SanDisk Corporation (NASDAQ: SNDK), a global leader in flash
storage solutions, today announced results for the first quarter
ended March 29, 2015. First quarter revenue of
$1.33 billion declined 12 percent on a year-over-year
basis and decreased 23 percent sequentially.
On a GAAP(1) basis, first quarter net income was $39 million, or
$0.17 per share, compared to net income of $269 million,
or $1.14 per share, in the first quarter of fiscal 2014 and
$202 million, or $0.86 per share, in the fourth quarter
of fiscal 2014. First quarter GAAP results include a
$61 million impairment charge for an in-process R&D
project from the Fusion-io acquisition and $41 million of
restructuring and other charges.
On a non-GAAP(2)(3) basis, first quarter net income was
$134 million, or $0.62 per share, compared to net income
of $330 million, or $1.44 per share, in the first quarter
of fiscal 2014 and net income of $294 million, or
$1.30 per share, in the fourth quarter of fiscal 2014. First
quarter non-GAAP results include $41 million of restructuring and
other charges. For a reconciliation of non-GAAP to GAAP results,
see accompanying financial tables and footnotes.
“We are disappointed with our financial and operational
performance and are quickly taking aggressive measures to regain
the excellence in execution that we have delivered in the past,”
said Sanjay Mehrotra, president and chief executive officer,
SanDisk. “Our top priorities for 2015 are to strengthen our product
roadmap and rebuild our momentum across the business. We are
excited about the long-term opportunities available to us and
believe we are uniquely positioned in the industry to deliver
innovative solutions to our growing customer base.”
KEY FINANCIAL RESULTS
(in millions, except percentages and per
share amounts)
GAAP (1)
Non-GAAP (2)
Q1’15
Q1’14 Q4’14 Q1’15
Q1’14 Q4’14 Revenue $1,332
$1,512 $1,735 $1,332 $1,512
$1,735 Gross profit $545 $751 $740 $574
$774 $780 percent of revenue 41% 50%
43% 43% 51% 45% Operating income
$57 $425 $328 $198 $476 $419 percent of revenue 4%
28% 19% 15% 32% 24% EPS
(3) $0.17 $1.14
$0.86
$0.62 $1.44 $1.30
OTHER FINANCIAL INFORMATION
(in millions)
Q1’15 Q1’14 Q4’14 Cash, cash
equivalents, short and long-term marketable securities
$ 4,394 $ 6,318 $ 5,023 Less: aggregate
principal amount of convertible senior notes outstanding
$ 2,497 $ 2,500 $ 2,428 Net cash (4)
$ 1,897 $ 3,818 $ 2,595 Net cash
provided by operating activities $ 309 $ 382
$ 488
Less: acquisition of property and equipment, net $ 98
$ 35 $ 67 Less: net investment and notes
receivable activity with Flash Ventures $ 11 $
—
($
55)
Free cash flow (5) $ 200 $ 348 $ 476
NEWS HIGHLIGHTS
- SanDisk launched a new category of “Big
Data Flash” with the launch of the InfiniFlashTM System, a next
generation storage platform offering flash at massive scale and at
a breakthrough cost metric for the customer.
- SanDisk announced its 48-layer,
second-generation 3D NAND planned for use in a broad range of
solutions from removable products to enterprise SSDs.
- SanDisk introduced iNAND® 7132, a
1Y-nanometer 3-bit-per-cell (X3) embedded storage solution for
flagship mobile devices. The iNAND 7132 storage solution uses
SmartSLC to drive near single-level-cell performance for
high-performance, data-intensive applications.
- SanDisk introduced the 200GB* SanDisk
Ultra® microSDXC™ UHS-I card, the world’s highest capacity
microSDTM card for use in mobile devices.
- SanDisk introduced a suite of robust,
automotive grade NAND flash solutions designed for next-generation
‘connected cars’ and automotive infotainment systems.
- SanDisk announced today a second
quarter 2015 dividend of $0.30 per share of common stock,
payable on May 26, 2015 to stockholders of record as of the
close of business on May 4, 2015.
CONFERENCE CALL
SanDisk’s first quarter of fiscal 2015 conference call is
scheduled today at 2:00 P.M., Pacific Time, Wednesday,
April 15, 2015. 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 719-325-4858 and the password is 3263627.
