Broadcom Inc. Announces Third Quarter Fiscal Year 2018 Financial Results and Quarterly Dividend

SAN JOSE, Calif., Sept. 6, 2018 /PRNewswire/ -- Broadcom Inc. (Nasdaq: AVGO), a leading semiconductor device supplier to the wired, wireless, enterprise storage, and industrial end markets, today reported financial results for its third quarter of fiscal year 2018, ended August 5, 2018, provided guidance for the fourth quarter of its fiscal year 2018 and announced a quarterly dividend.

"Datacenter demand is driving strong growth in more than 50 percent of our consolidated revenue," said Hock Tan, President and CEO of Broadcom Inc. "Through the strength of our franchise business model, we delivered another quarter of sustained revenues and strong free cash flows."

"During the quarter, we repurchased 24 million shares, returning approximately $5.38 billion to our stockholders," said Tom Krause, CFO of Broadcom. "Consistent with our stated capital allocation plan, we intend to return to stockholders 50 percent of the prior fiscal year free cash flow in the form of cash dividends. With the balance of our free cash flow, we have the financial flexibility to fund a combination of share repurchases and future acquisitions to expand earnings capacity."

Third Quarter Fiscal Year 2018 GAAP Results

Net revenue was $5,063 million, an increase of 1 percent from $5,014 million in the previous quarter and an increase of 13 percent from $4,463 million in the same quarter last year.

Gross margin was $2,619 million, or 51.7 percent of net revenue. This compares with gross margin of $2,551 million, or 50.9 percent of net revenue, in the prior quarter, and gross margin of $2,149 million, or 48.2 percent of net revenue, in the same quarter last year.

Operating expenses were $1,280 million. This compares with $1,350 million in the prior quarter and $1,501 million in the same quarter last year.

Operating income was $1,339 million, or 26.4 percent of net revenue. This compares with operating income of $1,201 million, or 24.0 percent of net revenue, in the prior quarter, and operating income of $648 million, or 14.5 percent of net revenue, in the same quarter last year.

Net income, which includes the impact of discontinued operations, was $1,196 million, or $2.71 per diluted share. This compares with net income of $3,733 million, or $8.33 per diluted share, in the prior quarter, and net income of $507 million, or $1.14 per diluted share, in the same quarter last year.

The Company's cash balance at the end of the third fiscal quarter was $4,136 million, compared to $8,187 million at the end of the prior quarter.

During the third fiscal quarter, the Company generated $2,247 million in cash from operations and spent $5,378 million repurchasing an aggregate of 24 million shares and $120 million in capital expenditures.

On June 29, 2018, the Company paid a cash dividend of $1.75 per share of common stock, totaling $754 million.

Third Quarter Fiscal Year 2018 Non-GAAP Results From Continuing Operations

The differences between the Company's GAAP and non-GAAP results are described generally under "Non-GAAP Financial Measures" below, and presented in detail in the financial reconciliation tables attached to this release.

Net revenue from continuing operations was $5,066 million, an increase of 1 percent from $5,017 million in the previous quarter, and an increase of 13 percent from $4,467 million in the same quarter last year.

Gross margin from continuing operations was $3,410 million, or 67.3 percent of net revenue. This compares with gross margin from continuing operations of $3,342 million, or 66.6 percent of net revenue, in the prior quarter, and $2,827 million, or 63.3 percent of net revenue, in the same quarter last year.

Operating income from continuing operations was $2,536 million, or 50.1 percent of net revenue. This compares with operating income from continuing operations of $2,455 million, or 48.9 percent of net revenue, in the prior quarter, and $2,059 million, or 46.1 percent of net revenue, in the same quarter last year.

Net income from continuing operations was $2,257 million, or $4.98 per diluted share. This compares with net income of $2,243 million, or $4.88 per diluted share, in the prior quarter, and net income of $1,871 million, or $4.10 per diluted share, in the same quarter last year.

Free cash flow, defined as cash from operations less capital expenditures, was $2,127 million in the quarter.

Other Quarterly Data

Fourth Quarter Fiscal Year 2018 Business Outlook

Based on current business trends and conditions, the outlook for continuing operations for the fourth quarter of fiscal year 2018, ending November 4, 2018, is expected to be as follows: 

• Non-GAAP net revenue includes $3 million of licensing revenue not included in GAAP revenue, as a result of the effects of purchase accounting for acquisitions;
                                                                                     
• Non-GAAP gross margin includes the effects of $3 million of licensing revenue, and excludes the effects of $763 million of amortization of acquisition-related intangible assets, $25 million of stock-based compensation expense, $1 million of restructuring charges and $1 million of acquisition-related costs;
                                                                                     
• Non-GAAP operating expenses exclude $298 million of stock-based compensation expense, $67 million of amortization of acquisition-related intangible assets, $15 million of acquisition-related costs, and $5 million of restructuring charges;
                                                                                     
• Non-GAAP tax provision is 3% higher than GAAP due to the tax effects of the projected reconciling items noted above;
                                                                                     
• Non-GAAP diluted share count excludes the impact of stock-based compensation expense expected to be incurred in future periods and not yet recognized in the Company's financial statements, which would otherwise be assumed to be used to repurchase shares under the GAAP treasury stock method; and
                                                                                     
• Diluted share count outlook does not include the impact from any stock repurchases after August 5, 2018.

