Delivers Record Second Quarter Revenue, Gross
Margin and Net Income
SanDisk Corporation (NASDAQ: SNDK), a global leader in flash
storage solutions, today announced results for the second quarter
ended June 29, 2014. Second quarter revenue of $1.63 billion
increased 11 percent on a year-over-year basis and increased 8
percent sequentially.
On a GAAP(1) basis, second quarter net income was
$274 million, or $1.14 per share, compared to net income of
$262 million, or $1.06 per share, in the second quarter
of fiscal 2013 and $269 million, or $1.14 per share, in
the first quarter of fiscal 2014.
On a non-GAAP(2)(3) basis, second quarter net income was
$329 million, or $1.41 per share, compared to net income
of $299 million, or $1.22 per share, in the second
quarter of fiscal 2013 and net income of $330 million, or
$1.44 per share, in the first quarter of fiscal 2014. For
reconciliation of non-GAAP to GAAP results, see accompanying
financial tables and footnotes.
“We are pleased to deliver record second quarter revenue in both
enterprise and client SSDs, as well as retail products,” said
Sanjay Mehrotra, president and chief executive officer of SanDisk.
“SSD solutions comprised 29 percent of our second quarter revenue,
compared to 16 percent in the year ago quarter, demonstrating
strong progress in driving our strategic priorities. Our results
position us well to deliver another record year in 2014.”
KEY FINANCIAL METRICS
Metric GAAP(1)
Non-GAAP(2) in
millions, except percentages and per share amounts
Q2’14 Q2’13 Q1’14
Q2’14 Q2’13 Q1’14 Revenue
$1,634 $1,476 $1,512 $1,634 $1,476
$1,512 Gross profit $760 $677 $751
$783 $689 $774 percent of revenue 46%
46% 50% 48% 47% 51% Operating
income $417 $393 $425 $472 $429
$476 percent of revenue 25% 27% 28%
29% 29% 32% EPS(3) $1.14 $1.06
$1.14 $1.41 $1.22 $1.44
OTHER HIGHLIGHTS
- In June, SanDisk announced the planned
acquisition of Fusion-io (NYSE: FIO), a leading developer of
flash-based PCIe hardware and software solutions for approximately
$1.1 billion, net of cash assumed.
- During the second quarter, SanDisk
introduced innovative products in three product categories:
- Within enterprise SSDs, SanDisk
introduced the following new products:
- Optimus MAX™ SAS SSD, the industry’s
first 4-terabyte SAS SSD
- Lightning Ultra™ Gen. II 12Gb/s SAS
high-endurance SSD capable of up to 25 full drive writes per day
(DWPD), along with Lightning Ascend™ Gen. II and Lightning Eco™
Gen. II, designed for mixed-use and read-intensive
applications
- In client SSDs, SanDisk Extreme PRO®, a
high-performance client SSD with up to 1-terabyte of capacity and
the industry’s first 10-year warranty
- In mobile, iNAND™ Standard™, an
embedded flash drive solution for entry-level tablets and
smartphones in China and other high-growth markets
- In April, SanDisk announced
15-nanometer 1Z technology, the most advanced NAND flash process
node in the world on both two bits-per-cell (X2) and three
bits-per-cell (X3) NAND flash memory architectures, with production
planned to ramp in the second half of 2014.
- SanDisk announced today its third
quarter 2014 dividend of $0.30 per share of common stock, payable
on August 25, 2014 to shareholders of record as of the
close of business on August 4, 2014.
CONFERENCE CALL
SanDisk’s second quarter of fiscal 2014 conference call is
scheduled for 2:00 P.M., Pacific Daylight Time, Wednesday,
July 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 913-312-1514 and the dial-in password is 9530920.
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 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.
© 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 those regarding our business prospects, market growth,
our intended financial and strategic plans, our continued focus on
our strategic priorities and our ability to execute on those
priorities, our anticipated momentum for a record year in 2014,
technology and product introductions and wafer production, 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:
- 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 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 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;
- 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 1Z nanometer process technology,
our X2 and X3 NAND memory architectures or our solutions utilizing
these new technologies may not be available when we expect;
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 Quarterly Report on Form 10-Q for the
fiscal quarter ended March 30, 2014.
