Second Quarter Fiscal 2008 GAAP Results
Record revenue of $411 million increased by $31 million, or 8 percent, when compared with the same period a year ago, and reflects continued gains in the wired and wireless communications markets. Gross margin of $159 million, or 39 percent of sales, represents an improvement of $24 million year-over-year.
Operating expenses were $118 million versus $108 million a year ago, owing to increased levels of investment in new product development. The favorable revenue and margin performance drove net income to a record $17 million, up from $4 million in the second quarter of fiscal 2007.
Cash balances increased sequentially by $22 million to $83 million at the end of the quarter. Cash generated from operations of $43 million was partially offset by $6 million spent on an acquisition.
Second Quarter Fiscal 2008 Non-GAAP Results
Higher revenue led to gross margin of $174 million, or 42 percent. The $23 million uptick from last year translates into a gain of 260 basis points.
R&D expenses climbed by $11 million to $62 million, while selling, general and administrative costs rose by $2 million to $46 million from the second quarter a year ago.
Net income increased to an all-time high of $43 million, compared with $33 million in the same period last year. These results translate into Adjusted EBITDA of $85 million, down $3 million from the same quarter a year ago, due to a reduction in other income.
“We continue to exceed past performance based on revenue gains in targeted markets and a favorable product mix. This fueled record revenue and enabled expanded profitability for the quarter,” said Hock E. Tan, president and CEO of Avago Technologies. “These strong results are indicative of early success with our stated strategy to drive growth in more profitable segments.”
Financial Results Conference Call
Avago Technologies will host a conference call to review its financial results for the second fiscal quarter today at 2:00 p.m. Pacific Time. Those wishing to access the call should dial (480) 629-9031. A replay will be available until Midnight Pacific Time Wednesday, June 4, 2008. To access the replay, dial (303) 590-3030, passcode: 3878915.
Non-GAAP Financial Measures
In addition to GAAP reporting, Avago reports net income or loss, as well as gross margin and operating expenses, on a non-GAAP basis. This non-GAAP earnings information excludes stock-based compensation expense, amortization of intangibles and unusual items and their related tax effects. In addition, Avago also discloses Adjusted EBITDA as measured by the Company’s principal debt instruments. Avago believes this non-GAAP earnings 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 emphasize the results of on-going operations. These historical non-GAAP measures are in addition to, and not a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. A reconciliation between GAAP and non-GAAP net income (loss) is included in the financial tables.
About Avago Technologies
Avago Technologies is a leading supplier of analog interface components for communications, industrial and consumer applications. By leveraging its core competencies in III-V compound and silicon semiconductor design and processing, the company provides an extensive range of analog, mixed signal and optoelectronics components and subsystems to more than 40,000 customers. Backed by strong customer service support, the company's products serve four diverse end markets: industrial and automotive, wired infrastructure, wireless communications, and computer peripherals. Avago has a global employee presence and heritage of technical innovation dating back 40 years to its Hewlett-Packard roots. Information about Avago is available on the Web at www.avagotech.com.
Safe Harbor Statement
This announcement and supporting materials may contain 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 which could adversely or positively affect future results include cyclicality in the semiconductor industry or in our end markets; fluctuations in interest rates; our ability to generate cash sufficient to service our debt and to fund our research and development, capital expenditures and other business needs; our increased dependence on outsourced service providers for certain key business services and their ability to execute to our requirements; our ability to maintain tax concessions in certain jurisdictions; our ability to protect our intellectual property; our competitive performance and ability to continue achieving design wins with our customers; any expenses associated with resolving customer product and warranty claims; our ability to achieve the growth prospects and synergies expected from our acquisitions; delays and challenges associated with integrating acquired companies with our existing businesses; our ability to improve our cost structure through our manufacturing outsourcing program; and other events and trends on a national, regional and global scale, including those of a political, economic, business, competitive and regulatory nature. Our Annual Report on Form 20-F filed with the SEC on December 13, 2007, recent Current Reports on Form 6-K, and other Avago filings with the U.S. Securities and Exchange Commission (“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.
