL Taxonomy Extension Label Linkbase Document. | ||||||
101.PRE | (47) | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | ||||||
101.DEF | (48) | Inline XBRL Taxonomy Extension Definition Linkbase Document. | ||||||
104.1 | (49) | Cover Page Interactive Data File to the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (embedded within the Inline XBRL document and included in Exhibit 101). | ||||||
104.2 | † | Cover Page Interactive Data File to Amendment No. 1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (embedded within the Inline XBRL document). |
(1) | ||
Incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K (SEC File No. 001-33299) filed on | ||
(2) | Incorporated by reference to Exhibit 3.1 to the 10-Q (SEC File No. 001-33299) filed on | |
(3) | Incorporated by reference to Exhibit 4.1 to the Company’s Annual Report on Form 10-K (SEC File No. 001-33299) filed on February 20, 2020. | |
(4) | Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (SEC File No. 001-33299) filed on July 25, 2018. | |
(5) | Incorporated by reference to Exhibit 3.2 to the 10-Q (SEC File No. 001-33299) filed on May 5, 2017. | |
34
(6) | Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (SEC File No. 001-33299) filed on July 25, 2019. | |
(7) | Incorporated by reference to Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q (SEC File No. 001-33299) filed on July 29, 2016. | |
(8) | Incorporated by reference to Appendix A to the 001-33299) filed on April 19, 2012. | |
(9) | ||
Incorporated by reference to Exhibit 10.2 to the S-8 (File No. 333-172093) filed on February 7, 2011. | ||
(10) | Incorporated by reference to Exhibit 10.3 to the S-8 (File No. 333-172093) filed on February 7, 2011. | |
(11) | Incorporated by reference to Exhibit 10.4 to the S-8 (File No. 333-172093) filed on February 7, 2011. | |
(12) | Incorporated by reference to Exhibit 10.5 to the S-8 (File No. 333-172093) filed on February 7, 2011. | |
(13) | Incorporated by reference to Exhibit 4.2 to the S-8 (File No. 333-190631) filed on August 15, 2013. | |
(14) | Incorporated by reference to Exhibit 4.2 to the S-8 (File No. 333-189720) filed on July 1, 2013. | |
(15) | Incorporated by reference to Exhibit 10.1 to the 8-K (SEC File No. 001-33299) filed on February 7, 2011. | |
(16) | Incorporated by reference to Exhibit 4.2 to the S-8 (SEC FileNo.333-209808) filed on February 29, 2016. | |
(17) | Incorporated by reference to Exhibit 4.3 to the S-8 (SEC FileNo.333-209808) filed on February 29, 2016. | |
(18) | Incorporated by reference to Exhibit 4.4 to the S-8 (SEC FileNo.333-209808) filed on February 29, 2016. | |
(19) | Incorporated by reference to Exhibit 4.5 to the S-8 (SEC FileNo.333-209808) filed on February 29, 2016. | |
(20) | Incorporated by reference to Exhibit 4.6 to the S-8 (SEC FileNo.333-209808) filed on February 29, 2016. | |
(21) | Incorporated by reference to Exhibit 10-K (SEC File No. 001-33299) filed on | |
(22) | Incorporated by reference to Exhibit 10-Q (SEC File No. 001-33299) filed on | |
(23) | Incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q (SEC File No. 001-33299) filed on August 3, 2018. |
35
(24) | Incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q (SEC File No. 001-33299) filed on August 3, 2018. | |
(25) | Incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q (SEC File No. 001-33299) filed on August 3, 2018. | |
(26) | Incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q (SEC File No. 001-33299) filed on August 3, 2018. | |
(27) | Incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q (SEC File No. 001-33299) filed on August 3, 2018. | |
(28) | Incorporated by reference to Exhibit 10.17 to the 10-K (SEC File No. 001-33299) filed on March 7, 2011. | |
(29) | Incorporated by reference to Exhibit 10.1 to the 10-Q (SEC File No. 001-33299) filed on May 5, 2017. | |
(30) | Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (SEC File No. 001-33299) filed on June 19, 2018. | |
(31) | Incorporated by referenced to Exhibit 10.27 to the Company’s Annual Report on Form 10-K (SEC File No. 001-33299) filed on February 21, 2019. | |
(32) | Incorporated by referenced to Exhibit 10.28 to the Company’s Annual Report on Form 10-K (SEC File No. 001-33299) filed on February 21, 2019. | |
(33) | Incorporated by referenced to Exhibit 10.1 to the Company’s Current Report on Form 8-K (SEC File No. 001-33299) filed on March 11, 2019. | |
(34) | Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (SEC File No. 001-33299) filed on May 9, 2019. | |
(35) | Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (SEC File No. 001-33299) filed on August 1, 2019. | |
(36) | Incorporated by reference to Exhibit 21.1 to the Company’s Annual Report on Form 10-K (SEC File No. 001-33299) filed on February 20, 2020. | |
(37) | Incorporated by reference to Exhibit 23.1 to the Company’s Annual Report on Form 10-K (SEC File No. 001-33299) filed on February 20, 2020. | |
(38) | Incorporated by reference to Exhibit 24.1 to the Company’s Annual Report on Form 10-K (SEC File No. 001-33299) filed on February 20, 2020. | |
(39) | Incorporated by reference to Exhibit 31.1 to the Company’s Annual Report on Form 10-K (SEC File No. 001-33299) filed on February 20, 2020. | |