(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 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 Six months ended June 29, 2014
June 30, 2013 June 29, 2014 June 30, 2013
Revenue $ 1,634,011 $ 1,476,263 $ 3,145,956 $ 2,816,992
Cost of revenue 854,640 789,614 1,595,679 1,588,997
Amortization of acquisition-related intangible assets 19,721
9,830 39,337 19,660
Total cost of revenue 874,361 799,444 1,635,016 1,608,657
Gross profit 759,650 676,819 1,510,940
1,208,335 Operating expenses: Research and development
204,030 172,041 402,859 343,166 Sales and marketing 83,398 63,601
160,370 122,728 General and administrative 54,085 46,877 102,754
91,981 Amortization of acquisition-related intangible assets
1,481 1,742 3,127 4,111
Total operating expenses 342,994
284,261 669,110 561,986
Operating income 416,656 392,558 841,830 646,349 Other
income (expense), net (13,579 ) (9,101 )
(29,214 ) (28,998 ) Income before income taxes
403,077 383,457 812,616 617,351 Provision for income taxes
129,131 121,668 269,722 189,333 Net
income $ 273,946 $ 261,789
$ 542,894 $ 428,018 Net income per share:
Basic $ 1.21 $ 1.08 $ 2.41 $ 1.77 Diluted $ 1.14 $ 1.06 $ 2.28 $
1.74 Shares used in computing net income per share: Basic
225,544 241,519 225,694 242,019 Diluted 240,756 245,815 238,463
245,569
SanDisk Corporation Reconciliation of
Preliminary GAAP to Non-GAAP Operating Results (1)
(in thousands, except per share data, unaudited)
Three months ended Six months
ended June 29, 2014 June 30, 2013 June 29,
2014 June 30, 2013 SUMMARY RECONCILIATION OF
NET INCOME: GAAP NET INCOME $ 273,946 $ 261,789 $
542,894 $ 428,018 Share-based compensation (a) 34,449 24,661 64,479
46,395 Amortization of acquisition-related intangible assets (b)
21,202 11,572 42,464 23,771 Convertible debt interest (c) 21,125
16,766 42,089 40,343 Income tax adjustments (d) (22,023 )
(15,816 ) (33,197 ) (32,658 )
NON-GAAP NET
INCOME $ 328,699 $ 298,972 $ 658,729 $
505,869
GAAP COST OF REVENUE $ 874,361
$ 799,444 $ 1,635,016 $ 1,608,657 Share-based compensation (a)
(3,507 ) (2,447 ) (6,117 ) (4,164 ) Amortization of
acquisition-related intangible assets (b) (19,721 )
(9,830 ) (39,337 ) (19,660 )
NON-GAAP COST OF
REVENUE $ 851,133 $ 787,167 $ 1,589,562 $
1,584,833
GAAP GROSS PROFIT $ 759,650 $
676,819 $ 1,510,940 $ 1,208,335 Share-based compensation (a) 3,507
2,447 6,117 4,164 Amortization of acquisition-related intangible
assets (b) 19,721 9,830 39,337
19,660
NON-GAAP GROSS PROFIT $ 782,878
$ 689,096 $ 1,556,394 $ 1,232,159
GAAP RESEARCH AND DEVELOPMENT EXPENSES $ 204,030 $
172,041 $ 402,859 $ 343,166 Share-based compensation (a)
(17,500 ) (12,704 ) (33,175 ) (24,344 )
NON-GAAP RESEARCH AND DEVELOPMENT EXPENSES $ 186,530
$ 159,337 $ 369,684 $ 318,822
GAAP
SALES AND MARKETING EXPENSES $ 83,398 $ 63,601 $ 160,370 $
122,728 Share-based compensation (a) (7,204 ) (4,701
) (13,461 ) (8,572 )
NON-GAAP SALES AND MARKETING
EXPENSES $ 76,194 $ 58,900 $ 146,909 $
114,156
GAAP GENERAL AND ADMINISTRATIVE
EXPENSES $ 54,085 $ 46,877 $ 102,754 $ 91,981 Share-based
compensation (a) (6,238 ) (4,809 ) (11,726 )
(9,315 )
NON-GAAP GENERAL AND ADMINISTRATIVE EXPENSES
$ 47,847 $ 42,068 $ 91,028 $ 82,666
GAAP TOTAL OPERATING EXPENSES $ 342,994 $ 284,261 $
669,110 $ 561,986 Share-based compensation (a) (30,942 ) (22,214 )
(58,362 ) (42,231 ) Amortization of acquisition-related intangible