| AVAGO TECHNOLOGIES FINANCE PTE. LTD. | ||||||||||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED | ||||||||||||||||||||
| (IN MILLIONS) | ||||||||||||||||||||
| Quarter ended | Two quarters ended | |||||||||||||||||||
| May 4, | February 3, | April 30, | May 4, | April 30, | ||||||||||||||||
| 2008 | 2008 | 2007 | 2008 | 2007 | ||||||||||||||||
| Net revenue | $ | 411 | $ | 402 | $ | 380 | $ | 813 | $ | 755 | ||||||||||
| Costs and expenses: | ||||||||||||||||||||
| Cost of products sold: | ||||||||||||||||||||
| Cost of products sold | 237 | 230 | 229 | 467 | 464 | |||||||||||||||
| Amortization of intangible assets | 14 | 14 | 15 | 28 | 30 | |||||||||||||||
| Restructuring charges | 1 | 1 | 1 | 2 | 15 | |||||||||||||||
| Total cost of products sold | 252 | 245 | 245 | 497 | 509 | |||||||||||||||
| Research and development | 62 | 66 | 51 | 128 | 101 | |||||||||||||||
| Selling, general and administrative | 48 | 50 | 47 | 98 | 104 | |||||||||||||||
| Amortization of intangible assets | 7 | 7 | 7 | 14 | 14 | |||||||||||||||
| Restructuring charges | 1 | 2 | 3 | 3 | 11 | |||||||||||||||
| Total costs and expenses | 370 | 370 | 353 | 740 | 739 | |||||||||||||||
| Income from operations | 41 | 32 | 27 | 73 | 16 | |||||||||||||||
| Interest expense | (20 | ) | (25 | ) | (28 | ) | (45 | ) | (57 | ) | ||||||||||
| Loss on extinguishment of debt | - | (10 | ) | (10 | ) | (10 | ) | (10 | ) | |||||||||||
| Other income, net | 1 | 1 | 5 | 2 | 6 | |||||||||||||||
| Income (loss) from continuing operations before income taxes | 22 | (2 | ) | (6 | ) | 20 | (45 | ) | ||||||||||||
| Provision for income taxes | 4 | 3 | - | 7 | 3 | |||||||||||||||
| Income (loss) from continuing operations | 18 | (5 | ) | (6 | ) | 13 | (48 | ) | ||||||||||||
| Income (loss) from and gain on discontinued operations, net of income taxes | (1 | ) | 9 | 10 | 8 | 58 | ||||||||||||||
| Net income | $ | 17 | $ | 4 | $ | 4 | $ | 21 | $ | 10 | ||||||||||
| AVAGO TECHNOLOGIES FINANCE PTE. LTD. | ||||||||||||||||||||
| FINANCIAL SUMMARY (NON-GAAP) - UNAUDITED | ||||||||||||||||||||
| (IN MILLIONS, except percentages) | ||||||||||||||||||||
| Quarter ended | Two quarters ended | |||||||||||||||||||
| May 4, | February 3, | April 30, | May 4, | April 30, | ||||||||||||||||
| 2008 | 2008 | 2007 | 2008 | 2007 | ||||||||||||||||
| Net revenue | $ | 411 | $ | 402 | $ | 380 | $ | 813 | $ | 755 | ||||||||||
| Gross margin | 174 | 172 | 151 | 346 | 292 | |||||||||||||||
| % of net revenue | 42 | % | 43 | % | 40 | % | 43 | % | 39 | % | ||||||||||
| Research and development | $ | 62 | $ | 65 | $ | 51 | $ | 127 | $ | 101 | ||||||||||
| Selling, general and administrative | $ | 46 | $ | 44 | $ | 44 | $ | 90 | $ | 92 | ||||||||||
| Total operating expenses | $ | 108 | $ | 109 | $ | 95 | $ | 217 | $ | 193 | ||||||||||
| % of net revenue | 26 | % | 27 | % | 25 | % | 27 | % | 26 | % | ||||||||||
| Income from operations | $ | 66 | $ | 63 | $ | 56 | $ | 129 | $ | 99 | ||||||||||
| Interest expense | $ | (20 | ) | $ | (25 | ) | $ | (28 | ) | $ | (45 | ) | $ | (57 | ) | |||||
| Net income | $ | 43 | $ | 36 | $ | 33 | $ | 79 | $ | 45 | ||||||||||
| The financial summary excludes amortization of acquisition-related intangibles, share-based compensation, restructuring and impairment charges, acquired in-process research and development, loss on extinguishment of debt, and income (loss) from and gain on discontinued operations. | ||||||||||||||||||||
| AVAGO TECHNOLOGIES FINANCE PTE. LTD. | ||||||||||||||||||||
| FINANCIAL BRIDGE: GAAP TO NON-GAAP - UNAUDITED | ||||||||||||||||||||
| (IN MILLIONS) | ||||||||||||||||||||
| Quarter ended | Two quarters ended | |||||||||||||||||||
| May 4, | February 3, | April 30, | May 4, | April 30, | ||||||||||||||||
| 2008 | 2008 | 2007 | 2008 | 2007 | ||||||||||||||||
| Net income on GAAP basis | $ | 17 | $ | 4 | $ | 4 | $ | 21 | $ | 10 | ||||||||||
| Amortization of acquisition-related intangibles | ||||||||||||||||||||
| Cost of products sold | 14 | 14 | 15 | 28 | 30 | |||||||||||||||
| Operating Expenses | 7 | 7 | 7 | 14 | 14 | |||||||||||||||
| 21 | 21 | 22 | 42 | 44 | ||||||||||||||||