(40) | Incorporated by reference to Exhibit 31.2 to the Company’s Annual Report on Form 10-K (SEC File No. 001-33299) filed on February 20, 2020. | |
(41) | Incorporated by reference to Exhibit 32.1 to the Company’s Annual Report on Form 10-K (SEC File No. 001-33299) filed on February 20, 2020. |
36
(42) | Incorporated by reference to Exhibit 32.2 to the Company’s Annual Report on Form 10-K (SEC File No. 001-33299) filed on February 20, 2020. | |
(43) | Incorporated by reference to Exhibit 101.INS to the Company’s Annual Report on Form 10-K (SEC File No. 001-33299) filed on February 20, 2020. | |
(44) | Incorporated by reference to Exhibit 101.SCH to the Company’s Annual Report on Form 10-K (SEC File No. 001-33299) filed on February 20, 2020. | |
(45) | Incorporated by reference to Exhibit 101.CAL to the Company’s Annual Report on Form 10-K (SEC File No. 001-33299) filed on February 20, 2020. | |
(46) | Incorporated by reference to Exhibit 101.LAB to the Company’s Annual Report on Form 10-K (SEC File No. 001-33299) filed on February 20, 2020. | |
(47) | Incorporated by reference to Exhibit 101.PRE to the Company’s Annual Report on Form 10-K (SEC File No. 001-33299) filed on February 20, 2020. | |
(48) | Incorporated by reference to Exhibit 101.DEF to the Company’s Annual Report on Form 10-K (SEC File No. 001-33299) filed on February 20, 2020. | |
(49) | Incorporated by reference to Exhibit 104.1 to the Company’s Annual Report on Form 10-K (SEC File No. 001-33299) filed on February 20, 2020. |
* | The schedules to the Agreement and Plan of Merger have been omitted from this filing pursuant to Item 601(a)(5) of Regulation S-K. The Company will furnish copies of any such schedules to the SEC upon request. | |
** | Indicates management contract or compensatory plan, contract or arrangement. | |
*** | Portions of this exhibit have been omitted because they are both (i) not material and (ii) would be competitively harmful if publicly disclosed. | |
† | Filed herewith. |
37
| December 31, | |||||||
| 2017 | 2016 | ||||||
(In thousands, except par value) | |||||||
| ASSETS | |||||||
| Current assets: | |||||||
| Cash and cash equivalents | $ | 62,473 | $ | 56,780 | |||
| Short-term investments | 211,281 | 271,661 | |||||
| Accounts receivable, net | 154,213 | 141,768 | |||||
| Inventories | 64,657 | 65,523 | |||||
| Other current assets | 14,295 | 17,346 | |||||
| Total current assets | 506,919 | 553,078 | |||||
| Property and equipment, net | 109,919 | 118,585 | |||||
| Severance assets | 18,302 | 15,870 | |||||
| Intangible assets, net | 228,195 | 278,031 | |||||
| Goodwill | 472,437 | 471,228 | |||||
| Deferred taxes and other long-term assets | 66,162 | 36,713 | |||||
| Total assets | $ | 1,401,934 | $ | 1,473,505 | |||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||
| Current liabilities: | |||||||
| Accounts payable | $ | 59,090 | $ | 59,533 | |||
| Accrued liabilities | 114,058 | 105,042 | |||||
| Deferred revenue | 23,485 | 24,364 | |||||
| Current portion of term debt | — | 23,628 | |||||
| Total current liabilities | 196,633 | 212,567 | |||||
| Accrued severance | 23,205 | 19,874 | |||||
| Deferred revenue | 17,820 | 15,968 | |||||
| Term debt | 72,761 | 218,786 | |||||
| Other long-term liabilities | 34,067 | 30,580 | |||||
| Total liabilities | 344,486 | 497,775 | |||||
| Commitments and Contingencies (Note 9) | |||||||
| Shareholders’ equity | |||||||
| Ordinary shares: NIS 0.0175 par value, 200,000 shares authorized, 51,488 and 49,076 shares issued and outstanding at December 31, 2017 and 2016, respectively | 221 | 209 | |||||
| Additional paid-in capital | 873,979 | 774,605 | |||||
| Accumulated other comprehensive income (loss) | 1,618 | (928 | ) | ||||
| Retained earnings | 181,630 | 201,844 | |||||
| Total shareholders’ equity | 1,057,448 | 975,730 | |||||
| Total liabilities and shareholders' equity | $ | 1,401,934 | $ | 1,473,505 | |||
| Year ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| (In thousands, except per share data) | |||||||||||
| Total revenues | $ | 863,893 | $ | 857,498 | $ | 658,140 | |||||
| Cost of revenues | 300,450 | 301,986 | 189,209 | ||||||||
| Gross profit | 563,443 | 555,512 | 468,931 | ||||||||
| Operating expenses: | |||||||||||
| Research and development | 365,878 | 322,620 | 252,175 | ||||||||
| Sales and marketing | 150,457 | 133,780 | 97,438 | ||||||||
| General and administrative | 52,170 | 68,522 | 44,212 | ||||||||
| Impairment of long-lived assets | 12,019 | — | — | ||||||||
| Total operating expenses | 580,524 | 524,922 | 393,825 | ||||||||
| Income (loss) from operations | (17,081 | ) | 30,590 | 75,106 | |||||||
| Interest expense | (7,937 | ) | (7,352 | ) | — | ||||||
| Other income (loss), net | 3,115 | 1,090 | (524 | ) | |||||||
| Interest and other, net | (4,822 | ) | (6,262 | ) | (524 | ) | |||||
| Income (loss) before taxes on income | (21,903 | ) | 24,328 | 74,582 | |||||||
| Provision for (benefit from) taxes on income | (2,478 | ) | 5,810 | (18,312 | ) | ||||||
| Net income (loss) | $ | (19,425 | ) | $ | 18,518 | $ | 92,894 | ||||
| Net income (loss) per share — basic | $ | (0.39 | ) | $ | 0.38 | $ | 2.00 | ||||
| Net income (loss) per share — diluted | $ | (0.39 | ) | $ | 0.37 | $ | 1.94 | ||||
| Shares used in computing net income (loss) per share: | |||||||||||
| Basic | 50,310 | 48,145 | 46,365 | ||||||||
