Delivers Record First Quarter Revenue, Gross
Margin and Net Income
SanDisk Corporation (NASDAQ: SNDK), a global leader in flash
storage solutions, today announced results for the first quarter
ended March 30, 2014. First quarter revenue of $1.51 billion
increased 13 percent on a year-over-year basis and decreased 12
percent sequentially.
On a GAAP(1) basis, first quarter net income was
$269 million, or $1.14 per diluted share, compared to net
income of $166 million, or $0.68 per diluted share, in
the first quarter of fiscal 2013 and $338 million, or
$1.45 per diluted share, in the fourth quarter of fiscal
2013.
On a non-GAAP(2)(3) basis, first quarter net income was
$330 million, or $1.44 per diluted share, compared to net
income of $207 million, or $0.84 per diluted share, in
the first quarter of fiscal 2013 and net income of
$390 million, or $1.71 per diluted share, in the fourth
quarter of fiscal 2013. For reconciliation of non-GAAP to GAAP
results, see accompanying financial tables and footnotes.
“We delivered record first quarter results, driven by 61 percent
growth in our SSD revenue and strong retail performance,” said
Sanjay Mehrotra, president and chief executive officer of SanDisk.
“We are excited by the momentum we are building in our business as
we continue to execute on our growth initiatives.”
KEY FINANCIAL METRICS
Metric GAAP(1)
Non-GAAP(2) in
millions, except percentages and per share amounts
Q1’14 Q1’13 Q4’13 Q1’14
Q1’13 Q4’13 Revenue $1,512
$1,341 $1,728 $1,512 $1,341 $1,728
Gross Profit $751 $532 $857 $774 $543
$880 percent of revenue 49.7% 39.6%
49.6% 51.2% 40.5% 50.9% Operating Income $425
$254 $507 $476 $288 $556 percent of
revenue 28.1% 18.9% 29.4% 31.5% 21.5%
32.2% Diluted EPS(3) $1.14 $0.68 $1.45
$1.44 $0.84 $1.71
OTHER HIGHLIGHTS
- SanDisk announced today its second
quarter 2014 dividend of $0.225 per share of common stock, payable
on May 27, 2014 to shareholders of record as of the close
of business on May 5, 2014.
- SanDisk recently introduced innovative
products in three categories:
- CloudSpeed Extreme™, CloudSpeed Ultra™,
CloudSpeed Ascend™ and CloudSpeed Eco™ enterprise SATA SSDs for
data center and cloud computing storage solutions at unit
capacities ranging from 100 gigabytes to 960 gigabytes
- High performance iNAND Extreme™
embedded flash storage at capacities up to 64 gigabytes for
flagship Android based mobile devices
- 128 gigabyte SanDisk Ultra® microSDXC™
UHS-1 card, the world’s highest capacity mobile offering
CONFERENCE CALL
SanDisk’s first quarter of fiscal 2014 conference call is
scheduled for 2:00 P.M., Pacific Daylight Time, Wednesday,
April 16, 2014. The conference call will be webcast and can be
accessed live, and throughout the quarter, at SanDisk’s website at
www.sandisk.com/IR. To participate in the call via telephone, the
dial-in number is 719-325-4942 and the dial-in password is 5310508.
A copy of this press release will be furnished to the Securities
and Exchange Commission on a current report on Form 8-K and will be
posted to our website prior to the conference call.
ABOUT SANDISK
SanDisk Corporation (NASDAQ: SNDK), a Fortune 500 and S&P
500 company, is a global leader in flash storage solutions. For
more than 25 years, SanDisk has expanded the possibilities of
storage, providing trusted and innovative products that have
transformed the electronics industry. Today, SanDisk’s quality,
state-of-the-art solutions are at the heart of many of the world's
largest data centers, and embedded in advanced smart phones,
tablets and PCs. SanDisk’s consumer products are available at
hundreds of thousands of retail stores worldwide. For more
information, visit www.sandisk.com.
