Delivers Record Quarterly Revenue
SanDisk Corporation (NASDAQ: SNDK), a global leader in flash
storage solutions, today announced results for the third quarter
ended September 28, 2014. Third quarter revenue of
$1.75 billion increased 7 percent on a year-over-year basis
and increased 7 percent sequentially.
On a GAAP(1) basis, third quarter net income was
$263 million, or $1.09 per share, compared to net income of
$277 million, or $1.18 per share, in the third quarter of
fiscal 2013 and $274 million, or $1.14 per share, in the
second quarter of fiscal 2014.
On a non-GAAP(2)(3) basis, third quarter net income was
$336 million, or $1.45 per share, compared to net income
of $371 million, or $1.59 per share, in the third quarter
of fiscal 2013 and net income of $329 million, or
$1.41 per share, in the second quarter of fiscal 2014. For
reconciliation of non-GAAP to GAAP results, see accompanying
financial tables and footnotes.
“Third quarter results reflect the strength of our diversified
product portfolio, broad customer engagements and solid execution,”
said Sanjay Mehrotra, president and chief executive officer.
“Demand for NAND flash continues to be strong across mobile, client
and enterprise, where SanDisk’s innovations are creating
significant opportunities. As we focus on closing a record 2014, we
also look forward to building upon our success in 2015.”
KEY FINANCIAL METRICS
Metrics GAAP(1)
Non-GAAP(2) (in
millions, except percentages and per share amounts)
Q3’14 Q3’13 Q2’14
Q3’14 Q3’13 Q2’14 Revenue
$1,746 $1,625 $1,634 $1,746 $1,625
$1,634 Gross profit $817 $802 $760
$855 $815 $783 percent of revenue 47%
49% 46% 49% 50% 48% Operating
income $388 $408 $417 $481 $533
$472 percent of revenue 22% 25% 25%
28% 33% 29% EPS(3) $1.09 $1.18
$1.14 $1.45 $1.59 $1.41
OTHER HIGHLIGHTS
- SanDisk completed the acquisition of
Fusion-io, a leading developer of flash-based PCIe hardware and
software solutions, for approximately $1.1 billion, net of cash
assumed.
- SanDisk commemorated the opening of
Phase 2 of Fab 5 and began construction of the New Fab 2 in
Yokkaichi, Japan.
- SanDisk announced design wins for its
high-performance, low-latency ULLtraDIMM™ SSDs with Super Micro
Computer and Huawei.
- SanDisk introduced innovative products
in several product categories:
- In enterprise solutions, Dell launched
SanDisk DAS Cache server-side caching software, allowing customers
to benefit from SSDs, while maintaining data on direct-attached,
disk-based storage.
- In client solutions, SanDisk launched
the SanDisk Ultra® II SSD, utilizing X3 technology to deliver a
high-performance, cost-effective storage upgrade for PCs.
- SanDisk launched the industry’s
highest-capacity SD™ card with the 512GB SanDisk Extreme PRO® SDXC™
UHS-I card and the industry’s fastest microSD™ UHS-I card with the
64GB SanDisk Extreme PRO microSDXC™ UHS-I card, both enabling 4K
Ultra HD video capture.
- SanDisk announced today a fourth
quarter 2014 dividend of $0.30 per share of common stock, payable
on November 24, 2014 to shareholders of record as of the
close of business on November 3, 2014.
CONFERENCE CALL
SanDisk’s third quarter of fiscal 2014 conference call is
scheduled for 2:00 P.M., Pacific Daylight Time, Thursday,
October 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 719-325-4758 and the dial-in password is 9292176.
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.
© 2014 SanDisk Corporation. All rights reserved. SanDisk,
SanDisk Ultra and SanDisk Extreme PRO are trademarks of SanDisk
Corporation, registered in the United States and other countries.
ULLtraDIMM is a trademark of SanDisk Enterprise IP LLC. The SD,
microSD, microSDXC and SDXC marks are trademarks of SD-3C, LLC.