| Diluted | 50,310 | 49,526 | 47,778 | ||||||||
| Year ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| (In thousands) | |||||||||||
| Net income (loss) | $ | (19,425 | ) | $ | 18,518 | $ | 92,894 | ||||
| Other comprehensive income, net of tax: | |||||||||||
| Change in unrealized gains/losses on available-for-sale securities, net | 929 | 342 | (204 | ) | |||||||
| Change in unrealized gains/losses on derivative contracts, net (net of tax effect of $105, $47, and $97) | 1,617 | 399 | 2,555 | ||||||||
| Other comprehensive income | 2,546 | 741 | 2,351 | ||||||||
| Total comprehensive income (loss), net of tax | $ | (16,879 | ) | $ | 19,259 | $ | 95,245 | ||||
| Accumulated | ||||||||||||||||||||||
| Additional | Other | Total | ||||||||||||||||||||
| Ordinary Shares | Paid-in | Comprehensive | Retained | Shareholders' | ||||||||||||||||||
| Shares | Amount | Capital | Income (Loss) | Earnings | Equity | |||||||||||||||||
| (In thousands, except share data) | ||||||||||||||||||||||
| Balance at December 31, 2014 | 45,487,764 | $ | 192 | $ | 615,148 | $ | (4,020 | ) | $ | 90,432 | $ | 701,752 | ||||||||||
| Net income | — | — | — | — | 92,894 | 92,894 | ||||||||||||||||
| Unrealized losses on available-for-sale securities, net of taxes | — | — | — | (204 | ) | — | (204 | ) | ||||||||||||||
| Unrealized gain on derivative contracts, net of taxes | — | — | — | 2,555 | — | 2,555 | ||||||||||||||||
| Share-based compensation | — | — | 50,764 | — | — | 50,764 | ||||||||||||||||
| Issuances of shares through employee equity incentive plans | 1,267,244 | 6 | 6,043 | — | — | 6,049 | ||||||||||||||||
| Issuance of shares through employee share purchase plan | 364,746 | 2 | 12,816 | — | — | 12,818 | ||||||||||||||||
| Income tax benefit from share options exercised | — | — | 53 | — | — | 53 | ||||||||||||||||
| Balance at December 31, 2015 | 47,119,754 | $ | 200 | $ | 684,824 | $ | (1,669 | ) | $ | 183,326 | $ | 866,681 | ||||||||||
| Net income | — | — | — | — | 18,518 | 18,518 | ||||||||||||||||
| Unrealized gain on available-for-sale securities, net of taxes | — | — | — | 342 | — | 342 | ||||||||||||||||
| Unrealized gains on derivative contracts, net of taxes | — | — | — | 399 | — | 399 | ||||||||||||||||
| Share-based compensation | — | — | 66,309 | — | — | 66,309 | ||||||||||||||||
| Issuances of shares through employee equity incentive plans | 1,463,884 | 7 | 5,083 | — | — | 5,090 | ||||||||||||||||
| Issuance of shares through employee share purchase plan | 491,968 | 2 | 17,463 | — | — | 17,465 | ||||||||||||||||
| Income tax benefit from share options exercised | — | — | (46 | ) | — | — | (46 | ) | ||||||||||||||
| Fair value of awards attributable to pre-acquisition services | — | — | 972 | — | — | 972 | ||||||||||||||||
| Balance at December 31, 2016 | 49,075,606 | $ | 209 | $ | 774,605 | $ | (928 | ) | $ | 201,844 | $ | 975,730 | ||||||||||
| Net loss | — | — | — | — | (19,425 | ) | (19,425 | ) | ||||||||||||||
| Unrealized gains on available-for-sale securities, net of taxes | — | — | — | 929 | — | 929 | ||||||||||||||||
| Unrealized gains on derivative contracts, net of taxes | — | — | — | 1,617 | — | 1,617 | ||||||||||||||||
| Share-based compensation | — | — | 68,864 | — | — | 68,864 | ||||||||||||||||
| Issuances of shares through employee equity incentive plans | 1,843,168 | 9 | 7,633 | — | — | 7,642 | ||||||||||||||||
| Issuance of shares through employee share purchase plan | 568,876 | 3 | 22,088 | — | — | 22,091 | ||||||||||||||||
Effect of adopting ASU 2016-09: Improvements to Employee Share-Based Payment Accounting | — | — | 789 | — | (789 | ) | — | |||||||||||||||
| Balance at December 31, 2017 | 51,487,650 | $ | 221 | $ | 873,979 | $ | 1,618 | $ | 181,630 | $ | 1,057,448 | |||||||||||
| Year ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| (In thousands) | |||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income (loss) | $ | (19,425 | ) | $ | 18,518 | $ | 92,894 | ||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 103,821 | 97,731 | 41,372 | ||||||||
| Deferred income taxes | (2,150 | ) | 809 | (22,607 | ) | ||||||
| Share-based compensation | 68,864 | 66,309 | 50,764 | ||||||||
| Gains on short-term investments, net | (3,460 | ) | (1,774 | ) | (3,000 | ) | |||||
| Impairment charges | 12,019 | — | 3,189 | ||||||||
| Changes in assets and liabilities, net of effect of acquisitions: | |||||||||||
| Accounts receivable, net | (12,175 | ) | (41,331 | ) | (19,351 | ) | |||||
| Inventories | (887 | ) | 8,263 | (24,735 | ) | ||||||
| Prepaid expenses and other assets | (681 | ) | 6,948 | (2,619 | ) | ||||||
| Accounts payable | 170 | 13,330 | 3,750 | ||||||||
| Accrued liabilities and other liabilities | 15,216 | 27,261 | 30,884 | ||||||||
| Net cash provided by operating activities | 161,312 | 196,064 | 150,541 | ||||||||
| Cash flows from investing activities: | |||||||||||
| Purchase of severance-related insurance policies | (1,312 | ) | (1,172 | ) | (743 | ) | |||||
| Purchase of short-term investments | (188,745 | ) | (300,858 | ) | (219,459 | ) | |||||
| Proceeds from sales of short-term investments | 193,082 | 237,764 | 179,700 | ||||||||
| Proceeds from maturities of short-term investments | 59,129 | 149,725 | 129,279 | ||||||||
| Purchase of property and equipment | (41,376 | ) | (42,976 | ) | (48,601 | ) | |||||
