NVIDIA Corporation

Good afternoon. My name is Sunidra, and I will be your conference operator today. At this time, I would like to welcome everyone to the NVDS Financial Results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. Simone Jinkowski, you may begin your conference.

Thank you. Good afternoon, everyone, and welcome to NVIDIA's conference call for the first quarter of fiscal 2022. With me on the call today from NVIDIA are Jensen Wang, President and Chief Executive Officer, and Colette Kress, Executive Vice President and Chief Financial Officer. I'd like to remind you that our call is being webcast live on NVIDIA's Investor Relations website. The webcast will be available for replay until the conference call to discuss our financial results for the second quarter of fiscal 2022. The content of today's call is NVIDIA's property. It can be reproduced or transcribed without our prior written consent. During this call, we may make forward-looking statements based on current expectations. These are subject to a number of significant risks and uncertainties, and our actual results may differ materially. For a discussion of factors that could affect our future financial results in business, please refer to the disclosure in today's earnings release, our most recent forms 10-K and 10-Q, and the report that we may file on Form 8-K with the Securities and Exchange Commission. All our statements are made as of today, May 26, 2021, based on information currently available to us. Except it's required by law, we assume no obligation to update any such statements. During this call, we will discuss non-GAAP financial measures. You can find a reconciliation of these non-GAAP financial measures to GAAP financial measures in our CFO commentary, which is posted on our website. With that, let me turn the call over to Colette. Thanks, Simona.

Q1 was exceptionally strong, with revenue of $5.66 million. and year-on-year growth accelerating to 84%. We set a record in total revenue in gaming, data center, and professional visualization, driven by our best-ever product lineups and structural tailwinds across our businesses. Starting with gaming, revenue of $2.8 billion was up 11% sequentially and up 106% from a year earlier. This is the third consecutive quarter of accelerating year-on-year growth, beginning with the fall launch of our GeForce RTX 30 series GPUs. Based on the Ampere GPU architecture, the 30 series has been our most successful launch ever, driving incredible demand and setting records for both desktop and laptop GPU sales. Channel inventories are still lean. and we expect to remain supply constrained into the second half of the year. With our Ampere GPU architecture now ramping across the stack in both desktop and laptops, we expect the RTX upgrade cycle to kick into high gear, as the vast majority of our GPU installed base needs to upgrade. Laptops continue to drive strong growth this quarter, as we started ramping the Ampere GPU architecture across our lineup. Earlier this month, all major PC OEMs launched G4 RTX 30 series laptops based on the 3080, 3070, and 3060 as part of their spring refresh. In addition, mainstream versions based on the 3050 and 3050 Ti will be available this summer, just in time for back to school, starting at price points as low as $799. This is the largest ever wave of GeForce gaming laptops, over 140 in total, as OEMs address the rising demand from gamers, creators, and students for NVIDIA's powered laptops. The RTX 30 series delivers our biggest generational leap in performance ever. It also features our second generation ray tracing technology and frame rate boosting, AI powered DLSS. The RTX is a reset for graphics with over 60 accelerated games. This quarter, we added many more, including Call of Duty, Modern Warfare, Crisis Remastered, and Outriders. We also announced that DLSS is now available in Unreal Engine 4 and soon in the Unity game engine, enabling game developers to accelerate frame rates with minimal effort. The RTX 30 series also offers NVIDIA Reflex, a new technology that reduces system latency. Reflex is emerging as a must-have feature for esports gamers who play competitive titles like Call of Duty Warzone, Fortnite, Valorant, and Apex Legends. We estimate that about 75% of GeForce gamers play esports games, and 99% of esports pros compete on GeForce. We believe gaming also benefited from crypto mining demand, although it's hard to determine to what extent. We've taken actions to optimize GeForce GPUs for gamers while separately addressing mining demand with cryptocurrency mining processors, or CMPs. Last week, we announced that newly manufactured GeForce RTX 3080, RTX 3070, and RTX 3060 PI graphic cards will have their Ethereum mining capabilities reduced by half and carry a low hash rate, or LHR, identifier. Along with the updated RTX 3060, this should allow our partners to get more GeForce cards into the hands of gamers at better prices. To help address mining demand, CMP products launched this quarter, optimized for mining performance and efficiency. Because they don't meet the specifications required of a GeForce GPU, they don't impact the supply of GeForce GPUs to gamers. CMP revenue was 155 million in Q1, reported as part of the OEM