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Avago Technologies Limited Announces Third Quarter Fiscal Year 2013 Financial Results

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  • Net revenue of $644 million, up 15% sequentially and up 6% from Q3 last year; this includes $21 million contribution of net revenue from CyOptics
  • GAAP gross margin of 47.2 percent; Non-GAAP gross margin of 50.9 percent
  • GAAP diluted EPS of $0.56; Non-GAAP diluted EPS of $0.74

SAN JOSE, Calif. and SINGAPORE, Aug. 27, 2013 (GLOBE NEWSWIRE) -- Avago Technologies Limited (Nasdaq:AVGO), a leading supplier of analog interface components for communications, industrial, and consumer applications, today reported financial results for the third quarter of its fiscal year 2013, ended August 4, 2013, and provided guidance for the fourth quarter of its fiscal year 2013.

Third Quarter Fiscal Year 2013 GAAP Results

Net revenue was $644 million, an increase of 15 percent compared with the previous quarter and an increase of 6 percent from the same quarter last year. The Company completed its acquisition of CyOptics Inc. on June 28, 2013 and CyOptics contributed $21 million to total net revenue for the quarter.

Gross margin was $304 million, or 47.2 percent of net revenue. This compares with gross margin of $272 million, or 48.4 percent of net revenue last quarter, and gross margin of $295 million, or 48.7 percent of net revenue in the same quarter last year.

Operating expenses were $164 million. This compares with $154 million in the prior quarter and $146 million for the same quarter the previous year.

Income from operations was $140 million. This compares with $118 million in the prior quarter and with $149 million in the same quarter last year.

Third quarter net income was $142 million, or $0.56 per diluted share. This compares with net income of $113 million, or $0.45 per diluted share for the prior quarter, and net income of $145 million, or $0.58 per diluted share in the same quarter last year.

The Company's cash balance at the end of the second quarter was $863 million, compared to $1,219 million at the end of the prior quarter.

The Company generated $137 million in cash from operations in the third quarter and spent $65 million on capital expenditures. On June 28, 2013 the Company paid a quarterly cash dividend of 21 cents ($0.21) per ordinary share, totaling approximately $52 million. The Company also paid a total of approximately $400 million in cash on the closing of the CyOptics acquisition, including $27 million in management incentives that will be paid out over a three-year period.

Third Quarter Fiscal Year 2013 Non-GAAP Results

Gross margin was $328 million, or 50.9 percent of net revenue. This compares with gross margin of $288 million, or 51.2 percent of net revenue last quarter, and gross margin of $310 million, or 51.2 percent of net revenue in the same quarter last year.

Income from operations was $191 million. This compares with $158 million in the prior quarter and $186 million in the same quarter the previous year.

Net income was $188 million, or $0.74 per diluted share. This compares with net income of $153 million, or $0.61 per diluted share last quarter, and net income of $182 million, or $0.72 per diluted share in the same quarter last year.

Third Quarter Fiscal Year 2013 Non-GAAP Results Change
(Dollars in millions, except EPS) Q3 13 Q2 13 Q3 12 Q/Q Y/Y
Net Revenue $644 $562 $606 14.6% 6.3%
Gross Margin 50.9% 51.2% 51.2% -30bps -30bps
Operating Expenses $137 $130 $124 +$7 +$13
Net Income $188 $153 $182 +$35 +$6
Earnings Per Share - Diluted $0.74 $0.61 $0.72 +$0.13 +$0.02

"During the third quarter, strong demand from datacenter spending and a significant uptick in industrial more than offset weaker than expected demand in wireless." said Hock Tan, President and CEO of Avago Technologies Limited. "Momentum in our business continues into the fourth quarter. We expect very strong product ramps in wireless and sustained growth in non-CyOptics wired, together with a full quarter of CyOptics revenue, to drive double-digit sequential revenue growth on a percentage basis."

Other Quarterly Data

Percentage of Net Revenue Growth Rates
Net Revenues by Target Market Q3 13 Q2 13 Q3 12 Q/Q Y/Y
Wireless Communications 45 50 40 3% 20%
Wired Infrastructure 31 27 29 32% 17%
Industrial & Other 24 23 31 18% -20%

[1] Includes net revenues from the CyOptics business.