| Purchase of intangible assets | (2,843 | ) | (7,962 | ) | (210 | ) | |||||
| Purchase of investments in privately-held companies | (15,021 | ) | (4,982 | ) | — | ||||||
| Acquisitions, net of cash acquired | (872 | ) | (693,692 | ) | — | ||||||
| Net cash provided by (used in) investing activities | 2,042 | (664,153 | ) | 39,966 | |||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from term debt | — | 280,000 | — | ||||||||
| Principal payments on term debt | (172,000 | ) | (34,000 | ) | — | ||||||
| Term debt issuance costs | — | (5,521 | ) | — | |||||||
| Principal payments on capital lease and intangible assets obligations | (7,369 | ) | (1,364 | ) | (1,105 | ) | |||||
| Proceeds from issuances of ordinary shares through employee equity incentive plans | 29,733 | 22,555 | 18,867 | ||||||||
| Net cash provided by (used in) financing activities | (149,636 | ) | 261,670 | 17,762 | |||||||
| Net increase (decrease) in cash, cash equivalents, and restricted cash | 13,718 | (206,419 | ) | 208,269 | |||||||
| Cash, cash equivalents, and restricted cash at beginning of period | 56,780 | 263,199 | 54,930 | ||||||||
| Cash, cash equivalents, and restricted cash at end of period | $ | 70,498 | $ | 56,780 | $ | 263,199 | |||||
| Supplemental disclosures of cash flow information | |||||||||||
| Interest paid | $ | 5,384 | $ | 5,335 | $ | 27 | |||||
| Income taxes paid | $ | 1,218 | $ | 835 | $ | 1,114 | |||||
| Supplemental disclosure of non-cash investing and financing activities | |||||||||||
| Intangible assets financed with debt | $ | 12,981 | $ | 8,834 | $ | — | |||||
| Unpaid property and equipment | $ | 3,962 | $ | 5,425 | $ | 2,228 | |||||
| Transfer from inventory to property and equipment | $ | 1,753 | $ | 3,814 | $ | 6,732 | |||||
| December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| (In thousands) | |||||||||||
| Cash and cash equivalents, as reported on the balance sheets | $ | 62,473 | $ | 56,780 | $ | 263,199 | |||||
| Restricted cash in other long-term assets, as reported on the balance sheets | 8,025 | — | — | ||||||||
| Cash, cash equivalents, and restricted cash, as reported in the statements of cash flows | $ | 70,498 | $ | 56,780 | $ | 263,199 | |||||
| Year Ended December 31, | ||||||||
| 2017 | 2016 | 2015 | ||||||
| HPE | 13 | % | 16 | % | 14 | % | ||
| Dell | 11 | % | * | * | ||||
| ____________________ | ||||||||
| * Less than 10% | ||||||||
| December 31, 2017 | December 31, 2016 | ||||
| HPE | 13 | % | 11 | % | |
| Year Ended December 31, | |||||||
| 2017 | 2016 | ||||||
| (In thousands) | |||||||
| Balance, beginning of the period | $ | 1,474 | $ | 1,641 | |||
| Assumed warranty liability from acquisition | — | 290 | |||||
| New warranties issued during the period | 1,459 | 1,727 | |||||
| Reversal of warranty reserves | (565 | ) | (856 | ) | |||
| Settlements during the period | (1,479 | ) | (1,328 | ) | |||
| Balance, end of the period | 889 | 1,474 | |||||
| Less: long-term portion of product warranty liability | (183 | ) | (211 | ) | |||
| Balance, end of the period | $ | 706 | $ | 1,263 | |||
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| (In thousands, except per share data) | |||||||||||
| Net income (loss) | $ | (19,425 | ) | $ | 18,518 | $ | 92,894 | ||||
| Basic and diluted shares: | |||||||||||
| Weighted average ordinary shares outstanding | 50,310 | 48,145 | 46,365 | ||||||||
| Effect of dilutive shares | — | 1,381 | 1,413 | ||||||||
| Shares used to compute diluted net income (loss) per share | 50,310 | 49,526 | 47,778 | ||||||||
| Net income (loss) per share—basic | $ | (0.39 | ) | $ | 0.38 | $ | 2.00 | ||||
| Net income (loss) per share—diluted | $ | (0.39 | ) | $ | 0.37 | $ | 1.94 | ||||
SIGNATURES
| December 31, 2017 | December 31, 2016 | ||||||
| (In thousands) | |||||||
| Accounts receivable, net: | |||||||
| Accounts receivable | $ | 154,845 | $ | 142,400 | |||
| Less: allowance for doubtful accounts | (632 | ) | (632 | ) | |||
| $ | 154,213 | $ | 141,768 | ||||
| Inventories: | |||||||
| Raw materials | $ | 12,656 | $ | 8,243 | |||
| Work-in-process | 22,769 | 26,118 | |||||
| Finished goods | 29,232 | 31,162 | |||||
| $ | 64,657 | $ | 65,523 | ||||
| Other current assets: | |||||||
| Prepaid expenses | $ | 7,518 | $ | 9,053 | |||
| Derivative contracts receivable | 982 | 257 | |||||
| VAT receivable | 2,259 | 6,093 | |||||
| Other | 3,536 | 1,943 | |||||
| $ | 14,295 | $ | 17,346 | ||||
| Property and equipment, net: | |||||||
| Computer, equipment, and software | $ | 164,707 | $ | 214,719 | |||
| Furniture and fixtures | 3,198 | 5,210 | |||||
| Leasehold improvements | 47,262 | 46,693 | |||||
| 215,167 | 266,622 | ||||||
| Less: Accumulated depreciation and amortization | (105,248 | ) | (148,037 | ) | |||
| $ | 109,919 | $ | 118,585 | ||||
| Deferred taxes and other long-term assets: | |||||||
| Equity investments in privately-held companies | $ | 29,255 | $ | 12,720 | |||
| Deferred taxes | 24,563 | 22,413 | |||||
| Long-term restricted cash | 8,025 | — | |||||
| Other assets | 4,319 | 1,580 | |||||
| $ | 66,162 | $ | 36,713 | ||||
| Accrued liabilities: | |||||||
| Payroll and related expenses | $ | 71,868 | $ | 62,969 | |||
| Accrued expenses | 31,951 | 33,125 | |||||
| Derivative contracts payable | 17 | 1,006 | |||||