and other category. And our Q2 outlook assumes CMP sales of 400 million. Our GeForce Now cloud gaming platform passed 10 million registered numbers this quarter. GFN offers nearly 1,000 PC games from over 300 publishers, more than any other cloud gaming service, including 80 of the most popular free-to-game play games. GFN expands the reach of GeForce to billions of underpowered Windows PCs, Macs, Chromebooks, Android devices, iPhones, and iPods. GFN is offered in over 70 countries with our latest expansions including Australia, Singapore, and South America. Moving to ProVis. Q1 revenue was $372 million, up 21% both sequentially and year-on-year. Strong notebook growth was driven by a new sleek and powerful RTX-powered mobile workstations with Max-Q technology, and the enterprises continued to support remote workforce initiatives. Desktop workstations rebounded as enterprise resumed the spending that has been deferred during the lockdown, with continued growth likely as offices open. Key verticals driving Q1 demand include manufacturing, healthcare, automotive, and media and entertainment. At GTC, we announced the coming general availability of NVIDIA Omniverse Enterprise, the world's first technology platform that enables global 3D design teams to collaborate in real time in a shared space, working across multiple software speeds. This incredible technology builds on NVIDIA's entire body of work and is supported by a large, rapidly growing ecosystem. Early adopters include sophisticated design teams at some of the world's leading companies, such as BMW Group, Foster & Partners, and WPP. Over 400 companies have been evaluating Omniverse, and nearly 17,000 users have downloaded the open beta. Omniverse is offered as a software subscription on a per user and a per server basis. As the world becomes more digital, virtual, and collaborative, we see a significant revenue opportunity for Omniverse. We also announced powerful new Ampere architecture GPUs for next-generation desktop and laptop workstations. The new RTX-powered workstations will be available from all major OEMs. Moving to automotive, Q1 revenue was $154 million, up 6% sequentially and down 1% year-on-year. Growth in AI cockpit revenue was partially offset by the expected decline in legacy entertainment revenue. We extended our technology leadership with the announcement of the next generation NVIDIA Drive Atlan SoC. Atlan will deliver an unrivaled 1,000 trillion operations per second of performance and integrate data center class, NVIDIA Bluefield networking, and security technologies to enhance vehicle performance and safety, making it a true data center on wheels. Outlet, which targets automakers 2025 models, will follow the NVIDIA Drive Orin SOC, which delivers 254 tops that has been selected by leading vehicle makers for production timelines starting next year. The NVIDIA Drive platform has achieved global adoption across the transportation industry. Our automotive design wind pipeline now exceeds $8 billion through fiscal 2027. Most recently, Volvo Cars announced that it will use NVIDIA Drive Orange, building on our next great momentum with some of the largest automakers, including Mercedes-Benz, SAIC, and Hyundai Motor Group. In robo-taxis, we added GM Cruise to the growing number of companies adopting the NVIDIA Drive platform, which includes Amazon Zoox and DD. We've also had a great traction with new energy vehicle makers. Our latest wins include Faraday Future, R Auto, IAM Motors, and VinFast, which joined previously announced wins with SAIC, NIO, Xpeng, and BayAuto. In trucking, Navistar is partnered with TuSimple in selecting NVIDIA Drive for autonomous driving, joining previously announced Volvo Autonomous Solutions and Plus. NVIDIA is helping to revolutionize the transportation industry. Our full-stack software-defined AV and AI cockpit platform spans silicon, systems, software, and AI data center infrastructure, enabling over-the-air upgrades to enhance safety and the joy of driving throughout the vehicle's lifetime. Starting with our lead partner, Mercedes-Benz, NVIDIA Drive can transform the automotive industry with amazing technologies delivered through new software and services business models. Moving to data center. Revenue topped $2 billion for the first time growing 8% sequentially and up 79% from the year-ago quarter, which did not include Mellanox. Hyperscale customers led our growth this quarter as they built infrastructure to commercialize AI in their services. In addition, cloud providers have adopted the A100 to support growing demand for AI from enterprises, startups, and research organizations. Customers are deploying NVIDIA's A100 and DGX platforms to train deep neural networks with rising computational intensity, led by two of the fastest-growing areas of AI, natural language understanding and deep recommendators. In March, Google Cloud Platform announced general availability of the A100, with early customers including Square for its cache application, and Alphabet's DeepMind. The A100 is deployed across all major hyperscale and cloud service providers globally, and we see strengthening demand in the coming quarters. Every industry is becoming a technology industry and accelerating investments in AI