Participants are encouraged to dial in at least 10 minutes before
the call commences. 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 SanDisk’s 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 smartphones, tablets
and PCs. SanDisk’s consumer products are available at hundreds of
thousands of retail stores worldwide. For more information, visit
www.sandisk.com.
©2015 SanDisk Corporation. All rights reserved. SanDisk, the
SanDisk logo, iNAND and SanDisk Ultra are trademarks of SanDisk
Corporation, registered in the United States and other countries.
InfiniFlash is a trademark of SanDisk Corporation. microSDXC and
microSD are trademarks of SD-3C, LLC.
This news release contains certain forward-looking statements,
including those regarding our business prospects, our intended
financial, operational and strategic plans and priorities, our
future performance, our customer base and new products and
technologies, 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:
- failure to effectively or efficiently
execute on our financial, operational or strategic plans or
priorities, which may change, may not have the effects that we
anticipate or otherwise be successful on the timeline that we
expect or at all or may have unanticipated consequences;
- competitive pricing pressures or
product mix changes, resulting in lower average selling prices,
lower revenues and reduced gross margins;
- excess or mismatched captive memory
output, capacity or inventory, resulting in lower average selling
prices, financial charges and impairments, lower gross margin or
other consequences, or insufficient or mismatched captive memory
output, capacity or inventory, resulting in lost revenue and growth
opportunities;
- weakness in demand in one or more of
our product categories, such as embedded products 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 OEM products such
as our embedded flash storage and SSD solutions;
- failure to successfully sell enterprise
solutions on the timelines or in the quantities we expect or
transition our enterprise customers to our leading edge
solutions;
- 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;
- our 15-nanometer process technology,
our X3 NAND memory architecture, our 3D NAND technology or our
solutions utilizing these new technologies may not be available
when we expect or perform as expected;
- failure to manage the risks associated
with our ventures and strategic partnerships with Toshiba;
- inability to achieve the expected
benefits from acquisitions in a timely manner, or at all; 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 28, 2014.
All statements made in this news release are made only as of the
date of this release. We undertake no obligation to update the
information in this release in the event facts or circumstances
change after the date of this release.
(1) GAAP represents U.S. Generally Accepted Accounting
Principles.
(2) Non-GAAP represents GAAP excluding the impact of share-based
compensation, amortization and impairment of acquisition-related
intangible assets, non-cash economic interest expense associated
with the convertible senior notes, non-cash change in fair value of
the liability component of the convertible senior notes due to the
conversion of a portion of the 1.5% Convertible Senior Notes due
2017 and related tax adjustments.
(3) Non-GAAP shares are adjusted for the impact of expensing
share-based compensation and include the impact of offsetting
shares from the call options related to the convertible senior
notes.
(4) Net cash is defined as cash, cash equivalents, short and
long-term marketable securities, minus the aggregate principal
amount of the convertible senior notes outstanding.
(5) Free cash flow is defined as net cash provided by operating
activities less (a) acquisition of property and equipment, net, and
(b) net investment and notes receivables activity with Flash
Ventures.
* 1GB=1,000,000,000 bytes. Actual user storage may be
less.
SanDisk Corporation Preliminary Condensed
Consolidated Statements of Operations (in thousands, except
per share amounts, unaudited) Three
months ended March 29, 2015 March 30, 2014
Revenue $ 1,332,241 $ 1,511,945 Cost of
revenue 762,483 741,039 Amortization of acquisition-related
intangible assets 24,756 19,616 Total
cost of revenue 787,239 760,655 Gross
profit 545,002 751,290 Operating expenses: Research and
development 222,726 198,829 Sales and marketing 101,820 76,972
General and administrative 48,047 48,669 Amortization of
acquisition-related intangible assets 13,681 1,646 Impairment of
acquisition-related intangible assets 61,000 ― Restructuring and
other 40,541 ― Total operating expenses
487,815 326,116 Operating income 57,187
425,174 Other income (expense), net (23,570 )