| Product warranty liability | 706 | 1,263 | |||||
| Other | 9,516 | 6,679 | |||||
| $ | 114,058 | $ | 105,042 | ||||
| Other long-term liabilities: | |||||||
| Income tax payable | $ | 24,425 | $ | 24,184 | |||
| Deferred rent | 2,220 | 2,504 | |||||
| Other | 7,422 | 3,892 | |||||
| $ | 34,067 | $ | 30,580 | ||||
| (in thousands) | ||||
| Consideration: | ||||
| Cash payment for all outstanding common shares of EZchip at $25.50 per share | $ | 781,237 | ||
| Fair value of awards attributable to pre-acquisition services | 972 | |||
| Total consideration: | 782,209 | |||
| Less: cash acquired | 87,545 | |||
| Fair value of total consideration transferred, net of cash acquired | $ | 694,664 | ||
| (in thousands) | ||||
| Short-term investments | $ | 108,862 | ||
| Other current assets | 34,114 | |||
| Other long-term assets | 9,638 | |||
| Intangible assets | 288,246 | |||
| Goodwill | 270,485 | |||
| Total assets | 711,345 | |||
| Current liabilities | (10,253 | ) | ||
| Long-term liabilities | (6,428 | ) | ||
| Total liabilities | (16,681 | ) | ||
| Total purchase price allocation | $ | 694,664 | ||
| Fair value | Weighted Average Useful Life | |||||
| (in thousands) | (in years) | |||||
| Purchased intangible assets: | ||||||
| Trade names | $ | 5,600 | 3 | |||
| Customer relationships | 56,400 | 9 | ||||
| Backlog | 11,300 | 1 | ||||
| Developed technology | 181,246 | 4 - 6 | ||||
In-process research and development (1) | 33,700 | - | ||||
| Total purchased intangible assets | $ | 288,246 | ||||
(1) IPR&D will not be amortized until the underlying products reach technological feasibility. Upon completion, each IPR&D project will be amortized over its useful life. | ||||||
| Year Ended December 31, | ||||||||
| 2016 | 2015 | |||||||
| (in thousands, except per share amounts) | ||||||||
| Revenues | $ | 867,422 | $ | 769,290 | ||||
| Net income | $ | 40,288 | $ | 36,130 | ||||
| Net income per share — basic | $ | 0.82 | $ | 0.77 | ||||
| Net income per share — diluted | $ | 0.80 | $ | 0.74 | ||||
| Level 1 | Level 2 | Total | |||||||||
| (in thousands) | |||||||||||
| Money market funds | $ | 1,857 | $ | — | $ | 1,857 | |||||
| Certificates of deposit | — | 58,003 | 58,003 | ||||||||
| U.S. Government and agency securities | — | 43,872 | 43,872 | ||||||||
| Commercial paper | — | 27,029 | 27,029 | ||||||||
| Corporate bonds | — | 54,447 | 54,447 | ||||||||
| Municipal bonds | — | 15,169 | 15,169 | ||||||||
| Foreign government bonds | — | 12,761 | 12,761 | ||||||||
| 1,857 | 211,281 | 213,138 | |||||||||
| Long-term restricted cash | — | 8,025 | 8,025 | ||||||||
| Derivative contracts | — | 982 | 982 | ||||||||
| Total financial assets | $ | 1,857 | $ | 220,288 | $ | 222,145 | |||||
| Derivative contracts | $ | — | $ | 17 | $ | 17 | |||||
| Total financial liabilities | $ | — | $ | 17 | $ | 17 | |||||
| Level 1 | Level 2 | Total | |||||||||
| (in thousands) | |||||||||||
| Money market funds | $ | 1,833 | $ | — | $ | 1,833 | |||||
| Certificates of deposit | — | 78,643 | 78,643 | ||||||||
| U.S. Government and agency securities | — | 56,347 | 56,347 | ||||||||
| Commercial paper | — | 29,483 | 29,483 | ||||||||
| Corporate bonds | — | 94,162 | 94,162 | ||||||||
| Municipal bonds | — | 7,706 | 7,706 | ||||||||
| Foreign government bonds | — | 5,320 | 5,320 | ||||||||
| 1,833 | 271,661 | 273,494 | |||||||||
| Derivative contracts | — | 257 | 257 | ||||||||
| Total financial assets | $ | 1,833 | $ | 271,918 | $ | 273,751 | |||||
| Derivative contracts | $ | — | $ | 1,006 | $ | 1,006 | |||||
| Total financial liabilities | $ | — | $ | 1,006 | $ | 1,006 | |||||
| December 31, 2017 | |||||||||||||||
| Amortized Cost | Unrealized Gains | Unrealized Losses | Estimated Fair Value | ||||||||||||
| (in thousands) | |||||||||||||||
| Cash | $ | 60,616 | $ | — | $ | — | $ | 60,616 | |||||||
| Money market funds | 1,857 | — | — | 1,857 | |||||||||||
| Certificates of deposit | 58,039 | — | (36 | ) | 58,003 | ||||||||||
| U.S. Government and agency securities | 44,070 | — | (198 | ) | 43,872 | ||||||||||
| Commercial paper | 27,073 | 1 | (45 | ) | 27,029 | ||||||||||
| Corporate bonds | 54,673 | — | (226 | ) | 54,447 | ||||||||||
| Municipal bonds | 15,227 | — | (58 | ) | 15,169 | ||||||||||
| Foreign government bonds | 12,809 | — | (48 | ) | 12,761 | ||||||||||
| Total | 274,364 | 1 | (611 | ) | 273,754 | ||||||||||
| Less amounts classified as cash and cash equivalents | (62,473 | ) | — | — | (62,473 | ) | |||||||||
| Short-term investments | $ | 211,891 | $ | 1 | $ | (611 | ) | $ | 211,281 | ||||||
| December 31, 2016 | |||||||||||||||
| Amortized Cost | Unrealized Gains | Unrealized Losses | Estimated Fair Value | ||||||||||||
| (in thousands) | |||||||||||||||
| Cash | $ | 54,947 | $ | — | $ | — | $ | 54,947 | |||||||
| Money market funds | 1,833 | — | — | 1,833 | |||||||||||
| Certificates of deposit | 78,643 | — | — | 78,643 | |||||||||||
| U.S. Government and agency securities | 56,431 | 2 | (86 | ) | 56,347 | ||||||||||
| Commercial paper | 29,486 | — | (3 | ) | 29,483 | ||||||||||
| Corporate bonds | 94,292 | 37 | (167 | ) | 94,162 | ||||||||||
| Municipal bonds | 7,718 | — | (12 | ) | 7,706 | ||||||||||
| Foreign government bonds | 5,327 | — | (7 | ) | 5,320 | ||||||||||
| Total | 328,677 | 39 | (275 | ) | 328,441 | ||||||||||
