10-QPeriod: Q3 FY2018

Broadcom Inc. Quarterly Report for Q3 Ended Aug 5, 2018

Filed September 13, 2018For Securities:AVGO

Summary

Broadcom Inc. reported strong financial performance for the fiscal quarter ending August 4, 2018, with net revenue increasing to $5,063 million, a 13% rise year-over-year. This growth was primarily driven by contributions from the Brocade FC SAN business and increased demand in the wired infrastructure segment, particularly for networking ASIC products. The company also saw a significant improvement in operating income, which more than doubled to $1,339 million, reflecting enhanced gross margins and effective cost management. Financially, Broadcom demonstrated robust cash flow generation, with $6,245 million in cash from operations for the first three quarters. The company also returned significant capital to shareholders through $2,275 million in dividends and distributions and $5,725 million in share repurchases during the period. A notable event was the pending acquisition of CA, Inc. for approximately $18.9 billion, which Broadcom intends to finance with cash on hand and new debt. The company also benefited from a significant income tax benefit of $8,391 million primarily related to the U.S. Tax Cuts and Jobs Act and its Redomiciliation Transaction.

Financial Highlights

57 data points
Beta

Revenue

$5.06B

51.7% Gross Margin

Net Income

$1.20B

23.6% Net Margin

EPS (Diluted)

$0.27

Total Assets

$50.37B

Cash & Equivalents

$4.14B

Free Cash Flow

$2.13B

Financial Statements
Beta
Revenue$5.06B
Cost of Revenue$2.44B
Gross Profit$2.62B
R&D Expenses$959.00M
SG&A Expenses$234.00M
Operating Expenses$1.28B
Operating Income$1.34B
Interest Expense$149.00M
Net Income$1.20B
EPS (Basic)$0.28
EPS (Diluted)$0.27
Shares Outstanding (Basic)4.30B
Shares Outstanding (Diluted)4.41B

Key Highlights

  • 1Net revenue for the fiscal quarter ending August 4, 2018, reached $5,063 million, a 13% increase compared to the same period last year, driven by growth in enterprise storage (Brocade acquisition) and wired infrastructure.
  • 2Operating income more than doubled year-over-year to $1,339 million, driven by higher net revenue and improved gross margin, which increased to 52% from 48%.
  • 3The company generated strong operating cash flow of $6,245 million for the first three quarters of fiscal year 2018.
  • 4Broadcom returned substantial capital to shareholders, repurchasing $5,725 million in common stock and paying $2,275 million in dividends and distributions during the first three quarters.
  • 5A significant income tax benefit of $8,391 million was recorded for the first three quarters, primarily due to provisional benefits from the U.S. Tax Cuts and Jobs Act and the Redomiciliation Transaction.
  • 6Broadcom announced a definitive agreement to acquire CA, Inc. for approximately $18.9 billion, expected to be financed by cash on hand and $18 billion in new debt financing.

Frequently Asked Questions

Broadcom's revenue growth of 13% to $5,063 million was primarily driven by the strong performance of its enterprise storage segment, significantly boosted by the acquisition of Brocade Communications Systems, Inc. The wired infrastructure segment also contributed positively due to increased demand for networking ASIC products and standard networking products for data centers and enterprises.

The acquisition of Brocade, completed in November 2017, significantly contributed to Broadcom's revenue and operating income growth, particularly within the enterprise storage segment. While it added to amortization of acquisition-related intangible assets and restructuring charges, the overall financial impact was positive, enhancing Broadcom's market position in enterprise storage connectivity solutions.

Broadcom announced on July 11, 2018, its agreement to acquire CA, Inc. for approximately $18.9 billion. This strategic move is intended to expand Broadcom's portfolio and market reach. The transaction is expected to be financed primarily through $18 billion in new debt financing, which will increase Broadcom's leverage. Investors will be closely watching the integration process and the realization of expected synergies.

The enactment of the U.S. Tax Cuts and Jobs Act significantly impacted Broadcom's financial results, leading to a substantial provisional income tax benefit of $8,391 million for the first three quarters of fiscal year 2018. This benefit primarily stemmed from the reduction in the U.S. corporate tax rate and the transition tax on accumulated non-U.S. earnings.