Broadcom: Fiscal 1Q18 Financial Results

Broadcom Limited reported financial results for its first quarer of fiscal year 2018, ended February 4, 2018, provided guidance for the second quarter of its fiscal year 2018, and announced a quarterly interim dividend.

Basis of Presentation
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.

First Quarter Fiscal Year 2018 GAAP Results

• Net revenue was $5,327 million, an increase of 10% from $4,844 million in the previous quarter and an increase of 29% from $4,139 million in the same quarter last year.
• Gross margin was $2,628 million, or 49.3% of net revenue. This compares with gross margin of $2,383 million, or 49.2% of net revenue, in the prior quarter, and gross margin of $2,001 million, or 48.3% of net revenue, in the same quarter last year.
• Operating expenses were $1,685 million. This compares with $1,628 million in the prior quarter and $1,495 million for the same quarter last year.
• Operating income was $943 million, or 17.7% of net revenue. This compares with operating income of $755 million, or 15.6% of net revenue, in the prior quarter, and operating income of $506 million, or 12.2% of net revenue, in the same quarter last year.
• Net income, which includes the impact of discontinued operations, was $6,566 million, or $14.62 per diluted share. This compares with net income of $561 million, or $1.25 per diluted share, for the prior quarter, and net income of $252 million, or $0.57 per diluted share, in the same quarter last year. First quarter fiscal year 2018 net income reflects the significant impact of provisional income tax benefits realized from the enactment of the U.S. Tax Cuts and Jobs Act.
• Net income attributable to ordinary shares was $6,230 million. Net income attributable to the noncontrolling interest (exchangeable limited partnership unit) in the company’s subsidiary, Broadcom Cayman L.P., was $336 million.

The company’s cash and cash equivalents at the end of the first fiscal quarter was $7,076 million, compared to $11,204 million at the end of the prior quarter.

During the first quarter, the company generated $1,685 million in cash from operations and received $782 million from the sale of businesses, and $237 million from the sale of real property. In the first quarter, the company spent $5,642 million on acquisitions of businesses including payment of assumed debt, $244 million on the purchase of investments and $220 million on capital expenditures.

On December 29, 2017, the company paid a cash dividend of $1.75 per ordinary share, totaling $717 million. On the same date, the Partnership, of which the company is the General Partner, paid holders of LP Units a corresponding distribution of $1.75 per LP Unit, totaling $38 million.

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

• Net revenue from continuing operations was $5,331 million, an increase of 10% from $4,848 million in the previous quarter, and an increase of 28% from $4,149 million in the same quarter last year.
• Gross margin from continuing operations was $3,454 million, or 64.8% of net revenue. This compares with gross margin of $3,068 million, or 63.3% of net revenue, in the prior quarter, and gross margin of $2,590 million, or 62.4% of net revenue, in the same quarter last year.
• Operating income from continuing operations was $2,571 million, or 48.2% of net revenue. This compares with operating income from continuing operations of $2,293 million, or 47.3% of net revenue, in the prior quarter, and $1,806 million, or 43.5% of net revenue, in the same quarter last year.
• Net income from continuing operations was $2,345 million, or $5.12 per diluted share. This compares with net income of $2,091 million, or $4.59 per diluted share last quarter, and net income of $1,627 million, or $3.63 per diluted share, in the same quarter last year.

“We had a very good start to our fiscal year 2018 delivering first quarter revenue and earnings towards the upper end of guidance,” said Hock Tan, president and CEO. “In the second quarter, we expect to sustain topline momentum with strong data center demand for our networking and enterprise storage products, and a seasonal recovery in broadband access, to offset a sharp seasonal decline in wireless. Importantly, we expect gross margin to expand and drive free cash flow above our long term target of 40% of revenue.”