Key Statistics Q3 13 Q2 13 Q3 12
(Dollars in millions)
Cash From Operations $137 $191 $128
Depreciation $26 $22 $20
Amortization $20 $20 $20
Capital Expenditures $65 $47 $65
Days Sales Outstanding 52 44 50
Inventory Days On Hand 82 76 66

Fourth Quarter Fiscal Year 2013 Business Outlook

Based on current business trends and conditions, the outlook for the fourth quarter of fiscal year 2013, ending November 3, 2013, is expected to be as follows:

GAAP Reconciling Items Non-GAAP
Sequential Change in Net Revenue Up 12% to 15% Up 12% to 15%
Gross Margin 46.0% plus/minus 1% $29M 50.0% plus/minus 1%
Operating Expenses $178M $33M $145M
Taxes $6M $6M $12M
Diluted Share Count 253M 1M 254M

Reconciling items include $17 million of amortization of intangible assets, $3 million of share-based compensation expense, and $9 million of acquisition-related costs at the Gross Margin line, and $7 million of amortization of intangible assets, $18 million of share-based compensation, $1 million of restructuring charges, and $7 million of acquisition-related costs at the Operating Expenses line. The reconciling item of $6 million at the Taxes line represents the tax effects of the reconciling items noted above.

Capital expenditures for the fourth quarter are expected to be approximately $67 million. For the fourth quarter depreciation is expected to be $27 million and amortization is expected to be $24 million.

The guidance provided above is only an estimate of what the Company believes is realizable as of the date of this release. The guidance excludes any impact from share repurchases or mergers and acquisitions activity that may occur during the quarter. Actual results will vary from the guidance and the variations may be material. The Company undertakes no intent or obligation to publicly update or revise any of these projections, whether as a result of new information, future events or otherwise, except as required by law.

Avago Technologies Limited will be presenting and meeting with investors at the Deutsche Bank Technology Conference in Las Vegas on September 11, 2013.

Financial Results Conference Call

Avago Technologies Limited will host a conference call to review its financial results for the third quarter fiscal year 2013, and to provide guidance for the fourth quarter of fiscal year 2013, today at 2:00 p.m. Pacific Time. Those wishing to access the call should dial (866) 788-0544; International +1 (857) 350-1682. The passcode is 89710834. A replay of the call will be available through September 3, 2013. To access the replay dial (888) 286-8010; International +1 (617) 801-6888 and reference the passcode: 67275356. A webcast of the conference call will also be available in the "Investors" section of Avago's website at www.avagotech.com.

Non-GAAP Financial Measures

In addition to GAAP reporting, Avago provides investors with net income, income from operations, gross margin, operating expenses and other data, on a non-GAAP basis. This non-GAAP information excludes amortization of intangible assets, share-based compensation expense, restructuring charges, acquisition-related costs and the income tax effects of these excluded items. Management does not believe that the excluded items are reflective of the Company's underlying performance. The exclusion of these and other similar items from Avago's non-GAAP presentation should not be interpreted as implying that these items are non-recurring, infrequent or unusual. Avago believes this non-GAAP financial information provides additional insight into the Company's on-going performance and has therefore chosen to provide this information to investors for a more consistent basis of comparison and to help them evaluate the results of the Company's on-going operations and enable more meaningful period to period comparisons. These non-GAAP measures are provided in addition to, and not as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. A reconciliation between GAAP and non-GAAP financial data is included in the supplemental financial data attached to this press release.

About Avago Technologies Limited

Avago Technologies Limited is a leading designer, developer and global supplier of a broad range of analog semiconductor devices with a focus on III-V based products. Our product portfolio is extensive and includes thousands of products in three primary target markets: wireless communications, wired infrastructure and industrial & other.