© 2014 SanDisk Corporation. All rights reserved. SanDisk and the
SanDisk logo are trademarks of SanDisk Corporation, registered in
the United States and other countries. Other brand names mentioned
herein are for identification purposes only and may be the
trademarks of their respective holder(s).
This news release contains certain forward-looking statements,
including our business prospects and our intended financial plans,
including our anticipated momentum for continued gains in 2014, our
continued focus on growth initiatives and our ability to execute on
those initiatives, that are based on our current expectations and
involve numerous risks and uncertainties that may cause these
forward-looking statements to be inaccurate. Risks that may cause
these forward-looking statements to be inaccurate include among
others: the market demand for our products may grow more slowly
than our expectations or our products may not perform as expected
or be available when demanded by customers, or the other risks
detailed from time-to-time in our Securities and Exchange
Commission filings and reports, including, but not limited to, our
most recent annual report on Form 10-K. We do not intend to update
the information contained in this press release.
Risks that may cause these forward-looking statements to be
inaccurate include among others:
- competitive pricing pressures,
resulting in lower average selling prices, lower revenues and lower
gross margins;
- excess or mismatched captive memory
output or capacity, resulting in lower average selling prices,
financial charges and impairments, lower gross margin or other
consequences, or insufficient or mismatched captive memory output
or capacity, resulting in lost revenue and growth
opportunities;
- weakness in demand in one or more of
our product categories, such as mobile embedded or SSDs, or adverse
changes in our product or customer mix;
- potential delays in product development
or lack of customer acceptance and qualification of our solutions,
including on new technology nodes, particularly in our OEM product
category, including, among others, our embedded flash storage and
SSD solutions;
- the loss of, or reduction in orders
from, one or more of our major customers;
- inability to develop, or unexpected
difficulties or delays in developing or ramping with acceptable
yields, new technologies or the failure of new technologies to
effectively compete with those of our competitors; and
- the other risks detailed from
time-to-time under the caption “Risk Factors” and elsewhere in our
Securities and Exchange Commission filings and reports, including,
but not limited to, our Annual Report on Form 10-K for the fiscal
year ended December 29, 2013.
(1) GAAP represents U.S. Generally Accepted Accounting
Principles. (2) Non-GAAP represents GAAP excluding the impact of
share-based compensation, amortization of acquisition-related
intangible assets, non-cash economic interest expense associated
with our convertible debt and related tax adjustments. (3) Non-GAAP
diluted shares include the impact of offsetting shares from the
call option related to the 1.5% Sr. Convertible Notes due 2017 and
the impact of share-based compensation.
SanDisk
Corporation Preliminary Condensed Consolidated Statements of
Operations (in thousands, except per share amounts,
unaudited) Three months ended
March 30, 2014 March 31, 2013 Revenue $
1,511,945 $ 1,340,729 Cost of revenue 741,039 799,383
Amortization of acquisition-related intangible assets 19,616
9,830 Total cost of revenue 760,655 809,213
Gross profit 751,290 531,516 Operating
expenses: Research and development 198,829 171,125 Sales and
marketing 76,972 59,127 General and administrative 48,669 45,104
Amortization of acquisition-related intangible assets 1,646
2,369 Total operating expenses 326,116
277,725 Operating income 425,174
253,791 Other income (expense), net (15,635 )
(19,897 ) Income before income taxes 409,539
233,894 Provision for income taxes 140,591 67,665 Net
income $ 268,948 $ 166,229 Net income per
share: Basic $ 1.19 $ 0.69 Diluted $ 1.14 $ 0.68 Shares used
in computing net income per share: Basic 225,845 242,519 Diluted
234,914 245,577
SanDisk Corporation Reconciliation
of Preliminary GAAP to Non-GAAP Operating Results (1)
(in thousands, except per share data, unaudited)
Three months ended March 30, 2014 March 31,
2013 SUMMARY RECONCILIATION OF NET INCOME GAAP