infrastructure, both through the cloud and on-premise. Our vertical industries grew both sequentially and year-on-year, led by consumer internet companies. For example, Naver, a leading internet technology company in Korea and Japan, is training giant AI language models at scale on DGX SuperPod to pioneer new services across e-commerce, search, entertainment, and payment applications. We continue to gain traction in inference with hyperscale and vertical industry customers across a broadening portfolio of GPOs. We had record shipments of GPUs used for inference. Inference growth is driving not just the T4, which was up strongly in the quarter, but also the universal A100 Tensor Core GPU, as well as the new Ampere architecture-based A10 and A30 GPUs. all excellent at training as well as inferencing. Customers are increasingly migrating from CPUs to GPUs for AI inference for two chief reasons. First, GPUs can better keep up with the exponential growth in the size and the complexity of deep neural networks and respond with the required low latency. In April's MLPerf AI Inference Benchmark, NVIDIA achieved the top results across every category, spanning computer vision, medical imaging, recommendator systems, speech recognition, and natural language processing. And second, NVIDIA's full-stack inference platform, including Triton, is the complexity of deploying AI applications by supporting models from all major frameworks and optimizing for different query types, including batch, real-time, and streaming. Triton is supported by several partners in the cloud services, including Amazon, Google, Microsoft, and Tencent. Examples of how customers use NVIDIA's inference platform include Microsoft for grammar checking in Office, the United States Postal Service for real-time package analytics, T-Mobile for customer service, Pinterest for image search, and GE Healthcare for heart disease detection. We also had strong results with Mellanox networking products. Like our compute business, strong growth was driven by hyperscale customers across both Ethernet and InfiniBand. We achieved key design wins and proof-of-concept trials for the NVIDIA Bluefield 2 DPU with cloud service providers and consumer Internet companies. We also unveiled Bluefield 3, the first DPU built for AI and accelerated computing, with support from VMware, NetApp, Splunk, cloudflare and others bluefield 3 is the industry's first 400 gig dpu and delivers the equivalent data center services of up to 300 cpu cores it transforms traditional server infrastructure into zero trust environments in which every user is authenticated by offloading and isolating data center services from business applications With Bluefield III, our DPU roadmap will deliver an unrivaled 100x performance increase over a three-year period. As we look back at the first full year since closing the Mellanox acquisition, we are extremely pleased with how the business has performed. has not only exceeded our financial projections but it has been instrumental in key new platforms like the dgx superpod and the bluefield dpu enabling our data center scale computing strategy in april we held our largest ever gpu technology conference with more than 200 000 registrants From 195 countries, Jensen's keynote had over 14 million views. At GTC, we announced our first data center CPU, NVIDIA Grace, targeted at processing massive next-generation AI models with trillions of parameters. The ARM-based processor will enable 10x the performance and energy efficiency of today's fastest servers. With Grace, NVIDIA has a three-chip strategy with GPU, DPU, and now CPU. The Swiss National Supercomputing Center and the US Department of Energy's Los Alamos National Laboratory are the first to announce plans to build Grace-powered supercomputers. Grace will be available in early 2023. GTC is first and foremost for developers we announced NVIDIA developed and optimized pre-trained model availability on the NVIDIA GPU Cloud Registry. Developers can choose a pre-trained model and adapt it to fit their specific needs using NVIDIA TAO. are transfer learning software. TAO fine-tunes the model with customers' own small data set to give models a custom fit without the cost, time, and massive data sets required to train a neural network from scratch. Once a model is optimized and ready for deployment, users can integrate it with an NVIDIA application framework that fits their use. For example, The NVIDIA Jarvis framework for interactive conversational AI is now generally available and used by customers such as T-Mobile and Snap. And the NVIDIA Merlin framework for deep recommendators is an open beta with customers such as Snap and Tencent. With the chosen application framework, users can launch NVIDIA Fleet Command software to deploy and manage the AI application across a variety of NVIDIA GPU-powered devices. For enterprise customers, we unveiled a new enterprise-grade software offering available as a perpetual license or subscription. NVIDIA AI Enterprise is a comprehensive suite of AI software that speeds development and deployment of AI workloads and simplifies management of enterprise AI infrastructure. Through our partnership with VMware, hundreds of thousands of vSphere customers will be able