| Share-based compensation expense | ||||||||||||||||||||
| Cost of products sold | - | - | - | - | 1 | |||||||||||||||
| Operating Expenses | 2 | 7 | 3 | 9 | 12 | |||||||||||||||
| 2 | 7 | 3 | 9 | 13 | ||||||||||||||||
| Restructuring charges | ||||||||||||||||||||
| Cost of products sold | 1 | 1 | 1 | 2 | 15 | |||||||||||||||
| Operating Expenses | 1 | 2 | 3 | 3 | 11 | |||||||||||||||
| 2 | 3 | 4 | 5 | 26 | ||||||||||||||||
| Loss on extinguishment of debt | - | 10 | 10 | 10 | 10 | |||||||||||||||
| (Income) loss from and (gain) on discontinued operations | 1 | (9 | ) | (10 | ) | (8 | ) | (58 | ) | |||||||||||
| Net income on Non-GAAP basis | $ | 43 | $ | 36 | $ | 33 | $ | 79 | $ | 45 | ||||||||||
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To supplement our unaudited condensed consolidated financial statements presented in accordance with GAAP, we have shown above a non-GAAP presentation of the Company’s net income, which is adjusted to reflect the GAAP results excluding amortization of acquisition-related intangibles, share-based compensation, restructuring charges, loss on extinguishment of debt, and (income) loss from and (gain) on discontinued operations. This non-GAAP presentation is provided to enhance the reader's overall understanding of the comparability of the Company's financial performance among periods. |
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| AVAGO TECHNOLOGIES FINANCE PTE. LTD. | |||||||||||||||||||
| RECONCILIATION OF NET INCOME TO EBITDA AND ADJUSTED EBITDA - UNAUDITED | |||||||||||||||||||
| (IN MILLIONS) | |||||||||||||||||||
| Quarter ended | Two quarters ended | ||||||||||||||||||
| May 4, | February 3, | April 30, | May 4, | April 30, | |||||||||||||||
| 2008 | 2008 | 2007 | 2008 | 2007 | |||||||||||||||
| Net income | $ | 17 | $ | 4 | $ | 4 | $ | 21 | $ | 10 | |||||||||
| Interest expense | 20 | 25 | 28 | 45 | 57 | ||||||||||||||
| Provision for income taxes | 4 | 3 | - | 7 | 3 | ||||||||||||||
| Depreciation and amortization expense | 38 | 39 | 44 | 77 | 89 | ||||||||||||||
| EBITDA | 79 | 71 | 76 | 150 | 159 | ||||||||||||||
| Restructuring and other unusual charges | 3 | 4 | 5 | 7 | 30 | ||||||||||||||
| Purchase accounting adjustments | - | 1 | 4 | 1 | 9 | ||||||||||||||
| Share-based compensation | 2 | 7 | 3 | 9 | 13 | ||||||||||||||
| Loss on extinguishment of debt | - | 10 | 10 | 10 | 10 | ||||||||||||||
| (Income) loss from and (gain) on discontinued operations | 1 | (9 | ) | (10 | ) | (8 | ) | (58 | ) | ||||||||||
| Adjusted EBITDA | $ | 85 | $ | 84 | $ | 88 | $ | 169 | $ | 163 | |||||||||
| EBITDA represents net income before interest expense, provision for income taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA further adjusted to give effect to certain items that are required in calculating covenant compliance under our senior and senior subordinated notes as well as under our senior secured credit facility. Adjusted EBITDA is calculated by subtracting from or adding to EBITDA items of income or expense described above. EBITDA and Adjusted EBITDA do not represent net income, as that term is defined under GAAP, and should not be considered as an alternative to net income as an indicator of our operating performance. | |||||||||||||||||||
| Additionally, EBITDA and Adjusted EBITDA are not intended to be measures of free cash flow available for management or discretionary use as such measures do not consider certain cash requirements such as capital expenditures, tax payments and debt service requirements. EBITDA and Adjusted EBITDA as presented herein are not necessarily comparable to similarly titled measures. | |||||||||||||||||||
| AVAGO TECHNOLOGIES FINANCE PTE. LTD. | ||||||||||||
| CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED | ||||||||||||
| (IN MILLIONS) | ||||||||||||
| May 4, | October 31, | April 30, | ||||||||||
| 2008 | 2007 (1) | 2007 | ||||||||||
| ASSETS | ||||||||||||
| Current assets: | ||||||||||||
| Cash and cash equivalents | $ | 83 | $ | 309 | $ | 200 | ||||||
| Trade accounts receivable, net | 213 | 218 | 206 | |||||||||
| Inventory | 166 | 140 | 143 | |||||||||
| Assets of discontinued operations | - | 25 | - | |||||||||