NET INCOME $ 268,948 $ 166,229 Share-based compensation (a)
30,030 21,734 Amortization of acquisition-related intangible assets
(b) 21,262 12,199 Convertible debt interest (c) 20,964 23,577
Income tax adjustments (d) (11,174 ) (16,842 )
NON-GAAP NET INCOME $ 330,030 $ 206,897
GAAP COST OF REVENUE $ 760,655 $ 809,213 Share-based
compensation (a) (2,610 ) (1,717 ) Amortization of
acquisition-related intangible assets (b) (19,616 )
(9,830 )
NON-GAAP COST OF REVENUE $ 738,429 $ 797,666
GAAP GROSS PROFIT $ 751,290 $ 531,516
Share-based compensation (a) 2,610 1,717 Amortization of
acquisition-related intangible assets (b) 19,616
9,830
NON-GAAP GROSS PROFIT $ 773,516 $
543,063
GAAP RESEARCH AND DEVELOPMENT EXPENSES
$ 198,829 $ 171,125 Share-based compensation (a) (15,675 )
(11,640 )
NON-GAAP RESEARCH AND DEVELOPMENT EXPENSES
$ 183,154 $ 159,485
GAAP SALES AND
MARKETING EXPENSES $ 76,972 $ 59,127 Share-based compensation
(a) (6,257 ) (3,871 )
NON-GAAP SALES AND MARKETING
EXPENSES $ 70,715 $ 55,256
GAAP GENERAL
AND ADMINISTRATIVE EXPENSES $ 48,669 $ 45,104 Share-based
compensation (a) (5,488 ) (4,506 )
NON-GAAP
GENERAL AND ADMINISTRATIVE EXPENSES $ 43,181 $ 40,598
GAAP TOTAL OPERATING EXPENSES $ 326,116 $
277,725 Share-based compensation (a) (27,420 ) (20,017 )
Amortization of acquisition-related intangible assets (b)
(1,646 ) (2,369 )
NON-GAAP TOTAL OPERATING EXPENSES $
297,050 $ 255,339
GAAP OPERATING INCOME
$ 425,174 $ 253,791 Cost of revenue adjustments (a) (b) 22,226
11,547 Operating expense adjustments (a) (b) 29,066
22,386
NON-GAAP OPERATING INCOME $ 476,466
$ 287,724
GAAP OTHER INCOME (EXPENSE),
NET $ (15,635 ) $ (19,897 ) Convertible debt interest (c)
20,964 23,577
NON-GAAP OTHER INCOME
(EXPENSE), NET $ 5,329 $ 3,680
GAAP NET
INCOME $ 268,948 $ 166,229 Cost of revenue adjustments (a) (b)
22,226 11,547 Operating expense adjustments (a) (b) 29,066 22,386
Other income (expense) adjustments (c) 20,964 23,577 Income tax
adjustments (d) (11,174 ) (16,842 )
NON-GAAP NET
INCOME $ 330,030 $ 206,897 Diluted net
income per share: GAAP $ 1.14 $ 0.68 Non-GAAP $ 1.44 $ 0.84
Shares used in computing diluted net income per share: GAAP 234,914
245,577 Non-GAAP (e) 229,508 245,596
SanDisk
Corporation Reconciliation of Preliminary GAAP to Non-GAAP
Operating Results (1) (in thousands, unaudited)
Three months ended March 30, 2014
March 31, 2013 SUMMARY RECONCILIATION OF DILUTED
SHARES GAAP 234,914 245,577 Adjustments for
share-based compensation 296 19 Offsetting shares from call option
(5,702 ) ―
Non-GAAP (e) 229,508 245,596 (1) To
supplement our condensed consolidated financial statements
presented in accordance with generally accepted accounting
principles (GAAP), we use non-GAAP measures of operating results,
net income and net income per share, which are adjusted from
results based on GAAP to exclude certain expenses, gains and
losses. These non-GAAP financial measures are provided to enhance
the user's overall understanding of our current financial
performance and our prospects for the future. Specifically, we
believe the non-GAAP results provide useful information to both
management and investors as these non-GAAP results exclude certain
expenses, gains and losses that we believe are not indicative of
our core operating results and because they are consistent with the
financial models and estimates published by many analysts who
follow us. For example, because the non-GAAP results exclude the
expenses we recorded for share-based compensation, amortization of
acquisition-related intangible assets related to acquisitions of
Pliant Technology, Inc. in May 2011, FlashSoft Corporation in
February 2012, Schooner Information Technology, Inc. in June 2012
and SMART Storage Systems in August 2013, non-cash economic
interest expense associated with the convertible debt and related
tax adjustments, we believe the inclusion of non-GAAP financial
measures provides consistency in our financial reporting. In
addition, our non-GAAP diluted shares include the impact of the
call option which, when exercised, will offset the issuance of
dilutive shares from the 1.5% Sr. Convertible Notes due 2017, while
the GAAP diluted shares exclude the anti-dilutive impact of this
call option. These non-GAAP results are some of the primary
indicators management uses for assessing our performance,
allocating resources and planning and forecasting future periods.