Capital expenditures for the fourth fiscal quarter are expected to be approximately $110 million. For the fourth fiscal quarter, depreciation is expected to be $135 million and amortization is expected to be approximately $835 million.

The guidance provided above is only an estimate of what the Company believes is realizable as of the date of this release. Among other things, this guidance is based on an initial estimate of purchase accounting adjustments and allocations, all of which are subject to revision. The guidance excludes any results from the pending acquisition of CA Technologies. The guidance also excludes the impact of any additional mergers, acquisitions, divestiture and stock repurchase activity that may occur during the fourth quarter. Actual results will vary from the guidance and the variations may be material. The Company undertakes no intent or obligation to publicly update or revise any of these projections, whether as a result of new information, future events or otherwise, except as required by law.

Broadcom will be presenting to investors at the Deutsche Bank Technology Conference in Las Vegas on September 12, 2018.

Acquisition of CA Technologies

As announced on July 11, 2018, Broadcom and CA Technologies have entered into a definitive agreement under which Broadcom will acquire CA Technologies (NASDAQ:CA), one of the world's leading providers of information technology (IT) management software and solutions, in an all cash transaction that represents an equity value of approximately $18.9 billion, and an enterprise value of approximately $18.4 billion.

As previously announced, the transaction has received approval under the Hart-Scott-Rodino (HSR) Antitrust Improvements Act of 1976. The transaction remains subject to customary closing conditions, including the approval of CA shareholders and antitrust approvals in the EU and Japan. The closing of the transaction is expected to occur in the fourth calendar quarter of 2018.

Quarterly Dividend

The Company's Board of Directors has approved a quarterly cash dividend of $1.75 per share.

The dividend is payable on September 28, 2018 to stockholders of record at the close of business (5:00 p.m.) Eastern Time on September 19, 2018.

Financial Results Conference Call

Broadcom Inc. will host a conference call to review its financial results for the third quarter of fiscal year 2018, ended August 5, 2018, and to provide guidance for the fourth quarter of fiscal year 2018, today at 2:00 p.m. Pacific Time. Those wishing to access the call should dial (866) 310-8712; International +1 (720) 634-2946. The passcode is 4968519. A replay of the call will be accessible for one week after the call. To access the replay dial (855) 859-2056; International +1 (404) 537-3406; and reference the passcode: 4968519. A webcast of the conference call will also be available in the "Investors" section of Broadcom's website at www.broadcom.com.

Basis of Presentation

Broadcom Inc. is the successor to Broadcom Limited for financial reporting purposes effective as of the close of trading on April 4, 2018. Information provided for fiscal periods beginning with the fiscal quarter ended May 6, 2018, relates to Broadcom Inc. and for prior fiscal periods relates to Broadcom Limited. Unless the context otherwise requires, references in this press release to "Broadcom," "the Company," "we," "our," "us" and similar terms are to Broadcom Inc. from and after the effective time of the redomiciliation and, prior to that time, are to our predecessor, Broadcom Limited.

The Company's financial results include contributions from Brocade Communication Systems' continuing operations starting in the first fiscal quarter of 2018. The financial results from businesses that have been classified as discontinued operations in the Company's financial statements are not included in the results presented below, unless otherwise stated.

Due to the Company's 52/53 week reporting cycle, fiscal year 2018 includes an extra week in the first quarter, compared to fiscal year 2017.

Non-GAAP Financial Measures

In addition to GAAP reporting, Broadcom provides investors with net revenue, net income, operating income, gross margin, operating expenses and other data on a non-GAAP basis. This non-GAAP information includes the effect, where applicable, of purchase accounting on revenue, and excludes amortization of acquisition-related intangible assets, stock-based compensation expense, restructuring, impairment and disposal charges, acquisition-related costs, including integration costs, purchase accounting effect on inventory, litigation settlements, debt-related costs, gain (loss) on extinguishment of debt, gain (loss) on acquisition-related assets, income (loss) from discontinued operations and non-GAAP tax reconciling adjustments. Management does not believe that these items are reflective of the Company's underlying performance. Internally, these non-GAAP measures are significant measures used by management for purposes of evaluating the core operating performance of the Company, establishing internal budgets, calculating return on investment for development programs and growth initiatives, comparing performance with internal forecasts and targeted business models, strategic planning, evaluating and valuing potential acquisition candidates and how their operations compare to the Company's operations, and benchmarking performance externally against the Company's competitors. The exclusion of these and other similar items from Broadcom's non-GAAP financial results should not be interpreted as implying that these items are non-recurring, infrequent or unusual. Broadcom believes this non-GAAP financial information provides additional insight into the Company's on-going performance and has therefore chosen to provide this information to investors for a more consistent basis of comparison and to help them evaluate the results of the Company's on-going operations and enable more meaningful period to period comparisons. These non-GAAP measures are provided in addition to, and not as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. A reconciliation between GAAP and non-GAAP financial data is included in the supplemental financial data attached to this press release.

