10-QPeriod: Q2 FY2019

Broadcom Inc. Quarterly Report for Q2 Ended May 5, 2019

Filed June 14, 2019For Securities:AVGO

Summary

Broadcom Inc.'s (AVGO) second quarter fiscal year 2019 report (ended May 4, 2019) shows robust revenue growth, driven significantly by the integration of CA, Inc. acquired in November 2018. Total net revenue increased by 10% year-over-year to $5.52 billion, with the Infrastructure Software segment experiencing substantial growth, up 216% to $1.41 billion, primarily due to the CA acquisition. Conversely, the Semiconductor Solutions segment saw a 10% decline in revenue, reflecting softer demand in mobile and certain networking products. The company's financial performance benefited from strong gross margins, reaching 56% of net revenue, an improvement from 51% in the prior year quarter, largely due to the higher-margin software business. However, operating expenses rose considerably, up 58% year-over-year, primarily driven by increased amortization of acquisition-related intangible assets and higher restructuring, impairment, and disposal charges related to the CA integration. Net income attributable to common stock was $691 million, a significant decrease from $3.72 billion in the prior year quarter, largely due to the impact of the CA acquisition financing and associated expenses. Broadcom maintained a strong liquidity position with $5.33 billion in cash and cash equivalents. The company also actively managed its capital structure, issuing $11 billion in senior unsecured notes and establishing a commercial paper program, with proceeds used to repay a significant portion of its term loan facilities. Significant stock repurchases and dividend payments also continued, underscoring a focus on returning capital to shareholders.

Financial Highlights

56 data points
Beta

Revenue

$5.52B

56.0% Gross Margin

Net Income

$691.00M

12.5% Net Margin

EPS (Diluted)

$0.16

Total Assets

$70.92B

Cash & Equivalents

$5.33B

Free Cash Flow

$2.54B

Financial Statements
Beta
Revenue$5.52B
Cost of Revenue$2.43B
Gross Profit$3.09B
R&D Expenses$1.15B
SG&A Expenses$419.00M
Operating Expenses$2.12B
Operating Income$970.00M
Interest Expense$376.00M
Net Income$691.00M
EPS (Basic)$0.17
EPS (Diluted)$0.16
Shares Outstanding (Basic)3.97B
Shares Outstanding (Diluted)4.22B

Key Highlights

  • 1Total net revenue increased 10% year-over-year to $5.52 billion, largely due to the CA, Inc. acquisition.
  • 2Infrastructure Software segment revenue surged 216% year-over-year to $1.41 billion, a direct result of the CA integration.
  • 3Semiconductor Solutions segment revenue decreased 10% year-over-year to $4.09 billion, impacted by lower demand in wireless and certain networking products.
  • 4Gross margin improved to 56% of net revenue, up from 51% in the prior year quarter, driven by a favorable shift in revenue mix towards higher-margin software.
  • 5Operating expenses increased significantly (58% YoY) due to higher amortization of acquisition-related intangibles and restructuring charges associated with the CA integration.
  • 6Net income attributable to common stock decreased significantly to $691 million from $3.72 billion in the prior year quarter.
  • 7The company maintained a strong liquidity position with $5.33 billion in cash and cash equivalents and actively managed its debt structure.

Frequently Asked Questions

The primary driver of revenue growth was the acquisition and integration of CA, Inc., which significantly boosted the Infrastructure Software segment's performance. This acquisition contributed substantially to the 10% year-over-year increase in total net revenue.

The significant decrease in net income was primarily due to increased operating expenses, including higher amortization of acquisition-related intangible assets and restructuring charges related to the integration of CA, Inc. Additionally, financing costs associated with the acquisition also impacted profitability.

Broadcom demonstrated proactive capital management by issuing $11 billion in senior unsecured notes and establishing a commercial paper program, using these proceeds to repay a substantial portion of its term loans. The company also maintained a strong cash position of $5.33 billion and continued its share repurchase program and dividend payments.

The Semiconductor Solutions segment experienced a 10% revenue decline year-over-year, primarily due to softer demand for wireless content in mobile handsets and reduced demand for certain networking, server storage connectivity, and broadband products. The company also noted the expected impact of export restrictions on a key customer in the second half of fiscal year 2019.