This news release contains certain forward-looking statements,
including those regarding our business prospects and opportunities,
market growth, demand for our products, our innovations, and our
performance for the remainder of 2014 and in 2015, 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;
- 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;
- excess or mismatched captive memory
output or capacity, resulting in lower average selling prices,
financial charges and impairments, lower gross margin or other
consequences;
- 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 June 29, 2014.
(1) GAAP represents U.S. Generally Accepted Accounting
Principles.
(2) Non-GAAP represents GAAP excluding the impact of share-based
compensation, inventory step-up expense, 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 options related to the 1.5% Sr. Convertible Notes due 2017
and 0.5% Sr. Convertible Notes due 2020, 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 Nine months ended
September 28, 2014 September 29, 2013 September
28, 2014 September 29, 2013 Revenue $ 1,746,491 $
1,625,153 $ 4,892,447 $ 4,442,145 Cost of revenue 900,830
812,904 2,496,509 2,401,901 Amortization of acquisition-related
intangible assets 28,523 10,256
67,860 29,916 Total cost of revenue 929,353
823,160 2,564,369 2,431,817
Gross profit 817,138 801,993 2,328,078
2,010,328 Operating expenses: Research and development
223,309 183,821 626,168 526,987 Sales and marketing 111,392 72,237
271,762 194,965 General and administrative 60,044 49,171 162,798
141,152 Amortization of acquisition-related intangible assets 9,615
5,088 12,742 9,199 Impairment of acquisition-related intangible
assets ― 83,228 ― 83,228 Restructuring and other 24,984
―
24,984 ― Total operating expenses
429,344 393,545 1,098,454
955,531 Operating income 387,794 408,448
1,229,624 1,054,797 Other income (expense), net
(14,875 ) (4,892 ) (44,089 ) (33,890 )
Income before income taxes 372,919 403,556 1,185,535 1,020,907
Provision for income taxes 110,258 126,697 379,980 316,030
Net income
$ 262,661 $ 276,859 $ 805,555 $ 704,877
Net income per share: Basic $ 1.18 $ 1.20 $ 3.59 $ 2.96
Diluted $ 1.09 $ 1.18 $ 3.37 $ 2.91 Shares used in computing
net income per share: Basic 222,201 230,253 224,530 238,097 Diluted
240,685 235,032 239,275 242,270
SanDisk
Corporation Reconciliation of Preliminary GAAP to Non-GAAP
Operating Results (1) (in thousands, except per share
data, unaudited) Three months
ended Nine months ended September 28, 2014
September 29, 2013 September 28, 2014 September
29, 2013 SUMMARY RECONCILIATION OF NET INCOME:
GAAP NET INCOME $ 262,661 $ 276,859 $ 805,555 $ 704,877
Share-based compensation (a) 50,195 25,930 114,674 72,325
Amortization of acquisition-related intangible assets (b) 38,138
15,344 80,602 39,115 Inventory step-up expense (c) 4,903 - 4,903 -
Impairment of acquisition-related intangible assets (d) - 83,228 -
83,228 Convertible debt interest (e) 21,493 9,859 63,582 50,202
Income tax adjustments (f) (41,888 ) (40,473 )
(75,085 ) (73,131 )
NON-GAAP NET INCOME $ 335,502
$ 370,747 $ 994,231 $ 876,616
GAAP COST OF REVENUE $ 929,353 $ 823,160 $ 2,564,369
$ 2,431,817 Share-based compensation (a) (4,001 ) (2,716 ) (10,118
) (6,880 ) Amortization of acquisition-related intangible assets
(b) (28,523 ) (10,256 ) (67,860 ) (29,916 ) Inventory step-up
expense (c) (4,903 ) - (4,903 )
-
NON-GAAP COST OF REVENUE $ 891,926 $ 810,188
$ 2,481,488 $ 2,395,021
GAAP GROSS
PROFIT $ 817,138 $ 801,993 $ 2,328,078 $ 2,010,328 Share-based
compensation (a) 4,001 2,716 10,118 6,880 Amortization of
acquisition-related intangible assets (b) 28,523 10,256 67,860
29,916 Inventory step-up expense (c) 4,903 -
4,903 -
NON-GAAP GROSS
PROFIT $ 854,565 $ 814,965 $ 2,410,959 $
2,047,124
GAAP RESEARCH AND DEVELOPMENT
EXPENSES $ 223,309 $ 183,821 $ 626,168 $ 526,987 Share-based
compensation (a) (21,469 ) (13,142 ) (54,644 )