(15,635 ) Income before income taxes 33,617 409,539
Provision for (benefit from) income taxes (5,408 ) 140,591
Net income $ 39,025 $ 268,948
Net income per share: Basic $ 0.18 $ 1.19 Diluted $ 0.17 $ 1.14
Shares used in computing net income per share: Basic 211,428
225,845 Diluted 224,049 234,914
SanDisk Corporation
Reconciliation of Preliminary GAAP to Non-GAAP Operating
Results (1) (in thousands, except per share data,
unaudited) Three months ended
March 29, 2015 March 30, 2014 SUMMARY
RECONCILIATION OF NET INCOME: GAAP NET INCOME $
39,025 $ 268,948 Share-based compensation (a) 41,410 30,030
Amortization of acquisition-related intangible assets (b) 38,437
21,262 Impairment of acquisition-related intangible assets (c)
61,000 ― Convertible debt interest (d) 22,134 20,964 Income tax
adjustments (e) (68,319) (11,174)
NON-GAAP NET INCOME $
133,687 $ 330,030
GAAP COST OF REVENUE $ 787,239 $
760,655 Share-based compensation (a) (4,062) (2,610) Amortization
of acquisition-related intangible assets (b) (24,756) (19,616)
NON-GAAP COST OF REVENUE $ 758,421 $ 738,429
GAAP
GROSS PROFIT $ 545,002 $ 751,290 Share-based compensation (a)
4,062 2,610 Amortization of acquisition-related intangible assets
(b) 24,756 19,616
NON-GAAP GROSS PROFIT $ 573,820 $ 773,516
GAAP RESEARCH AND DEVELOPMENT EXPENSES $ 222,726 $
198,829 Share-based compensation (a) (21,043) (15,675)
NON-GAAP
RESEARCH AND DEVELOPMENT EXPENSES $ 201,683 $ 183,154
GAAP SALES AND MARKETING EXPENSES $ 101,820 $ 76,972
Share-based compensation (a) (9,535) (6,257)
NON-GAAP SALES AND
MARKETING EXPENSES $ 92,285 $ 70,715
GAAP GENERAL AND
ADMINISTRATIVE EXPENSES $ 48,047 $ 48,669 Share-based
compensation (a) (6,770) (5,488)
NON-GAAP GENERAL AND
ADMINISTRATIVE EXPENSES $ 41,277 $ 43,181
GAAP TOTAL
OPERATING EXPENSES $ 487,815 $ 326,116 Share-based compensation
(a) (37,348) (27,420) Amortization of acquisition-related
intangible assets (b) (13,681) (1,646) Impairment of
acquisition-related intangible assets (c) (61,000) ―
NON-GAAP
TOTAL OPERATING EXPENSES $ 375,786 $ 297,050
GAAP
OPERATING INCOME $ 57,187 $ 425,174 Cost of revenue adjustments
(a) (b) 28,818 22,226 Operating expense adjustments (a) (b) (c)
112,029 29,066
NON-GAAP OPERATING INCOME $ 198,034 $ 476,466
GAAP OTHER INCOME (EXPENSE), NET $ (23,570) $
(15,635) Convertible debt interest (d) 22,134 20,964
NON-GAAP
OTHER INCOME (EXPENSE), NET $ (1,436) $ 5,329
GAAP
NET INCOME $ 39,025 $ 268,948 Cost of revenue adjustments (a)
(b) 28,818 22,226 Operating expense adjustments (a) (b) (c) 112,029
29,066 Other income (expense) adjustments (d) 22,134 20,964 Income
tax adjustments (e) (68,319) (11,174)
NON-GAAP NET INCOME $
133,687 $ 330,030 Diluted net income per share: GAAP $ 0.17
$ 1.14 Non-GAAP $ 0.62 $ 1.44 Shares used in computing
diluted net income per share: GAAP 224,049 234,914 Non-GAAP (f)
216,842 229,508
SanDisk Corporation
Reconciliation of Preliminary GAAP to Non-GAAP Operating
Results (1) (in thousands, unaudited)
Three months ended March 29, 2015 March 30,
2014 SUMMARY RECONCILIATION OF DILUTED SHARES:
GAAP 224,049 234,914 Adjustments for share-based
compensation 220 296 Offsetting shares from call options (7,427)
(5,702)
Non-GAAP (f) 216,842 229,508 –––––––––––––––
(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,
SMART Storage Systems in August 2013 and Fusion-io, Inc. in July
2014, impairment of acquisition-related in-process research and
development intangible assets, non-cash economic interest expense
associated with the convertible senior notes, non-cash change in
fair value of the liability component of the convertible senior
notes due to the conversion of a portion of the 1.5% Convertible
Senior Notes due 2017 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
are adjusted for the impact of expensing share-based compensation
and include the impact of the call options which, when exercised,
will offset the issuance of dilutive shares from the convertible
senior notes, while our GAAP diluted shares exclude the
anti-dilutive impact of these call options. 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 share-based
compensation, amortization of acquisition-related intangible
assets, impairment of acquisition-related in-process research and
development intangible assets, non-cash economic interest expense
associated with the convertible senior notes, non-cash change in
fair value of the liability component of the convertible senior
notes due to the conversion of a portion of the 1.5% Convertible
Senior Notes due 2017 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 developed technology, customer relationships, and
trademarks and trade names related to the acquisitions of Pliant
Technology, Inc., FlashSoft Corporation, Schooner Information
Technology, Inc., SMART Storage Systems and Fusion-io, Inc.
