10-QPeriod: Q2 FY2018

Broadcom Inc. Quarterly Report for Q2 Ended May 6, 2018

Filed June 14, 2018For Securities:AVGO

Summary

Broadcom Inc. reported robust financial performance for the fiscal quarter ending May 5, 2018, showcasing significant year-over-year growth in net revenue and operating income. This period was marked by the completion of the Redomiciliation Transaction, moving Broadcom Inc. to a U.S. domicile, and the successful integration of Brocade Communications Systems, Inc., acquired in late 2017. The company demonstrated strong operational execution, with increased gross margins and healthy cash flow generation from operations. While cash and cash equivalents saw a decrease due to strategic investments and debt repayment, the company maintained a strong liquidity position. Investors can look forward to continued focus on enhancing shareholder value through dividends and share repurchases, supported by Broadcom's diversified business segments and ongoing strategic initiatives.

Financial Highlights

55 data points
Beta

Revenue

$5.01B

50.9% Gross Margin

Net Income

$3.72B

74.2% Net Margin

EPS (Diluted)

$0.83

Total Assets

$54.94B

Cash & Equivalents

$8.19B

Free Cash Flow

$2.12B

Financial Statements
Beta
Revenue$5.01B
Cost of Revenue$2.46B
Gross Profit$2.55B
R&D Expenses$936.00M
SG&A Expenses$294.00M
Operating Expenses$1.35B
Operating Income$1.20B
Interest Expense$148.00M
Net Income$3.72B
EPS (Basic)$0.88
EPS (Diluted)$0.83
Shares Outstanding (Basic)4.21B
Shares Outstanding (Diluted)4.48B

Key Highlights

  • 1Net revenue increased by 20% year-over-year to $5,014 million for the fiscal quarter ended May 6, 2018.
  • 2Operating income saw a substantial increase of 153% year-over-year, reaching $1,201 million.
  • 3The company completed its Redomiciliation Transaction, establishing Broadcom Inc. as a U.S.-domiciled entity.
  • 4The acquisition of Brocade Communications Systems, Inc. contributed significantly to the Enterprise Storage segment's revenue growth.
  • 5Cash provided by operating activities was $3,998 million for the first two quarters of fiscal year 2018.
  • 6Broadcom paid $1,521 million in dividends and distributions and $347 million in stock repurchases during the first two quarters of fiscal year 2018.
  • 7A significant benefit from income taxes of $8,423 million was recorded for the first two fiscal quarters, largely due to the U.S. Tax Cuts and Jobs Act and the Redomiciliation Transaction.

Frequently Asked Questions

The acquisition of Brocade Communications Systems, Inc., completed in November 2017, significantly boosted Broadcom's Enterprise Storage segment revenue. The integration contributed to a substantial increase in net revenue and operating income for that segment, reflecting the strategic enhancement of Broadcom's enterprise storage connectivity solutions.

The Redomiciliation Transaction, completed in April 2018, moved Broadcom Inc.'s ultimate parent company to the U.S. from Singapore. For accounting purposes, financial statements prior to April 4, 2018, relate to the predecessor Broadcom-Singapore, and those after relate to Broadcom Inc. The transaction was accounted for as an exchange of equity interests among entities under common control, retaining historical basis of accounting. It also had a significant impact on the tax benefit recorded in the current period.

Broadcom maintained a strong liquidity position with $8,187 million in cash and cash equivalents as of May 6, 2018. The company expects to generate sufficient cash from operations to fund its business and obligations for at least the next 12 months. While strategic investments, such as the Brocade acquisition, and shareholder returns (dividends and share repurchases) have reduced cash balances, the company is focused on operational cash flow generation and has a substantial authorization for future share repurchases.

Broadcom recorded a substantial benefit from income taxes of $8,423 million for the first two fiscal quarters of 2018. This was primarily driven by provisional income tax benefits realized from the U.S. Tax Cuts and Jobs Act and the impact of the Redomiciliation Transaction. This included benefits from a one-time transition tax and remeasurement of withholding taxes on undistributed earnings.