Cautionary Note Regarding Forward-Looking Statements

This announcement contains forward-looking statements which address our expected future business and financial performance. These forward-looking statements are based on current expectations, estimates, forecasts and projections of future Company or industry performance, based on management's judgment, beliefs, current trends and market conditions, and involve risks and uncertainties that may cause actual results to differ materially from those contained in the forward-looking statements. Accordingly, we caution you not to place undue reliance on these statements. For Avago, particular uncertainties that could materially affect future results include global economic conditions and concerns; cyclicality in the semiconductor industry or in our target markets; quarterly and annual fluctuations in operating results; loss of our significant customers; increased dependence on the volatile, wireless handset market; our competitive performance and ability to continue achieving design wins with our customers; market acceptance of the end products into which our products are designed; our ability to achieve the growth prospects and synergies expected from acquisitions we may make, including CyOptics; delays, challenges and expenses associated with integrating acquired companies with our existing businesses, including CyOptics; our dependence on contract manufacturing and outsourced supply chain and our ability to improve our cost structure through our manufacturing outsourcing program; prolonged disruptions of our or our contract manufacturers' manufacturing facilities or other significant operations; our dependence on outsourced service providers for certain key business services and their ability to execute to our requirements; our ability to maintain or improve gross margin; our ability to maintain tax concessions in certain jurisdictions; our ability to protect our intellectual property and any associated increases in litigation expenses; dependence on and risks associated with distributors of our products; any expenses associated with resolving customer product and warranty and indemnification claims; and other events and trends on a national, regional and global scale, including those of a political, economic, business, competitive and regulatory nature. Our Quarterly Report on Form 10-Q filed on June 7, 2013 and other filings with the Securities and Exchange Commission, or "SEC" (which you may obtain for free at the SEC's website at http://www.sec.gov) discuss some of the important risk factors that may affect our business, results of operations and financial condition. We undertake no intent or obligation to publicly update or revise any of these forward looking statements, whether as a result of new information, future events or otherwise, except as required by law.