Further, management uses non-GAAP information that excludes certain
non-cash charges, such as amortization of acquisition-related
intangible assets, share-based compensation, non-cash economic
interest expense associated with the convertible debt and related
tax adjustments, as these non-GAAP charges do not reflect the cash
operating results of the business or the ongoing results. These
measures should be considered in addition to results prepared in
accordance with GAAP, but should not be considered a substitute
for, or superior to, GAAP results. These non-GAAP measures may be
different than the non-GAAP measures used by other companies.
(a) Share-based compensation expense. (b)
Amortization of acquisition-related intangible assets, primarily
core technology, developed technology, customer relationships and
trademarks related to the acquisitions of Pliant Technology, Inc.
(May 2011), FlashSoft Corporation (February 2012), Schooner
Information Technology, Inc. (June 2012) and SMART Storage Systems
(August 2013). (c) Incremental interest expense relating to
the non-cash economic interest expense associated with the 1% Sr.
Convertible Notes due 2013, 1.5% Sr. Convertible Notes due 2017,
and 0.5% Sr. Convertible Notes due 2020. (d) Income taxes
associated with certain non-GAAP to GAAP adjustments, and the
effects of one-time income tax adjustments recorded in a specific
quarter for GAAP purposes are reflected on a forecast basis in our
non-GAAP tax rate. (e) Non-GAAP diluted shares include the
impact of offsetting shares from the call option related to the
1.5% Sr. Convertible Notes due 2017 and the impact of share-based
compensation.
SanDisk Corporation Preliminary
Condensed Consolidated Balance Sheets (in thousands,
unaudited) March 30, 2014
December 29, 2013 ASSETS Current assets: Cash
and cash equivalents $ 1,116,938 $ 986,246 Short-term marketable
securities 1,692,801 1,919,611 Accounts receivable, net 596,669
682,809 Inventory 799,883 756,975 Deferred taxes 124,200 138,192
Other current assets 177,532 166,885
Total current assets 4,508,023 4,650,718 Long-term
marketable securities 3,508,081 3,179,471 Property and equipment,
net 639,653 655,794 Notes receivable and investments in Flash
Ventures 1,159,264 1,134,620 Deferred taxes 136,991 134,669
Goodwill 317,930 318,111 Intangible assets, net 221,099 247,904
Other non-current assets 95,330 167,430
Total assets $ 10,586,371 $ 10,488,717
LIABILITIES, CONVERTIBLE SHORT-TERM DEBT CONVERSION OBLIGATION
AND EQUITY Current liabilities: Accounts payable trade $
259,204 $ 282,582 Accounts payable to related parties 160,536
146,964 Convertible short-term debt (1) 840,180 — Other current
accrued liabilities 349,126 509,732 Deferred income on shipments to
distributors and retailers and deferred revenue 269,349
291,302 Total current liabilities 1,878,395
1,230,580 Convertible long-term debt 1,166,497 1,985,363
Non-current liabilities 311,334 307,083
Total liabilities 3,356,226 3,523,026
Convertible short-term debt conversion obligation (1)
159,820 — Stockholders' equity: Common stock 4,961,893
5,040,242 Retained earnings 2,150,583 2,004,089 Accumulated other
comprehensive loss (40,038 ) (76,459 ) Total
stockholders' equity 7,072,438 6,967,872 Non-controlling interests
(2,113 ) (2,181 ) Total equity 7,070,325
6,965,691
Total liabilities, convertible short-term
debt conversion obligation and equity
$ 10,586,371 $ 10,488,717 (1) The 1.5%
Convertible Senior Notes due 2017 became convertible on April 1,
2014, and will remain convertible through June 30, 2014, as a
result of the Company’s common stock price exceeding the trigger
price set forth in the indenture for at least 20 trading days
during the 30 consecutive trading-day period ended March 31, 2014.