| Less amounts classified as cash and cash equivalents | (56,780 | ) | — | — | (56,780 | ) | |||||||||
| Short-term investments | $ | 271,897 | $ | 39 | $ | (275 | ) | $ | 271,661 | ||||||
| December 31, 2017 | December 31, 2016 | ||||||||||||||
| Amortized Cost | Estimated Fair Value | Amortized Cost | Estimated Fair Value | ||||||||||||
| (in thousands) | |||||||||||||||
| Due in less than one year | $ | 148,232 | $ | 147,921 | $ | 157,270 | $ | 157,163 | |||||||
| Due in one to three years | 63,659 | 63,360 | 114,627 | 114,498 | |||||||||||
| $ | 211,891 | $ | 211,281 | $ | 271,897 | $ | 271,661 | ||||||||
| (in thousands) | |||
| Carrying amount of goodwill at December 31, 2016 | $ | 471,228 | |
| Acquisitions | 1,209 | ||
| Adjustments | — | ||
| Balance as of December 31, 2017 | $ | 472,437 | |
| Gross Carrying Value | Accumulated Amortization | Net Carrying Value | Useful Life | ||||||||||
| (in thousands) | (in years) | ||||||||||||
| Licensed technology | $ | 40,407 | $ | (16,478 | ) | $ | 23,929 | 1-8 | |||||
| Developed technology | 279,543 | (122,414 | ) | 157,129 | 4-7 | ||||||||
| Customer relationships | 69,776 | (24,783 | ) | 44,993 | 4-9 | ||||||||
| Trade names | 5,600 | (3,456 | ) | 2,144 | 3 | ||||||||
| Total intangible assets | $ | 395,326 | $ | (167,131 | ) | $ | 228,195 | ||||||
| Gross Carrying Value | Accumulated Amortization | Net Carrying Value | Useful Life | ||||||||||
| (in thousands) | (in years) | ||||||||||||
| Licensed technology | $ | 24,583 | $ | (6,559 | ) | $ | 18,024 | 1-8 | |||||
| Developed technology | 250,043 | (75,591 | ) | 174,452 | 4-7 | ||||||||
| Customer relationships | 69,776 | (17,731 | ) | 52,045 | 4-9 | ||||||||
| Backlog | 11,300 | (11,300 | ) | — | 1 | ||||||||
| Trade names | 5,600 | (1,590 | ) | 4,010 | 3 | ||||||||
| Total finite-lived amortizable intangible assets | 361,302 | (112,771 | ) | 248,531 | |||||||||
| In-process research and development | 29,500 | — | 29,500 | - | |||||||||
| Total intangible assets | $ | 390,802 | $ | (112,771 | ) | $ | 278,031 | ||||||
| (in thousands) | |||
| 2018 | $ | 66,718 | |
| 2019 | 59,344 | ||
| 2020 | 47,311 | ||
| 2021 | 30,919 | ||
| 2022 | 10,355 | ||
| Thereafter | 13,548 | ||
| Total | $ | 228,195 | |
| Other current assets | Other accrued liabilities | Other current assets | Other accrued liabilities | ||||||||||||
| December 31, 2017 | December 31, 2016 | ||||||||||||||
| (in thousands) | |||||||||||||||
| Derivatives designated as hedging instruments | |||||||||||||||
| Currency forward and option contracts | $ | 980 | $ | — | $ | 257 | $ | 999 | |||||||
| Derivatives not designated as hedging instruments | |||||||||||||||
| Currency forward and option contracts | 2 | 17 | — | 7 | |||||||||||
| Total derivatives | $ | 982 | $ | 17 | $ | 257 | $ | 1,006 | |||||||
| December 31, | December 31, | ||||||
| 2017 | 2016 | ||||||
| (in thousands) | |||||||
| Derivatives designated as hedging instruments | |||||||
| Currency forward and option contracts | $ | 52,380 | $ | 105,730 | |||
| Derivatives not designated as hedging instruments | |||||||
| Currency forward and option contracts | $ | 47,015 | $ | 34,330 | |||
| December 31, 2016 | $ | (692 | ) |
| Amount of gains recognized in OCI (effective portion) | 8,651 | ||
| Amount of gains reclassified from OCI to income (effective portion) | (7,034 | ) | |
| December 31, 2017 | $ | 925 | |
| Derivatives designated as hedging instruments | Derivatives not designated as hedging instruments | ||||||||||||||||||||||
| Year Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||
| 2017 | 2016 | 2015 | 2017 | 2016 | 2015 | ||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Operating income (expenses) | $ | 7,034 | $ | 623 | $ | (3,630 | ) | $ | — | $ | — | $ | — | ||||||||||
| Other income | $ | — | $ | — | $ | — | $ | 3,248 | $ | 384 | $ | — | |||||||||||
| December 31, | |||||||
| 2017 | 2016 | ||||||
| (in thousands) | |||||||
| Accrued severance liability | $ | 23,205 | $ | 19,874 | |||
| Severance assets | 18,302 | 15,870 | |||||
| Unfunded portion | $ | 4,903 | $ | 4,004 | |||
| Year Ended December 31, | Operating Leases | ||
| (in thousands) | |||
| 2018 | $ | 23,028 | |
| 2019 | 18,453 | ||
| 2020 | 14,740 | ||
| 2021 | 12,950 | ||
| 2022 | 9,648 | ||
| Thereafter | 60,091 | ||
| Total minimum lease payments | $ | 138,910 | |
| Year Ended December 31, | Purchase Commitments | ||
| (in thousands) | |||
| 2018 | $ | 153,358 | |
| 2019 | 2,447 | ||
| 2020 | 544 | ||
| 2021 | 542 | ||
| 2022 | 536 | ||
| Thereafter | — | ||
| Total purchase commitments | $ | 157,427 | |
| Options Outstanding | ||||||
Number of Shares | Weighted Average Exercise Price | |||||
| Outstanding at December 31, 2015 | 2,028,595 | $ | 30.81 | |||
| Options exercised | (349,131 | ) | $ | 14.58 | ||
| Options canceled | (44,979 | ) | $ | 84.57 | ||
| Outstanding at December 31, 2016 | 1,634,485 | $ | 32.79 | |||
| Options exercised | (479,105 | ) | $ | 15.95 | ||
| Options canceled | (45,319 | ) | $ | 74.59 | ||
| Outstanding at December 31, 2017 | 1,110,061 | $ | 38.35 | |||
Restricted Share Units Outstanding | ||||||
Number of Shares | Weighted Average Grant Date Fair Value | |||||
| Non-vested restricted share units at December 31, 2015 | 2,205,083 | $ | 44.39 | |||