AVAGO TECHNOLOGIES LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
(IN MILLIONS, EXCEPT PER SHARE DATA)
Fiscal Quarter Ended Three Fiscal Quarters Ended
August 4, May 5, July 29, August 4, July 29,
2013 2013 2012 2013 2012
Net revenue $ 644 $ 562 $ 606 $ 1,782 $ 1,746
Cost of products sold:
Cost of products sold 325 276 297 887 860
Amortization of intangible assets 14 14 14 42 42
Restructuring charges 1 -- -- 1 1
Total cost of products sold 340 290 311 930 903
Gross margin 304 272 295 852 843
Research and development 101 95 89 289 255
Selling, general and administrative 57 52 49 162 150
Amortization of intangible assets 6 6 6 17 16
Restructuring charges -- 1 2 2 4
Total operating expenses 164 154 146 470 425
Income from operations 140 118 149 382 418
Interest expense (1) (1) -- (2) (1)
Other income, net 5 1 1 8 3
Income before income taxes 144 118 150 388 420
Provision for income taxes 2 5 5 8 16
Net income $ 142 $ 113 $ 145 $ 380 $ 404
Net income per share:
Basic $ 0.57 $ 0.46 $ 0.59 $ 1.54 $ 1.65
Diluted $ 0.56 $ 0.45 $ 0.58 $ 1.51 $ 1.61
Shares used in per share calculations:
Basic 248 246 245 246 245
Diluted 252 251 250 251 251
Share-based compensation expense included in:
Cost of products sold $ 3 $ 2 $ 1 $ 7 $ 4
Research and development 8 7 6 22 15
Selling, general and administrative 9 8 8 26 20
Total share-based compensation expense $ 20 $ 17 $ 15 $ 55 $ 39
AVAGO TECHNOLOGIES LIMITED
NON-GAAP FINANCIAL SUMMARY - UNAUDITED(1)
(IN MILLIONS, EXCEPT PERCENTAGES AND PER SHARE DATA)
Fiscal Quarter Ended Three Fiscal Quarters Ended
August 4, May 5, July 29, August 4, July 29,
2013 2013 2012 2013 2012
Net revenue $ 644 $ 562 $ 606 $ 1,782 $ 1,746
Gross margin $ 328 $ 288 $ 310 $ 908 $ 890
% of net revenue 51% 51% 51% 51% 51%
Research and development $ 91 $ 88 $ 83 $ 265 $ 240
Selling, general and administrative $ 46 $ 42 $ 41 $ 132 $ 130
Total operating expenses $ 137 $ 130 $ 124 $ 397 $ 370
% of net revenue 21% 23% 20% 22% 21%
Income from operations $ 191 $ 158 $ 186 $ 511 $ 520
Income before income taxes $ 195 $ 158 $ 187 $ 517 $ 522
Provision for income taxes $ 7 $ 5 $ 5 $ 13 $ 16
Net income $ 188 $ 153 $ 182 $ 504 $ 506
Net income per share - diluted $ 0.74 $ 0.61 $ 0.72 $ 1.99 $ 1.99
Shares used in per share calculation - diluted 253 252 252 253 254
(1) A reconciliation of the non-GAAP measures presented above to the most directly comparable GAAP financial data appears on the next page. These non-GAAP measures are provided in addition to and not as a substitute for measures of financial performance prepared in accordance with GAAP. The financial summary excludes amortization of intangible assets, share-based compensation expense, restructuring charges, acquisition-related costs and income tax effects of non-GAAP reconciling adjustments.
AVAGO TECHNOLOGIES LIMITED
FINANCIAL RECONCILIATION: GAAP TO NON-GAAP - UNAUDITED
(IN MILLIONS)
Fiscal Quarter Ended Three Fiscal Quarters Ended
August 4, May 5, July 29, August 4, July 29,
2013 2013 2012 2013 2012
Net income on GAAP basis $ 142 $ 113 $ 145 $ 380 $ 404
Amortization of intangible assets 20 20 20 59 58
Share-based compensation expense 20 17 15 55 39
Restructuring charges 1 1 2 3 5
Acquisition-related costs 10 2 -- 12 --
Income tax effects of non-GAAP reconciling adjustments (5) -- -- (5) --
Net income on Non-GAAP basis $ 188 $ 153 $ 182 $ 504 $ 506
Gross margin on GAAP basis $ 304 $ 272 $ 295 $ 852 $ 843
Amortization of intangible assets 14 14 14 42 42
Share-based compensation expense 3 2 1 7 4
Restructuring charges 1 -- -- 1 1
Acquisition-related costs 6 -- -- 6 --
Gross margin on Non-GAAP basis $ 328 $ 288 $ 310 $ 908 $ 890
Research and development on GAAP basis 101 95 $ 89 289 $ 255
Share-based compensation expense 8 7 6 22 15
Acquisition-related costs 2 -- -- 2 --
Research and development on Non-GAAP basis $ 91 $ 88 $ 83 $ 265 $ 240
Selling, general and administrative on GAAP basis $ 57 $ 52 $ 49 $ 162 $ 150
Share-based compensation expense 9 8 8 26 20
Acquisition-related costs 2 2 -- 4 --
Selling, general and administrative on Non-GAAP basis $ 46 $ 42 $ 41 $ 132 $ 130
Total operating expenses on GAAP basis $ 164 $ 154 $ 146 $ 470 $ 425
Amortization of intangible assets 6 6 6 17 16
Share-based compensation expense 17 15 14 48 35
Restructuring charges -- 1 2 2 4
Acquisition-related costs 4 2 -- 6 --
Total operating expenses on Non-GAAP basis $ 137 $ 130 $ 124 $ 397 $ 370
Income from operations on GAAP basis $ 140 $ 118 $ 149 $ 382 $ 418