Accordingly, the carrying value of the notes was reclassified from
long-term to short-term debt as of March 30, 2014, and will remain
so while the notes are convertible. The convertible short-term debt
conversion obligation represents the difference between the
carrying value of the convertible debt and the principal amount due
in cash upon conversion.
SanDisk Corporation
Preliminary Condensed Consolidated Statements of Cash Flows
(in thousands, unaudited) Three
months ended March 30, 2014 March 31, 2013
Cash flows from operating activities: Net income $ 268,948 $
166,229 Adjustments to reconcile net income to net cash
provided by operating activities: Deferred taxes 6,951 53,151
Depreciation 60,089 53,017 Amortization 72,598 65,151 Provision for
doubtful accounts (547 ) (197 ) Share-based compensation expense
30,030 21,734 Excess tax benefit from share-based plans (17,460 )
(8,450 ) Impairment and other ― (3,173 ) Other non-operating 1,020
136 Changes in operating assets and liabilities: Accounts
receivable, net 86,689 186,726 Inventory (42,117 ) 16,776 Other
assets 54,547 (20,156 ) Accounts payable trade (36,546 ) 2,898
Accounts payable to related parties 13,572 (37,901 ) Other
liabilities (140,128 ) (22,290 ) Total adjustments
88,698 307,422 Net cash provided
by operating activities 357,646 473,651
Cash flows from investing activities: Purchases of
short and long-term marketable securities (1,266,899 ) (1,150,347 )
Proceeds from sales of short and long-term marketable securities
1,015,605 513,354 Proceeds from maturities of short and long-term
marketable securities 129,620 293,205 Acquisition of property and
equipment, net (34,517 ) (48,352 ) Notes receivable issuances to
Flash Ventures (24,352 ) ― Notes receivable proceeds from Flash
Ventures 24,352 53,586 Purchased technology and other assets (869 )
(237 ) Acquisitions, net of cash acquired 2,368
(142 ) Net cash used in investing activities (154,692
) (338,933 )
Cash flows from financing
activities: Distribution to non-controlling interests ― (87 )
Proceeds from employee stock programs 51,882 93,075 Excess tax
benefit from share-based plans 17,460 8,450 Dividends paid (51,560
) ― Share repurchase program (90,019 ) (89,621 ) Net
cash provided by (used in) financing activities (72,237 )
11,817 Effect of changes in foreign currency
exchange rates on cash (25 ) 6,105 Net
increase in cash and cash equivalents 130,692 152,640 Cash
and cash equivalents at beginning of period 986,246 995,470
Cash and cash equivalents at end of period $ 1,116,938
$ 1,148,110
SanDisk CorporationInvestor Contacts:Jay Iyer,
408-801-2067jay.iyer@sandisk.comBrendan Lahiff,
408-801-1732brendan.lahiff@sandisk.comMedia Contact:Michael
Diamond, 408-801-1108michael.diamond@sandisk.com
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