assets (b) (1,481 ) (1,742 ) (3,127 )
(4,111 )
NON-GAAP TOTAL OPERATING EXPENSES $ 310,571
$ 260,305 $ 607,621 $ 515,644
GAAP
OPERATING INCOME $ 416,656 $ 392,558 $ 841,830 $ 646,349 Cost
of revenue adjustments (a) (b) 23,228 12,277 45,454 23,824
Operating expense adjustments (a) (b) 32,423
23,956 61,489 46,342
NON-GAAP
OPERATING INCOME $ 472,307 $ 428,791 $ 948,773
$ 716,515
GAAP OTHER INCOME (EXPENSE),
NET $ (13,579 ) $ (9,101 ) $ (29,214 ) $ (28,998 ) Convertible
debt interest (c) 21,125 16,766
42,089 40,343
NON-GAAP OTHER INCOME
(EXPENSE), NET $ 7,546 $ 7,665 $ 12,875 $
11,345
GAAP NET INCOME $ 273,946 $ 261,789 $
542,894 $ 428,018 Cost of revenue adjustments (a) (b) 23,228 12,277
45,454 23,824 Operating expense adjustments (a) (b) 32,423 23,956
61,489 46,342 Other income (expense) adjustments (c) 21,125 16,766
42,089 40,343 Income tax adjustments (d) (22,023 )
(15,816 ) (33,197 ) (32,658 )
NON-GAAP NET
INCOME $ 328,699 $ 298,972 $ 658,729 $
505,869 Diluted net income per share: GAAP $ 1.14 $
1.06 $ 2.28 $ 1.74 Non-GAAP $ 1.41 $ 1.22 $ 2.84 $ 2.06
Shares used in computing diluted net income per share: GAAP 240,756
245,815 238,463 245,569 Non-GAAP (e) 232,808 244,586 231,570
245,300
SanDisk Corporation Reconciliation of
Preliminary GAAP to Non-GAAP Operating Results (1)
(in thousands, unaudited)
Three months ended Six months ended June 29,
2014 June 30, 2013 June 29, 2014 June 30,
2013 SUMMARY RECONCILIATION OF DILUTED SHARES
GAAP 240,756 245,815 238,463 245,569 Adjustments for
share-based compensation 336 334 266 198 Offsetting shares from
call option (8,284 ) (1,563 ) (7,159 ) (467 )
Non-GAAP (e)
232,808 244,586 231,570 245,300
(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 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) June 29,
2014 December 29, 2013 ASSETS
Current assets: Cash and cash equivalents $ 885,115 $ 986,246
Short-term marketable securities 1,794,356 1,919,611 Accounts
receivable, net 759,967 682,809 Inventory 751,683 756,975 Deferred
taxes 145,640 138,192 Other current assets 277,951
166,885 Total current assets 4,614,712 4,650,718
Long-term marketable securities 3,569,453 3,179,471 Property
and equipment, net 650,223 655,794 Notes receivable and investments
in Flash Ventures 1,174,998 1,134,620 Deferred taxes 112,366
134,669 Goodwill 317,930 318,111 Intangible assets, net 194,543
247,904 Other non-current assets 95,474
167,430 Total assets $ 10,729,699 $ 10,488,717
LIABILITIES, CONVERTIBLE SHORT-TERM DEBT CONVERSION
OBLIGATION AND EQUITY Current liabilities: Accounts payable
trade $ 329,899 $ 282,582 Accounts payable to related parties
151,244 146,964 Convertible short-term debt (1) 850,874 ― Other
current accrued liabilities 354,657 509,732 Deferred income on
shipments to distributors and retailers and deferred revenue
270,109 291,302 Total current liabilities
1,956,783 1,230,580 Convertible long-term debt 1,177,273
1,985,363 Non-current liabilities 295,737
307,083 Total liabilities 3,429,793
3,523,026 Convertible short-term debt conversion
obligation (1) 149,126 ― Stockholders' equity: Common stock
5,189,183 5,040,242 Retained earnings 1,971,784 2,004,089
Accumulated other comprehensive loss (7,992 ) (76,459
) Total stockholders' equity 7,152,975 6,967,872 Non-controlling
interests (2,195 ) (2,181 ) Total equity
7,150,780 6,965,691 Total liabilities,