(37,486 )
NON-GAAP RESEARCH AND DEVELOPMENT EXPENSES
$ 201,840 $ 170,679 $ 571,524 $ 489,501
GAAP SALES AND MARKETING EXPENSES $ 111,392 $ 72,237
$ 271,762 $ 194,965 Share-based compensation (a) (13,800 )
(5,241 ) (27,261 ) (13,813 )
NON-GAAP SALES
AND MARKETING EXPENSES $ 97,592 $ 66,996 $
244,501 $ 181,152
GAAP GENERAL AND
ADMINISTRATIVE EXPENSES $ 60,044 $ 49,171 $ 162,798 $ 141,152
Share-based compensation (a) (10,925 ) (4,831 )
(22,651 ) (14,146 )
NON-GAAP GENERAL AND
ADMINISTRATIVE EXPENSES $ 49,119 $ 44,340 $
140,147 $ 127,006
GAAP TOTAL OPERATING
EXPENSES $ 429,344 $ 393,545 $ 1,098,454 $ 955,531 Share-based
compensation (a) (46,194 ) (23,214 ) (104,556 ) (65,445 )
Amortization of acquisition-related intangible assets (b) (9,615 )
(5,088 ) (12,742 ) (9,199 ) Impairment of acquisition-related
intangible assets (d) - (83,228 ) -
(83,228 )
NON-GAAP TOTAL OPERATING EXPENSES $
373,535 $ 282,015 $ 981,156 $ 797,659
GAAP OPERATING INCOME $ 387,794 $ 408,448 $ 1,229,624
$ 1,054,797 Cost of revenue adjustments (a) (b) (c) 37,427 12,972
82,881 36,796 Operating expense adjustments (a) (b) (d)
55,809 111,530 117,298
157,872
NON-GAAP OPERATING INCOME $ 481,030 $
532,950 $ 1,429,803 $ 1,249,465
GAAP
OTHER INCOME (EXPENSE), NET $ (14,875 ) $ (4,892 ) $ (44,089 )
$ (33,890 ) Convertible debt interest (e) 21,493
9,859 63,582 50,202
NON-GAAP OTHER INCOME (EXPENSE), NET $ 6,618 $ 4,967
$ 19,493 $ 16,312
GAAP NET
INCOME $ 262,661 $ 276,859 $ 805,555 $ 704,877 Cost of revenue
adjustments (a) (b) (c) 37,427 12,972 82,881 36,796 Operating
expense adjustments (a) (b) (d) 55,809 111,530 117,298 157,872
Other income (expense) adjustments (e) 21,493 9,859 63,582 50,202
Income tax adjustments (f) (41,888 ) (40,473 )
(75,085 ) (73,131 )
NON-GAAP NET INCOME $ 335,502
$ 370,747 $ 994,231 $ 876,616
Diluted net income per share: GAAP $ 1.09 $ 1.18 $ 3.37 $
2.91 Non-GAAP $ 1.45 $ 1.59 $ 4.29 $ 3.63 Shares used in
computing diluted net income per share: GAAP 240,685 235,032
239,275 242,270 Non-GAAP (g) 230,863 233,256 231,567 241,408
SanDisk Corporation Reconciliation of Preliminary
GAAP to Non-GAAP Operating Results (1) (in thousands,
unaudited) Three
months ended Nine months ended September 28, 2014
September 29, 2013 September 28, 2014 September
29, 2013 SUMMARY RECONCILIATION OF DILUTED SHARES
GAAP 240,685 235,032 239,275 242,270 Adjustments for
share-based compensation 333 363 253 248 Offsetting shares from
call option (10,155 ) (2,139 ) (7,961 ) (1,110 )
Non-GAAP
(g) 230,863 233,256 231,567 241,408
(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, inventory
step-up expense, 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, 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 options which, when exercised, will offset the issuance of
dilutive shares from the 1.5% Sr. Convertible Notes due 2017 and
0.5% Sr. Convertible Notes due 2020, while the 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
amortization of acquisition-related intangible assets, inventory
step-up expense, 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 and trade names
related to the acquisitions of Pliant Technology, Inc. (May 2011),
FlashSoft Corporation (February 2012), Schooner Information
Technology, Inc. (June 2012), SMART Storage Systems (August 2013)
and Fusion-io, Inc. (July 2014). (c) Inventory step-up expense
related to acquisition of Fusion-io, Inc. (July 2014). (d)
Impairment of acquisition-related intangible assets and in-process
research and development related to the Schooner Information
Technology, Inc. (June 2012) and Pliant Technology, Inc. (May 2011)
acquisitions. (e) Incremental interest expense related 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. (f) 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. (g) Non-GAAP diluted shares include the impact
of offsetting shares from the call options related to the 1.5% Sr.