| Assumed restricted share units from the EZchip acquisition | 499,894 | $ | 46.40 | |||
| Restricted share units granted | 2,056,902 | $ | 48.39 | |||
| Restricted share units vested | (1,114,753 | ) | $ | 45.32 | ||
| Restricted share units canceled | (322,607 | ) | $ | 46.26 | ||
| Non-vested restricted share units at December 31, 2016 | 3,324,519 | $ | 46.67 | |||
| Restricted share units granted | 1,844,350 | $ | 49.88 | |||
| Restricted share units vested | (1,364,063 | ) | $ | 46.25 | ||
| Restricted share units canceled | (390,101 | ) | $ | 47.79 | ||
| Non-vested restricted share units at December 31, 2017 | 3,414,705 | $ | 48.45 | |||
| Employee Share Purchase Plan | |||||||||
| Year ended December 31, | |||||||||
| 2017 | 2016 | 2015 | |||||||
| Dividend yield, % | — | — | — | ||||||
| Expected volatility | 24.6 | % | 35.8 | % | 33.7 | % | |||
| Risk free interest rate | 1.20 | % | 0.45 | % | 0.10 | % | |||
| Expected life, years | 0.50 | 0.50 | 0.50 | ||||||
| Year ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| (in thousands) | |||||||||||
| Share-based compensation expense by caption: | |||||||||||
| Cost of goods sold | $ | 2,000 | $ | 2,375 | $ | 2,366 | |||||
| Research and development | 40,278 | 40,475 | 28,821 | ||||||||
| Sales and marketing | 15,693 | 15,183 | 10,309 | ||||||||
| General and administrative | 10,893 | 13,085 | 9,268 | ||||||||
| Total share-based compensation expense | $ | 68,864 | $ | 71,118 | $ | 50,764 | |||||
| Share-based compensation expense by type of award: | |||||||||||
| Share options | $ | 115 | $ | 2,711 | $ | 6,680 | |||||
| ESPP | 6,232 | 6,394 | 4,007 | ||||||||
| RSU | 62,517 | 62,013 | 40,077 | ||||||||
| Total share-based compensation expense | $ | 68,864 | $ | 71,118 | $ | 50,764 | |||||
| Unrealized Gains (Losses) on Available-for-Sale Securities | Unrealized Gains (Losses) on Derivatives Designated as Hedging Instruments | Total | |||||||||
| (in thousands) | |||||||||||
| Balance at December 31, 2016 | $ | (236 | ) | $ | (692 | ) | $ | (928 | ) | ||
| Other comprehensive income before reclassifications, net of taxes | 918 | 8,651 | 9,569 | ||||||||
| Realized (gains)/losses reclassified from accumulated other comprehensive income | 11 | (7,034 | ) | (7,023 | ) | ||||||
| Net current-period other comprehensive income, net of taxes | 929 | 1,617 | 2,546 | ||||||||
| Balance at December 31, 2017 | $ | 693 | $ | 925 | $ | 1,618 | |||||
| Balance at December 31, 2015 | $ | (578 | ) | $ | (1,091 | ) | $ | (1,669 | ) | ||
| Other comprehensive income/(loss) before reclassifications, net of taxes | (144 | ) | 1,022 | 878 | |||||||
| Realized (gains)/losses reclassified from accumulated other comprehensive income | 486 | (623 | ) | (137 | ) | ||||||
| Net current-period other comprehensive income, net of taxes | 342 | 399 | 741 | ||||||||
| Balance at December 31, 2016 | $ | (236 | ) | $ | (692 | ) | $ | (928 | ) | ||
| Realized (Gains)/Losses Reclassified from Accumulated Other Comprehensive Income | Affected Line Item in the Statement of Operations | |||||||||
| Year ended December 31, | ||||||||||
| 2017 | 2016 | |||||||||
| (in thousands) | ||||||||||
| Realized (gains) on derivatives designated as hedging instruments | $ | (7,034 | ) | $ | (623 | ) | Cost of revenues and Operating expenses: | |||
| (347 | ) | (18 | ) | Cost of revenues | ||||||
| (635 | ) | (36 | ) | General and administrative | ||||||
| (628 | ) | (25 | ) | Sales and marketing | ||||||
| (5,424 | ) | (544 | ) | Research and development | ||||||
| Realized losses on available-for-sale securities | 11 | 486 | Other income, net | |||||||
| Total reclassifications for the period | $ | (7,023 | ) | $ | (137 | ) | Total | |||
| Year ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| (in thousands) | |||||||||||
| United States | $ | (21,528 | ) | $ | (17,969 | ) | $ | (12,539 | ) | ||
| Foreign | (375 | ) | 42,297 | 87,121 | |||||||
| Income (loss) before taxes on income | $ | (21,903 | ) | $ | 24,328 | $ | 74,582 | ||||
| Year ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| (in thousands) | |||||||||||
| Current: | |||||||||||
| U.S. federal | $ | (617 | ) | $ | (1,333 | ) | $ | (1,578 | ) | ||
| State and local | 632 | 220 | 284 | ||||||||
| Foreign | (261 | ) | 6,161 | 5,737 | |||||||
| Total current | (246 | ) | 5,048 | 4,443 | |||||||
| Deferred: | |||||||||||
| Foreign | (2,232 | ) | 762 | (22,755 | ) | ||||||
| Total deferred | (2,232 | ) | 762 | (22,755 | ) | ||||||
| Provision for (benefit from) taxes on income | $ | (2,478 | ) | $ | 5,810 | $ | (18,312 | ) | |||
| December 31, | |||||||
| 2017 | 2016 | ||||||
| (in thousands) | |||||||
| Deferred tax assets: | |||||||
| Net operating loss and credit carryforwards | $ | 42,820 | $ | 75,350 | |||
| Reserves and accruals | 11,305 | 13,841 | |||||
| Depreciation and amortization | 2,393 | 358 | |||||
| Other | 6,645 | 7,128 | |||||
| Gross deferred tax assets | 63,163 | 96,677 | |||||
| Valuation allowance | (31,648 | ) | (55,827 | ) | |||
| Total deferred tax assets | 31,515 | 40,850 | |||||
| Intangible assets | (6,952 | ) | (18,437 | ) | |||
| Total deferred tax liabilities | (6,952 | ) | (18,437 | ) | |||
| Net deferred tax assets | $ | 24,563 | $ | 22,413 | |||
| December 31, | ||||||||
| 2017 | 2016 | 2015 | ||||||
