Broadcom: Fiscal 4Q16 Financial Results

 Broadcom Limited reported financial results for the fourth fiscal quarter and fiscal year ended October 30, 2016, and provided guidance for the first quarter of its fiscal year 2017.

Broadcom Limited is the successor to Avago Technologies Limited. Following Avago’s acquisition of Broadcom Corporation on February 1, 2016, the company became the ultimate parent company of Avago and BRCM.

Financial results for the fiscal periods prior to the acquisition relate solely to the company’s predecessor, Avago. 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.

Fourth Quarter Fiscal Year 2016 GAAP Results

• Net revenue was $4,136 million, an increase of 9% from $3,792 million in the previous quarter and an increase of 125% from $1,840 million in the same quarter last year.
• Gross margin was $2,171 million, or 52.5% of net revenue. This compares with gross margin of $1,782 million, or 47.0% of net revenue, in the prior quarter, and gross margin of $997 million, or 54.2% of net revenue, in the same quarter last year.
• Operating expenses were $1,790 million. This compares with $2,046 million in the prior quarter and $483 million for the same quarter last year.
• Operating income was $381 million, or 9% of net revenue. This compares with operating loss of $264 million, or 7% of net revenue, in the prior quarter, and operating income of $514 million, or 28% of net revenue, in the same quarter last year.
• Net loss, which includes the impact of discontinued operations, was $668 million, or $1.59 per diluted share. This compares with net loss of $315 million, or $0.75 per diluted share, for the prior quarter, and net income of $429 million, or $1.49 per diluted share, in the same quarter last year.
• Net loss attributable to ordinary shares was $632 million. Net loss attributable to the non controlling interest (restricted exchangeable limited partnership units (REUs) in the company’s subsidiary, Broadcom Cayman L.P., was $36 million. 

The company’s cash balance at the end of the fourth fiscal quarter was $3,097 million, compared to $1,961 million at the end of the prior quarter. During the fourth quarter, the company generated $1,352 million in cash from operations and received $200 million in net cash proceeds from the completion of divestitures. In the fourth quarter, the company spent $193 million on capital expenditures.

On September 30, 2016, the company paid a cash dividend of $0.51 per ordinary share, totaling $202 million. On the same date, the partnership, of which the company is the general partner, paid holders of REUs a corresponding distribution of $0.51 per REU, totaling $11 million.

Fourth Quarter Fiscal Year 2016 Non-GAAP Results From Continuing Operations

• Net revenue from continuing operations was $4,146 million, an increase of 9% from $3,802 million in the previous quarter, and an increase of 124% from $1,853 million in the same quarter last year.
• Gross margin from continuing operations was $2,522 million, or 60.8% of net revenue. This compares with gross margin of $2,297 million, or 60.4% of net revenue, in the prior quarter, and gross margin of $1,149 million, or 62.0% of net revenue, in the same quarter last year.
• Operating income from continuing operations was $1,719 million, or 41% of net revenue. This compares with operating income from continuing operations of $1,489 million, or 39% of net revenue, in the prior quarter, and $811 million, or 44% of net revenue, in the same quarter last year.
• Net income from continuing operations was $1,549 million, or $3.47 per diluted share. This compares with net income of $1,293 million, or $2.89 per diluted share last quarter, and net income of $737 million, or $2.51 per diluted share, in the same quarter last year. 

“Fiscal 2016 was clearly transformative for our company with the acquisition of Broadcom Corporation. We finished the year on a very strong note, delivering a record level of revenue with 9% sequential revenue growth in the fourth quarter,” said Hock Tan, president and CEO. “Reflecting the operating leverage from our larger scale and improved profitability, we announced a doubling of our dividend.”

Fiscal Year 2016 Financial Results From Continuing Operations

• Net revenue from continuing operations was $13,240 million, an increase of 94% from $6,824 million in the prior year.
• Gross margin was $5,940 million, or 44.9% of net revenue, versus $3,553 million, or 52.1% of net revenue, in fiscal year 2015.
• Operating loss was $409 million compared with operating income of $1,632 million in the prior year.
• Net loss, which includes the impact from discontinued operations, was $1,861 million, or $4.86 per diluted share. This compares with net income of $1,364 million, or $4.85 per diluted share, in fiscal year 2015. Net loss attributable to ordinary shares was $1,739 million in fiscal year 2016.  Net loss attributable to the non controlling interest REUs in the Partnership was $122 million. 

Non-GAAP net revenue from continuing operations was $13,292 million, an increase of 92% from $6,905 million in the prior year. Non-GAAP gross margin was $8,046 million, or 60.5% of net revenue, versus $4,184 million, or 60.6% of net revenue, in fiscal year 2015. Non-GAAP operating income from continuing operations was $5,320 million. This compares with $2,926 million in the prior year. Non-GAAP net income was $4,672 million, or $11.45 per diluted share. This compares with non-GAAP net income of $2,613 million, or $8.98 per diluted share, in fiscal year 2015.

First Quarter Fiscal Year 2017 Business Outlook
Based on current business trends and conditions, the outlook for continuing operations for the first quarter of fiscal year 2017, ending January 29, 2017, is expected to be as follows:
•    Non-GAAP net revenue includes $10 million of licensing revenue not included in GAAP revenue, as a result of the effects of purchase accounting for acquisitions;
•    Non-GAAP gross margin includes the effects of $10 million of licensing revenue, and excludes the effects of $558 million of amortization of intangible assets, $14 million of share-based compensation expense, and $6 million of restructuring charges;
•    Non-GAAP operating expenses exclude $441 million of amortization of intangible assets, $196 million of share-based compensation expense, $30 million of acquisition-related costs, and $21 million of restructuring charges;
•    Non-GAAP tax provision excludes $40 million of tax provision representing the tax effects of the projected reconciling items noted above; and
•    Non-GAAP diluted share count excludes the impact of share-based compensation expense expected to be incurred in future periods and not yet recognized in the company’s financial statements, which would otherwise be assumed to be used to repurchase shares under the GAAP treasury stock method.

Capital expenditures for the first fiscal quarter are expected to be approximately $330 million. For the first fiscal quarter, depreciation is expected to be $116 million and amortization is expected to be approximately $999 million. Cash taxes expected to be paid during fiscal year 2017 are approximately $400 million.

Interim Dividend
The company’s board of directors has approved a quarterly, interim cash dividend of $1.02 per ordinary share. A corresponding distribution will also be paid by the Partnership, of which the company is the general partner, to holders of REUs, in the amount of $1.02 per REU. The dividend and the distribution are both payable on December 30, 2016 to shareholders or unitholders of record, as applicable, at the close of business (5:00 p.m.) Eastern Time on December 16, 2016.