About Broadcom Inc.

Broadcom Inc. (NASDAQ:AVGO), a Delaware corporation headquartered in San Jose, CA, is a leading designer, developer and global supplier of a broad range of digital and analog semiconductor connectivity solutions. Broadcom Inc.'s extensive product portfolio serves four primary end markets: wired infrastructure, wireless communications, enterprise storage and industrial & other. Applications for our products in these end markets include: data center networking, home connectivity, set-top box, broadband access, telecommunications equipment, smartphones and base stations, data center servers and storage, factory automation, power generation and alternative energy systems, and electronic displays.

Cautionary Note Regarding Forward-Looking Statements

This announcement contains forward-looking statements (including within the meaning of Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended) concerning Broadcom. These statements include, but are not limited to, statements regarding the expected completion and timing of our proposed acquisition of CA and statements that address our expected future business and financial performance and other statements identified by words such as "will", "expect", "believe", "anticipate", "estimate", "should", "intend", "plan", "potential", "predict" "project", "aim", and similar words, phrases or expressions. These forward-looking statements are based on current expectations and beliefs of the management of Broadcom, as well as assumptions made by, and information currently available to, such management, current market trends and market conditions and involve risks and uncertainties, many of which are outside the Company's and management's control, and which may cause actual results to differ materially from those contained in forward-looking statements. Accordingly, you should not place undue reliance on such statements.

Particular uncertainties that could materially affect future results include risks associated with: our proposed acquisition of CA, including (1) the acquisition may not be completed in a timely manner or at all, (2) the effect of the announcement or pendency of the proposed acquisition on our business relationships, operating results and business generally, (3) potential difficulties in employee retention, (4) risks related to diverting management's attention from ongoing business operations, and (5) the outcome of any legal proceedings related to the merger agreement or the proposed acquisition; any loss of our significant customers and fluctuations in the timing and volume of significant customer demand; our dependence on contract manufacturing and outsourced supply chain; our dependency on a limited number of suppliers; any other acquisitions we may make, such as delays, challenges and expenses associated with receiving governmental and regulatory approvals and satisfying other closing conditions, and with integrating acquired companies with our existing businesses and our ability to achieve the benefits, growth prospects and synergies expected by such acquisitions; our ability to accurately estimate customers' demand and adjust our manufacturing and supply chain accordingly; our significant indebtedness, including the additional significant indebtedness that we expect to incur in connection with the proposed acquisition of CA and the need to generate sufficient cash flows to service and repay such debt; dependence on a small number of markets and the rate of growth in these markets; dependence on and risks associated with distributors of our products; dependence on senior management; quarterly and annual fluctuations in operating results; global economic conditions and concerns; the amount and frequency of our stock repurchases; cyclicality in the semiconductor industry or in our target markets; our competitive performance and ability to continue achieving design wins with our customers, as well as the timing of any design wins; prolonged disruptions of our or our contract manufacturers' manufacturing facilities or other significant operations; our ability to improve our manufacturing efficiency and quality; our dependence on outsourced service providers for certain key business services and their ability to execute to our requirements; our ability to maintain or improve gross margin; our ability to protect our intellectual property and the unpredictability of any associated litigation expenses; any expenses or reputational damage associated with resolving customer product warranty and indemnification claims; our ability to sell to new types of customers and to keep pace with technological advances; market acceptance of the end products into which our products are designed; our overall cash tax costs, legislation that may impact our overall cash tax costs and our ability to maintain tax concessions in certain jurisdictions; and other events and trends on a national, regional and global scale, including those of a political, economic, business, competitive and regulatory nature.

Our filings with the SEC, which you may obtain for free at the SEC's website at http://www.sec.gov, discuss some of the important risk factors that may affect our business, results of operations and financial condition. Actual results may vary from the estimates provided. We undertake no intent or obligation to publicly update or revise any of the estimates and other forward-looking statements made in this announcement, whether as a result of new information, future events or otherwise, except as required by law.

Contact:
Investor Relations
408-433-8000
[email protected]

SOURCE Broadcom Inc.