convertible short-term debt conversion obligation and equity $
10,729,699 $ 10,488,717 (1) The
1.5% Sr. Convertible Notes due 2017 are convertible through
September 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 days ended June
30, 2014. Accordingly, the carrying value of the notes is reported
as short-term debt as of June 29, 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 Six months ended June
29, 2014 June 30, 2013 June 29, 2014 June 30,
2013 Cash flows from operating activities: Net income $
273,946 $ 261,789 $ 542,894 $ 428,018 Adjustments to reconcile net
income to net cash provided by operating activities: Deferred taxes
641 12,343 7,592 65,494 Depreciation 61,364 55,195 121,453 108,212
Amortization 72,996 56,095 145,594 121,246 Provision for doubtful
accounts 388 1,339 (159 ) 1,142 Share-based compensation expense
34,449 24,661 64,479 46,395 Excess tax benefit from share-based
plans (10,552 ) (7,211 ) (28,012 ) (15,661 ) Impairment and other ―
(2,343 ) ― (5,516 ) Other non-operating (312 ) (496 ) 708 (360 )
Changes in operating assets and liabilities: Accounts receivable,
net (163,687 ) (197,936 ) (76,998 ) (11,210 ) Inventory 48,562
10,731 6,445 27,507 Other assets (55,066 ) 41,729 (519 ) 21,573
Accounts payable trade 49,795 12,472 13,249 15,370 Accounts payable
to related parties (9,292 ) (8,886 ) 4,280 (46,787 ) Other
liabilities (62,372 ) 131,311 (178,067
) 109,021 Total adjustments (33,086 )
129,004 80,045 436,426
Net cash provided by operating activities 240,860
390,793 622,939 864,444
Cash flows from investing activities: Purchases of
short and long-term marketable securities (1,511,635 ) (846,740 )
(2,778,534 ) (1,997,087 ) Proceeds from sales of short and
long-term marketable securities 1,078,061 1,334,305 2,093,666
1,847,659 Proceeds from maturities of short and long-term
marketable securities 249,875 213,700 379,495 506,905 Acquisition
of property and equipment, net (44,149 ) (71,497 ) (78,666 )
(119,849 ) Investment in Flash Ventures (24,296 ) ― (24,296 ) ―
Notes receivable issuances to Flash Ventures (63,607 ) ― (87,959 )
― Notes receivable proceeds from Flash Ventures 87,952 19,802
112,304 73,388 Purchased technology and other assets (684 ) (3,671
) (1,553 ) (3,908 ) Acquisitions, net of cash acquired ― ―
2,368 (142 ) Net cash provided by (used in) investing
activities (228,483 ) 645,899 (383,175
) 306,966
Cash flows from financing
activities: Repayment of debt financing ― (928,061 ) ― (928,061
) Distribution to non-controlling interests ― ― ― (87 ) Proceeds
from employee stock programs 51,682 69,941 103,564 163,016 Excess
tax benefit from share-based plans 10,552 7,211 28,012 15,661
Dividends paid (50,838 ) ― (102,398 ) ― Share repurchases (1)
(256,996 ) (280,373 ) (371,448 )
(369,994 ) Net cash used in financing activities (245,600 )
(1,131,282 ) (342,270 ) (1,119,465 )
Effect of changes in foreign currency exchange rates on cash
1,400 611 1,375 6,716
Net increase (decrease) in cash and cash equivalents
(231,823 ) (93,979 ) (101,131 ) 58,661 Cash and cash
equivalents at beginning of period 1,116,938 1,148,110 986,246
995,470 Cash and cash equivalents at
end of period $ 885,115 $ 1,054,131 $ 885,115
$ 1,054,131 (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 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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