Amortization of intangible assets 20 20 20 59 58
Share-based compensation expense 20 17 15 55 39
Restructuring charges 1 1 2 3 5
Acquisition-related costs 10 2 -- 12 --
Income from operations on Non-GAAP basis $ 191 $ 158 $ 186 $ 511 $ 520
--
Income before income taxes on GAAP basis $ 144 $ 118 $ 150 $ 388 $ 420
Amortization of intangible assets 20 20 20 59 58
Share-based compensation expense 20 17 15 55 39
Restructuring charges 1 1 2 3 5
Acquisition-related costs 10 2 -- 12 --
Income before income taxes on Non-GAAP basis $ 195 $ 158 $ 187 $ 517 $ 522
Provision for income taxes on GAAP basis $ 2 $ 5 $ 5 $ 8 $ 16
Income tax effects of non-GAAP reconciling adjustments 5 -- -- 5 --
Provision for income taxes on non-GAAP basis $ 7 $ 5 $ 5 $ 13 $ 16
Shares used in per share calculation - diluted on GAAP basis 252 251 250 251 251
Non-GAAP adjustment 1 1 2 2 3
Shares used in per share calculation - diluted on Non-GAAP basis(1) 253 252 252 253 254
(1) The number of shares used in the diluted per share calculations on a non-GAAP basis excludes the impact of share-based compensation expense expected to be incurred in future periods and not yet recognized in the financial statements, which would otherwise be assumed to be used to repurchase shares under the GAAP treasury stock method.
AVAGO TECHNOLOGIES LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED
(IN MILLIONS)
August 4, October 28,
2013 2012 (1)
ASSETS
Current assets:
Cash and cash equivalents $ 863 $ 1,084
Trade accounts receivable, net 365 341
Inventory 284 194
Other current assets 129 72
Total current assets 1,641 1,691
Property, plant and equipment, net 620 503
Goodwill 388 180
Intangible assets, net 514 422
Other long-term assets 36 66
Total assets $ 3,199 $ 2,862
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 266 $ 248
Employee compensation and benefits 80 61
Capital lease obligations - current 2 1
Other current liabilities 27 36
Total current liabilities 375 346
Long-term liabilities:
Capital lease obligations - non-current 1 2
Other long-term liabilities 97 95
Total liabilities 473 443
Shareholders' equity:
Ordinary shares, no par value 1,538 1,479
Retained earnings 1,190 951
Accumulated other comprehensive loss (2) (11)
Total shareholders' equity 2,726 2,419
Total liabilities and shareholders' equity $ 3,199 $ 2,862
(1) Amounts as of October 28, 2012 have been derived from audited financial statements as of that date.
AVAGO TECHNOLOGIES LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(IN MILLIONS)
Fiscal Quarter Ended Three Fiscal Quarters Ended
August 4, May 5, July 29, August 4, July 29,
2013 2013 2012 2013 2012
Cash flows from operating activities:
Net income $ 142 $ 113 $ 145 $ 380 $ 404
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 46 42 40 129 115
Share-based compensation 20 18 15 55 39
Tax benefits of share-based compensation 6 -- 8 6 10
Excess tax benefits from share-based compensation (3) -- (5) (3) (6)
Other (1) 2 2 (1) 5
Changes in assets and liabilities, net of acquisitions:
Trade accounts receivable (43) (5) (56) 27 (2)
Inventory (20) (20) 2 (54) (22)
Accounts payable 11 36 (27) 13 (14)
Employee compensation and benefits 16 11 12 14 (20)
Other current assets and current liabilities (33) (7) (7) (51) (25)
Other long-term assets and long-term liabilities (4) 1 (1) (2) (6)
Net cash provided by operating activities 137 191 128 513 478
Cash flows from investing activities:
Purchases of property, plant and equipment (65) (47) (65) (179) (168)
Acquisitions and investments, net of cash acquired (373) (37) (2) (419) (2)
Net cash used in investing activities (438) (84) (67) (598) (170)
Cash flows from financing activities:
Proceeds from government grants -- 2 -- 5 2
Payments of capital lease obligations -- (1) (1) (1) (2)
Issuance of ordinary shares 32 18 6 60 28
Repurchases of ordinary shares (38) (11) (15) (62) (100)
Excess tax benefits from share-based compensation 3 -- 5 3 6
Dividend payments to shareholders (52) (47) (37) (141) (98)
Net cash used in financing activities (55) (39) (42) (136) (164)
Net (decrease) increase in cash and cash equivalents (356) 68 19 (221) 144
Cash and cash equivalents at the beginning of period 1,219 1,151 954 1,084 829
Cash and cash equivalents at end of period $ 863 $ 1,219 $ 973 $ 863 $ 973

CONTACT: Avago Technologies Ltd. Thomas Krause, 408-435-7400 VP Corporate Development investor.relations@avagotech.com

Source:Avago Technologies