Avago: Fiscal 4Q14 Financial Results

Avago Technologies Limited, semiconductor device supplier to the enterprise storage, wired, wireless and industrial end markets, reported financial results for the fourth fiscal quarter and fiscal year ended November 2, 2014, and provided guidance for the first quarter of its fiscal year 2015.

Basis of Presentation
Avago completed the acquisitions of LSI Corporation on May 6, 2014 and of PLX Technology Inc. on August 12, 2014. Avago’s results include the operating results from LSI starting the third fiscal quarter of 2014 and from PLX starting in the fourth fiscal quarter of 2014. Avago also recently completed its dispositions of LSI’s flash and Axxia networking businesses. The financial results from the flash and Axxia businesses have been classified as discontinued operations in the company’s financial statements and the results of operations from these businesses are not included in the results presented below, unless otherwise stated.

4FQ14 GAAP Results from Continuing Operations

• Net revenue from continuing operations was $1,590 million, an increase of 25% from $1,269 million in the previous quarter and an increase of 115% from $738 million in the same quarter last year.
• Gross margin from continuing operations was $788 million, or 50% of net revenue. This compares with gross margin of $393 million, or 31% of net revenue last quarter, and gross margin of $346 million, or 47% of net revenue in the same quarter last year.
• Operating expenses from continuing operations were $487 million. This compares with $555 million in the prior quarter and $176 million for the same quarter last year.
• Income from operations was $301 million. This compares with a loss from operations of $162 million in the prior quarter and with income from operations of $170 million in the same quarter last year.
• Fourth quarter net income, which includes the impact of discontinued operations, was $135 million, or $0.50 per diluted share. This compares with a net loss of $164 million, or ($0.65) per diluted share, for the prior quarter, and net income of $172 million, or $0.68 per diluted share, in the same quarter last year.
• The company’s cash balance at the end of the fourth fiscal quarter was $1.6 billion, compared to $1.3 billion at the end of the prior quarter.
• The company generated $381 million in cash from operations in the fourth quarter and spent $189 million on capital expenditures.
• On September 30, 2014 the company paid a quarterly cash dividend of $0.32 per ordinary share, totaling approximately $81 million.

4FQ14 Non-GAAP Results From Continuing Operations

• Net revenue from continuing operations was $1,610 million, an increase of 25% from $1,287 million in the previous quarter and an increase of 118% from $738 million in the same quarter last year.
• Gross margin from continuing operations was $939 million, or 58% of net revenue. This compares with gross margin of $735 million, or 57% of net revenue last quarter, and gross margin of $374 million, or 51% of net revenue in the same quarter last year.
• Income from continuing operations was $636 million, a 49% increase from $428 million in the prior quarter. Income from continuing operations was $229 million in the same quarter last year.
• Net income from continuing operations was $556 million, or $1.99 per diluted share. This compares with net income of $347 million, or $1.26 per diluted share last quarter, and net income of $227 million, or $0.89 per diluted share in the same quarter last year.

“We are very pleased with our fourth quarter performance where we sequentially grew revenue by 25% and operating income by 49%,” said Hock Tan, president and CEO, Avago. “And we expect our business to sustain into the first quarter of 2015.”

FY14 Financial Results From Continuing Operations

• GAAP net revenue from continuing operations was $4,269 million, an increase of 69% from $2,520 million in the prior year. GAAP gross margin was $1,877 million, or 44% of net revenue versus $1,198 million, or 48% of net revenue in fiscal year 2013. GAAP income from operations was $438 million. This compares with $552 million in the prior year. GAAP net income, which includes the impact from discontinued operations, was $263 million, or $0.99 per diluted share. This compares with GAAP net income of $552 million, or $2.19 per diluted share in fiscal year 2013.
• Non-GAAP net revenue from continuing operations was $4,307 million, an increase of 71% from $2,520 million in the prior year. Non-GAAP gross margin was $2,421 million, or 56% of net revenue versus $1,282 million, or 51% of net revenue in fiscal year 2013. Non-GAAP income from continuing operations was $1,521 million. This compares with $740 million in the prior year. Non-GAAP net income was $1,343 million, or $4.90 per diluted share. This compares with Non-GAAP net income of $731 million, or $2.89 per diluted share in fiscal year 2013.

Reconciling items include:

• Non-GAAP revenue includes $21 million of LSI intellectual property licensing revenue, not included in GAAP revenue as a result of the effects of purchase accounting for the LSI acquisition;   
• Non-GAAP gross margin includes the effects of $21 million of LSI IP licensing revenue and excludes the effects of $113 million of amortization of intangible assets, $6 million of share-based compensation expense, $2 million of restructuring charges, and $4 million of inventory step-up charges to record PLX inventory at fair value, as part of the purchase accounting for the PLX Technology acquisition;
• Non-GAAP operating expenses exclude $59 million of amortization of intangible assets, $45 million of share-based compensation, $11 million of restructuring charges, and $16 million of acquisition-related costs; and
• $4 million provision at the taxes line, which represents the tax effects of the reconciling items noted above.
• Capital expenditures for full fiscal year 2015 are expected to be approximately $600 million, of which approximately $200 million is expected to occur in the first quarter. For the first quarter depreciation is expected to be $52 million and amortization is expected to be $172 million.