(c) Impairment of acquisition-related in-process research and
development intangible assets related to the acquisition of
Fusion-io, Inc. (d) Incremental interest expense related to
the non-cash economic interest expense associated with the
convertible senior notes and the non-cash change in fair value of
the liability component of the convertible senior notes due to the
conversion of a portion of the 1.5% Convertible Senior Notes due
2017. (e) 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 but not in our forecasted
GAAP tax rate. (f) Non-GAAP diluted shares are adjusted for
the impact of expensing share-based compensation and include the
impact of offsetting shares from the call options related to the
convertible senior notes.
SanDisk Corporation
Preliminary Condensed Consolidated Balance Sheets (in
thousands, unaudited) March 29,
2015 December 28, 2014 ASSETS Current
assets: Cash and cash equivalents $ 649,940 $ 809,003 Short-term
marketable securities 1,347,541 1,455,509 Accounts receivable, net
589,246 842,476 Inventory 713,053 698,011 Deferred taxes 162,298
180,134 Other current assets 290,908 214,992
Total current assets 3,752,986 4,200,125 Long-term
marketable securities 2,396,950 2,758,475 Property and equipment,
net 769,933 724,357 Notes receivable and investments in Flash
Ventures 989,678 962,817 Deferred taxes 157,292 161,827 Goodwill
831,328 831,328 Intangible assets, net 437,858 542,351 Other
non-current assets 125,196 108,677
Total assets $ 9,461,221 $ 10,289,957
LIABILITIES, CONVERTIBLE SHORT-TERM DEBT CONVERSION OBLIGATION
AND EQUITY Current liabilities: Accounts payable trade $
397,617 $ 404,237 Accounts payable to related parties 147,870
136,051 Convertible short-term debt (1) 880,653 869,645 Other
current accrued liabilities 409,434 506,293 Deferred income on
shipments to distributors and retailers and deferred revenue
255,102 274,657 Total current liabilities
2,090,676 2,190,883 Convertible long-term debt 1,211,097
1,199,696 Non-current liabilities 207,334
245,554 Total liabilities 3,509,107
3,636,133 Convertible short-term debt conversion
obligation (1) 116,067 127,143 Stockholders' equity: Common
stock 5,144,181 5,236,982 Retained earnings 876,252 1,499,149
Accumulated other comprehensive loss (183,041 )
(208,072 ) Total stockholders' equity 5,837,392 6,528,059
Non-controlling interests (1,345 ) (1,378 ) Total
equity 5,836,047 6,526,681 Total
liabilities, convertible short-term debt conversion obligation and
equity $ 9,461,221 $ 10,289,957
––––––––––––––– (1) The 1.5% Convertible Senior Notes due 2017 are
convertible through June 30, 2015 as a result of the Company’s
common stock price exceeding the trigger price set forth in the
indenture. Accordingly, the carrying value of the notes is reported
as short-term debt as of March 29, 2015 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 29, 2015 March 30, 2014
Cash flows from operating activities: Net income $ 39,025 $
268,948 Adjustments to reconcile net income to net cash
provided by operating activities: Deferred taxes (965) 6,951
Depreciation 69,081 60,089 Amortization 83,374 72,598 Provision for
doubtful accounts 330 (547) Share-based compensation expense 41,410
30,030 Excess tax benefit from share-based plans (8,865) (17,460)
Impairment and other 63,709 ― Other non-operating (4,187) 1,020
Changes in operating assets and liabilities: Accounts receivable,
net 252,899 86,689 Inventory (13,945) (42,117) Other assets
(94,673) 54,547 Accounts payable trade (26,090) (36,546) Accounts
payable to related parties 11,819 13,572 Other liabilities
(104,057) (115,695) Total adjustments 269,840 113,131 Net cash
provided by operating activities 308,865 382,079
Cash
flows from investing activities: Purchases of short and
