Broadcom Limited (NASDAQ:AVGO) Q1 2019 Earnings Conference Call - Final Transcript

Mar 14, 2019 • 05:00 pm ET


Broadcom Limited (NASDAQ:AVGO) Q1 2019 Earnings Conference Call - Final Transcript


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Hock E. Tan

renewals in our CA business have been strong this past quarter, and we believe we are on the dollar commitments from our core customers will continue to grow.

Many of our peers have commented that they are seeing a softening demand environment especially out of China. While we are experiencing the same demand dynamics, we have factored in much of this macroeconomic backdrop when we provided fiscal 2019 guidance last quarter. As a result, after solid start to the year, we are reaffirming our fiscal 2019 revenue guidance of $24.5 billion. Having said that, we expect our semiconductor business to bolster in the second fiscal quarter driven almost entirely by the seasonal drop in wireless. But looking to the second half, we are confident that semiconductor business will resume very meaningful growth. This will be driven by strong product cycles in both wireless and networking, coupled with a recovery in broadband. Infrastructure software on the other hand is expected to sustained throughout the year.

So, in summary, our diversification strategy is working and we are effectively managing the decline in wireless, as well as the broader semiconductor industry headwinds.

Now, let me turn over to Tom to provide you with more color on Q1.

Thomas Krause

Thank you. Hock. Consolidated net revenue for the first quarter was $5.8 billion, a 9% increase from a year ago, and EPS came in at $5.55, an 8% increase from a year ago from a 441 million weighted average fully diluted share count. In addition, free cash flow was $2.03 billion or 35% of revenue. I would highlight free cash flow grew 39% year-over-year. The semiconductor solutions segment revenue was $4.4 billion and represented 76% of our total revenue this quarter. This was down 12% year-on-year on a comparable basis, but as Hock explained, the semiconductor segment was actually up slightly year-over-year in the first quarter excluding wireless.

Let me now turn to our infrastructure software segment. Revenue was $1.4 billion and represented 24% of revenue. SAN switching continues to perform extremely well. And as Hock mentioned, mainframe enterprise software is off to a good start.

Let me now provide additional detail on our financial performance. Operating expenses were $1.08 billion. Operating income from continuing operations was $3.05 billion and represented 52.7% of net revenue. Adjusted EBITDA was $3.24 billion and represented 55.9% of net revenue. This figure excludes $143 million in depreciation. Inventory decreased $50 million from the prior quarter. Similarly, semiconductor receivables were actually down, which is typical for Q1 even though receivables increased $352 million overall due to CA acquisition.

Total current liabilities excluding debt increased $2.5 billion due to CA, however, excluding CA total current liabilities excluding debt decreased meaningfully more than receivables, primarily due to the payment of our annual performance bonus in Q1. In addition, we spent $99 million on capital expenditures. As a result, we had record Q1 free cash flow from operations at $2.03 billion or 35% of revenue. This represents 39% growth in free cash flow from