to purchase NVIDIA AI Enterprise with the same familiar pricing model that IT managers use to procure VMware infrastructure software. We also made several announcements at GCC about accelerating the delivery of both NVIDIA AI and accelerated computing to enterprises and edge users among the world's largest industries. Leading server OEMs launched NVIDIA certified systems, which are industry standard servers based on the NVIDIA EGX platform. They run NVIDIA AI enterprise software and are supported by the NVIDIA A30 and A10 GPUs. initial customers including Lockheed Martin and Mass General Brigham. In addition, we announced the NVIDIA AI on 5G platform supported on NVIDIA EGX servers to enable high-performance 5G RAM and AI applications. The AI on 5G platform leverages the NVIDIA aerial software and the NVIDIA Bluefield 2 A100 converged card, which combines our GPUs and GPUs. We are teaming with Fujitsu, Google Cloud, Manavir, Redisys, and Wind River in developing solutions based on our AI on 5G platform to subpoena the creation of smart cities and factories, advanced hospitals, and intelligence stores. Another highlight at GTC was the announcement of a broad range of initiatives to strengthen the ARM ecosystem across cloud data centers, HPC, enterprise and edge, and PCs. In the cloud, we are bringing together AWS Graviton2 processors and NVIDIA GPUs to provide a range of benefits, including lower cost support for richer game streaming experiences and greater performance for ARM-based workloads. In HPC, we are bringing together an Ampere Ultra CPU with NVIDIA GPUs, DPUs, and NVIDIA HPC software developer kit. Initial supercomputing centers deploying it include Oak Ridge and Los Alamos National Labs. In the enterprise and edge, we are bringing together Marvell ARM-based Octeon processors and the NVIDIA GPUs to accelerate video analytics and cybersecurity solutions. And in PCs, we are bringing together MediaTek's ARM-based processors with NVIDIA's RTX GPUs to enable realistic ray-traced graphics and cutting-edge AI in a new class of ARM-based laptops. On our ARM acquisition, We are making steady progress in working with the regulators across key regions. We remain on track to close the transaction within our original timeframe of early 2022. ARMS IP is widely used, but the company needs a partner that can help it achieve new heights. NVIDIA is uniquely positioned to enhance ARMS capabilities. And we are committed to invest in developing the ARM ecosystem, enhancing R&D, adding IP, and turbocharging its development to grow into new markets in the data center, IoT, and embedded devices, areas where it only has a light footprint, or in some cases, none at all. Moving to the rest of the P&L. Gap gross margin for the first quarter was down 100 basis points from a year earlier and up 100 basis points sequentially. Non-gap gross margin was up 40 basis points from a year earlier and up 70 basis points sequentially. The sequential non-gap increase was largely driven by a more favorable mix within data center and the addition of CMP products. Q1 gap EPS was 3.03, up 106% from a year earlier. Non-GAAP EPS was 3.66, up 103% from a year ago. Q1 cash flow from operations was $1.9 billion. Let me turn to the outlook for the second quarter of fiscal 2022. We expect broad-based sequential year-on-year revenue growth in all of our market platforms. Our outlook includes $400 million in CMP. Aside from CMP, the sequential revenue increase in our Q2 outlook is driven largely by data center and gaming. In data center, we expect sequential growth in both compute and networking. In gaming, With the move to low hash rate GeForce CPUs and increasing the amount of CMP products, we are making a significant effort to serve miners with CMPs and provide more GeForce cards to gamers. If there is additional CMP demand, we have supply flexibility to support it. We believe these actions combined with strong gaming demand will drive an increase in our core gaming business for Q2. Now, to look at our outlook for Q2, revenue is expected to be 6.3 billion, plus or minus 2%. GAAP and non-GAAP gross margins are expected to be 64.6% and 66.5%, respectively, plus or minus 50 basis points. GAAP and non-GAAP operating expenses are expected to be approximately 1.76 billion and 1.26 billion, respectively. GAAP and non-GAAP other income and expenses are both expected to be an expense of approximately 50 million. Gap and non-gap tax rates are both expected to be 10%, plus or minus 1%, excluding discrete items. Capital expenditures are expected to be approximately $300 million to $325 million. Further financial details are included in the CFO commentary and other information available on our IR website. Let me highlight that Jeff Fisher and Manavir Das will keynote Computex on the evening of May 31st U.S. time, as well as several upcoming events for the financial community. We'll be virtually attending the Evercore TMT Conference on June 7th, the B of A 2021 Global Technology Conference on June 9th, and the NASDAQ Virtual Investor Conference on June 16th. Our earnings call to discuss our second quarter results is scheduled for Wednesday, August 18th. With now, we will open the call for questions. Operator, would you please pose for questions?