| Other current assets | 32 | 25 | 40 | |||||||||
| Total current assets | 494 | 717 | 589 | |||||||||
| Property, plant and equipment, net | 289 | 292 | 388 | |||||||||
| Goodwill | 156 | 122 | 116 | |||||||||
| Intangible assets, net | 752 | 777 | 914 | |||||||||
| Other long-term assets | 50 | 43 | 39 | |||||||||
| Total assets | $ | 1,741 | $ | 1,951 | $ | 2,046 | ||||||
| LIABILITIES AND SHAREHOLDER'S EQUITY | ||||||||||||
| Current liabilities: | ||||||||||||
| Accounts payable | $ | 154 | $ | 194 | $ | 126 | ||||||
| Employee compensation and benefits | 54 | 56 | 46 | |||||||||
| Accrued interest | 31 | 34 | 35 | |||||||||
| Capital lease obligations - current | 2 | 2 | 2 | |||||||||
| Other current liabilities | 26 | 44 | 26 | |||||||||
| Total current liabilities | 267 | 330 | 235 | |||||||||
| Long-term liabilities: | ||||||||||||
| Long-term debt | 705 | 903 | 923 | |||||||||
| Capital lease obligations - non-current | 5 | 4 | 4 | |||||||||
| Other long-term liabilities | 60 | 30 | 30 | |||||||||
| Total liabilities | 1,037 | 1,267 | 1,192 | |||||||||
| Shareholder's equity: | ||||||||||||
| Ordinary shares, no par value | 1,074 | 1,066 | 1,071 | |||||||||
| Accumulated deficit | (374 | ) | (386 | ) | (217 | ) | ||||||
| Accumulated other comprehensive income | 4 | 4 | - | |||||||||
| Total shareholder's equity | 704 | 684 | 854 | |||||||||
| Total liabilities and shareholder's equity | $ | 1,741 | $ | 1,951 | $ | 2,046 | ||||||
| (1) Amounts as of October 31, 2007 have been derived from audited financial statements as of that date. | ||||||||||||
| AVAGO TECHNOLOGIES FINANCE PTE. LTD. | ||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED | ||||||||||||
| (IN MILLIONS) | ||||||||||||
| Quarter ended | ||||||||||||
| May 4, | February 3, | April 30, | ||||||||||
| 2008 | 2008 | 2007 | ||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net income | $ | 17 | $ | 4 | $ | 4 | ||||||
| Adjustments to reconcile net income to net cash (used in) provided by operating activities: | ||||||||||||
| Depreciation and amortization | 38 | 39 | 44 | |||||||||
| Amortization of debt issuance costs | 1 | 1 | 1 | |||||||||
| Gain on sale of discontinued operations | - | (9 | ) | (10 | ) | |||||||
| Loss on extinguishment of debt | - | 5 | 10 | |||||||||
|
Loss on sale of property, plant and equipment |
- |
- |
2 |
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| Share-based compensation | 2 | 7 | 3 | |||||||||
| Changes in assets and liabilities, net of acquisition and dispositions: | ||||||||||||
| Trade accounts receivable | 22 | (13 | ) | (30 | ) | |||||||
| Inventory | (13 | ) | (12 | ) | 23 | |||||||
| Accounts payable | (47 | ) | 6 | (10 | ) | |||||||
| Employee compensation and benefits | 14 | (16 | ) | 4 | ||||||||
| Other current assets and current liabilities | 7 | (39 | ) | - | ||||||||
| Other long-term assets and long-term liabilities | 2 | 14 | 3 | |||||||||
| Net cash (used in) provided by operating activities | 43 | (13 | ) | 44 | ||||||||
| Cash flows from investing activities: | ||||||||||||
| Purchase of property, plant and equipment | (13 | ) | (15 | ) | (8 | ) | ||||||
| Purchase of intangible assets | - | (6 | ) | - | ||||||||
| Acquisitions and investment, net of cash acquired | (8 | ) | (38 | ) | - | |||||||
| Proceeds from sale of discontinued operations | - | 25 | 10 | |||||||||
| Net cash (used in) provided by investing activities | (21 | ) | (34 | ) | 2 | |||||||
| Cash flows from financing activities: | ||||||||||||
| Debt repayments | - | (200 | ) | (85 | ) | |||||||
| Cash settlement of equity awards | - | (1 | ) | - | ||||||||
| Payment on capital lease obligation | - | - | (1 | ) | ||||||||
| Net cash used in financing activities | - | (201 | ) | (86 | ) | |||||||
| Net (decrease) increase in cash and cash equivalents | 22 | (248 | ) | (40 | ) | |||||||
| Cash and cash equivalents at the beginning of period | 61 | 309 | 240 | |||||||||
| Cash and cash equivalents at end of period | $ | 83 | $ | 61 | $ | 200 | ||||||
Contact:
Summit IR Group Inc.
Jim Fanucchi, 408-404-5400 (Investor)
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