long-term marketable securities (692,656) (1,266,899) Proceeds from
sales of short and long-term marketable securities 1,045,097
1,015,605 Proceeds from maturities of short and long-term
marketable securities 99,881 129,620 Acquisition of property and
equipment, net (98,287) (34,517) Notes receivable issuances to
Flash Ventures (100,499) (24,352) Notes receivable proceeds from
Flash Ventures 89,693 24,352 Purchased technology and other assets
(1,500) (869) Acquisitions, net of cash acquired ― 2,368 Net cash
provided by (used in) investing activities 341,729 (154,692)
Cash flows from financing activities: Repayment of debt
financing (68) ― Proceeds from employee stock programs 30,844
51,882 Excess tax benefit from share-based plans 8,865 17,460
Dividends paid (64,503) (51,560) Share repurchases (1) (783,899)
(114,452) Net cash used in financing activities (808,761) (96,670)
Effect of changes in foreign currency exchange rates on cash (896)
(25) Net increase (decrease) in cash and cash equivalents
(159,063) 130,692 Cash and cash equivalents at beginning of
period 809,003 986,246 Cash and cash equivalents at
end of period $ 649,940 $ 1,116,938
––––––––––––––– (1) Share repurchases include cash used to
repurchase common stock and cash used to settle employee tax
withholding obligations due upon the vesting of restricted stock
units.
SanDisk Corporation Preliminary Quarterly
Metrics
Revenue Mix by Category (1) % of revenue (unaudited) Percentages
may not add to 100% due to rounding
Q1'14 Q2'14
Q3'14 Q4'14
Q1'15 FY'14 Embedded
(2) 20% 19% 24% 26% 25% 23% Removable (3) 40% 40% 38% 33%
38% 38% Client SSD Solutions (4) 22% 21% 17% 16% 13% 19%
Enterprise Solutions (5) 6% 8% 10% 15% 14% 10% Other
(6) 11% 12% 11% 10% 10% 11% Total Revenue 100% 100% 100%
100% 100% 100%
(1)Revenue by category is estimated based
on analysis of the information the company collects in its sales
reporting processes.
(2)Embedded includes products that attach to a host system board.
(3)Removable includes products such as cards, USB flash drives and
audio/video players. (4)Client SSD Solutions includes SSDs used in
client devices and associated software. (5)Enterprise Solutions
includes SSDs, system solutions and software used in datacenter
applications. (6)Other includes wafers, components, accessories and
license and royalty. Revenue Mix by Channel
% of revenue (unaudited)
Q1'14 Q2'14
Q3'14 Q4'14
Q1'15 FY'14 Retail
35% 33% 32% 31% 35% 33% Commercial (1) 65% 67% 68% 69% 65%
67% Total Revenue 100% 100% 100% 100% 100% 100%
(1)Commercial includes revenue from OEMs, system integrators,
value-added resellers, direct sales and license and royalties.
SanDisk Corporation Preliminary Quarterly
Metrics
Q1'14 Q2'14
Q3'14 Q4'14
Q1'15 Q/Q Change in ASP/Gigabyte -3% -16% -3%
-4% -10% Y/Y Change in ASP/Gigabyte -7% -26% -26% -24% -29%
Q/Q Change in Gigabytes Sold -10% +31% +9% +4% -15%
Y/Y Change in Gigabytes Sold +20% +51% +43% +32% +24%
Average GB/Unit Capacity 13.9 14.1 16.5 22.3 20.8 As of end
of period: Factory Headcount (1)(3) 1,366 2,874 3,276 3,284 3,149
Non-Factory Headcount(2)
4,490 4,664
5,461 5,412 5,490 Total
Headcount(3) 5,856 7,538 8,737 8,696 8,639
(1) Reflects SanDisk China and Malaysia factory employees,
excluding temporary and contract workers.
(2) Reflects SanDisk non-factory employees, excluding temporary
and contract workers.
(3) During fiscal 2014, 1,505 employees were converted from
contractor to employee status in SanDisk's assembly and test
facility in China.
SanDisk CorporationInvestor Contacts:Jay Iyer,
408-801-2067jay.iyer@sandisk.comorBrendan Lahiff,
408-801-1732brendan.lahiff@sandisk.comorMedia
Contact:Michael Diamond,
408-801-1108michael.diamond@sandisk.com
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