| Tax at statutory rate | 35.0 | % | 35.0 | % | 35.0 | % | ||
| Tax at rates other than the statutory rate | (4.8 | ) | (84.5 | ) | (42.5 | ) | ||
| Valuation allowance | 47.3 | 40.8 | (22.0 | ) | ||||
| Net change in tax reserves | 8.0 | 17.1 | 6.0 | |||||
| Adjustment of deferred tax balances following changes in tax rates | (71.8 | ) | 10.9 | — | ||||
| Other, net | (2.4 | ) | 4.6 | (1.1 | ) | |||
| Provision for (benefit from) taxes on income | 11.3 | % | 23.9 | % | (24.6 | )% | ||
| December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| (in thousands) | |||||||||||
| Gross unrecognized tax benefits, beginning of the period | $ | 41,460 | $ | 25,382 | $ | 18,037 | |||||
| Increases in tax positions for prior years | 3,655 | 252 | 1,153 | ||||||||
| Decreases in tax positions for prior years | — | — | (131 | ) | |||||||
| Increases in tax positions for current year | 8,090 | 8,131 | 7,908 | ||||||||
| Increases in tax positions acquired or assumed in a business combination | — | 8,990 | — | ||||||||
| Decreases due to lapses of statutes of limitations | (8,051 | ) | (1,295 | ) | (1,585 | ) | |||||
| Gross unrecognized tax benefits, end of the period | $ | 45,154 | $ | 41,460 | $ | 25,382 | |||||
| Year ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| (in thousands) | |||||||||||
| United States | $ | 327,528 | $ | 386,360 | $ | 300,674 | |||||
| China | 172,405 | 192,581 | 152,739 | ||||||||
| Europe | 176,937 | 149,855 | 93,666 | ||||||||
| Other Americas | 92,449 | 52,447 | 24,692 | ||||||||
| Other Asia | 94,574 | 76,255 | 86,369 | ||||||||
| Total revenue | $ | 863,893 | $ | 857,498 | $ | 658,140 | |||||
| December 31, | |||||||
| 2017 | 2016 | ||||||
| (in thousands) | |||||||
| Israel | $ | 99,752 | $ | 101,001 | |||
| United States | 7,017 | 14,246 | |||||
| Other | 3,150 | 3,338 | |||||
| Total property and equipment, net | $ | 109,919 | $ | 118,585 | |||
| Year ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| (in thousands) | |||||||||||
| ICs | $ | 161,216 | $ | 170,641 | $ | 92,214 | |||||
| Boards | 325,845 | 337,304 | 265,249 | ||||||||
| Switch systems | 222,836 | 204,083 | 179,977 | ||||||||
| Cables, accessories and other | 153,996 | 145,470 | 120,700 | ||||||||
| Total revenue | $ | 863,893 | $ | 857,498 | $ | 658,140 | |||||
| Year ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| (in thousands) | |||||||||||
| InfiniBand: | |||||||||||
| EDR | $ | 194,261 | $ | 125,249 | $ | 39,009 | |||||
| FDR | 181,465 | 302,093 | 347,760 | ||||||||
| QDR/DDR/SDR | 31,599 | 49,987 | 63,745 | ||||||||
| Total | 407,325 | 477,329 | 450,514 | ||||||||
| Ethernet | 401,005 | 317,241 | 155,221 | ||||||||
| Other | 55,563 | 62,928 | 52,405 | ||||||||
| Total revenue | $ | 863,893 | $ | 857,498 | $ | 658,140 | |||||
| Year ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| (in thousands) | |||||||||||
| Interest income and gains (losses) on short-term investments, net | $ | 3,748 | $ | 2,244 | $ | 2,998 | |||||
| Foreign exchange loss, net | (596 | ) | (840 | ) | (186 | ) | |||||
| Impairment of investment in a privately-held company | — | — | (3,189 | ) | |||||||
| Other | (37 | ) | (314 | ) | (147 | ) | |||||
| Total other income (loss), net | $ | 3,115 | $ | 1,090 | $ | (524 | ) | ||||
| (in thousands) | ||||
| Term Debt, principal amount | $ | 74,000 | ||
| Less unamortized debt issuance costs | 1,239 | |||
| Term Debt, principal net of unamortized debt issuance costs | $ | 72,761 | ||
| Effective interest rate | 3.8 | % | ||
| (in thousands) | |||
| 2018 | $ | — | |
| 2019 | 74,000 | ||
| $ | 74,000 | ||
| Description: | Balance at Beginning of Year | Charged to Costs and Expenses | Deductions | Balance at End of Year | |||||||||||
| (in thousands) | |||||||||||||||
| Year ended December 31, 2017 | |||||||||||||||
| Deducted from asset accounts: | |||||||||||||||
| Allowance for doubtful accounts | $ | 632 | $ | — | $ | — | $ | 632 | |||||||
| Allowance for sales returns and adjustments | — | — | — | — | |||||||||||
| Income tax valuation allowance | 55,827 | — | (24,179 | ) | 31,648 | ||||||||||
| Total | $ | 56,459 | $ | — | $ | (24,179 | ) | $ | 32,280 | ||||||
| Year ended December 31, 2016 | |||||||||||||||
| Deducted from asset accounts: | |||||||||||||||
| Allowance for doubtful accounts | $ | 621 | $ | 11 | $ | — | $ | 632 | |||||||
| Allowance for sales returns and adjustments | — | — | — | ||||||||||||
| Income tax valuation allowance | 28,999 | 26,828 | — | 55,827 | |||||||||||
| Total | $ | 29,620 | $ | 26,839 | $ | — | $ | 56,459 | |||||||
| Year ended December 31, 2015 | |||||||||||||||
| Deducted from asset accounts: | |||||||||||||||
| Allowance for doubtful accounts | $ | 672 | $ | — | $ | (51 | ) | $ | 621 | ||||||
| Allowance for sales returns and adjustments | — | — | — | ||||||||||||
| Income tax valuation allowance | 46,220 | — | (17,221 | ) | 28,999 | ||||||||||
| Total | $ | 46,892 | $ | — | $ | (17,272 | ) | $ | 29,620 | ||||||
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Mellanox Technologies, Ltd. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on February 16, 2018.
April 23, 2020.
MELLANOX TECHNOLOGIES, LTD. | ||||||
By: | ||||||
/s/ EYAL WALDMAN | ||||||
Eyal Waldman President and Chief Executive Officer (principal executive officer) | ||||||
38