Convertible Notes due 2017 and 0.5% Sr. Convertible Notes due 2020,
and the impact of share-based compensation.
SanDisk Corporation Preliminary Condensed Consolidated
Balance Sheets (in thousands, unaudited)
September 28, 2014 December 29, 2013
ASSETS Current assets: Cash and cash equivalents $ 930,835 $
986,246 Short-term marketable securities 1,370,257 1,919,611
Accounts receivable, net 870,552 682,809 Inventory 782,128 756,975
Deferred taxes 169,548 138,192 Other current assets 230,814
166,885 Total current assets 4,354,134
4,650,718 Long-term marketable securities 2,843,933
3,179,471 Property and equipment, net 692,362 655,794 Notes
receivable and investments in Flash Ventures 1,119,669 1,134,620
Deferred taxes 147,690 134,669 Goodwill 860,620 318,111 Intangible
assets, net 594,239 247,904 Other non-current assets 95,614
167,430 Total assets $ 10,708,261 $
10,488,717
LIABILITIES, CONVERTIBLE SHORT-TERM
DEBT CONVERSION OBLIGATION AND EQUITY Current liabilities:
Accounts payable trade $ 412,328 $ 282,582 Accounts payable to
related parties 134,817 146,964 Convertible short-term debt (1)
861,628 ― Other current accrued liabilities 480,188 509,732
Deferred income on shipments to distributors and retailers and
deferred revenue 325,985 291,302
Total current liabilities
2,214,946 1,230,580 Convertible long-term debt 1,188,356
1,985,363 Non-current liabilities 242,491
307,083 Total liabilities 3,645,793
3,523,026 Convertible short-term debt conversion
obligation (1) 138,372 ― Stockholders' equity: Common stock
5,243,119 5,040,242 Retained earnings 1,780,420 2,004,089
Accumulated other comprehensive loss (97,205 )
(76,459 ) Total stockholders' equity 6,926,334 6,967,872
Non-controlling interests (2,238 ) (2,181 ) Total
equity 6,924,096 6,965,691 Total
liabilities, convertible short-term debt conversion obligation and
equity $ 10,708,261 $ 10,488,717
(1) The 1.5% Sr. Convertible
Notes due 2017 are convertible through December 31, 2014 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 September 28,
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
Nine months ended September 28, 2014
September 29, 2013 September 28, 2014 September
29, 2013 Cash flows from operating activities: Net
income $ 262,661 $ 276,859 $ 805,555 $ 704,877 Adjustments
to reconcile net income to net cash provided by operating
activities: Deferred taxes (808 ) (12,240 ) 6,784 53,254
Depreciation 66,198 57,650 187,651 165,862 Amortization 85,393
50,710 230,987 171,956 Provision for doubtful accounts 836 (644 )
677 498 Share-based compensation expense 50,195 25,930 114,674
72,325 Excess tax benefit from share-based plans (10,764 ) (4,238 )
(38,776 ) (19,899 ) Impairment and other 520 81,774 520 76,258
Other non-operating (365 ) 1,134 343 774 Changes in operating
assets and liabilities: Accounts receivable, net (68,999 ) (40,539
) (145,997 ) (51,749 ) Inventory 46,111 (23,411 ) 52,556 4,096
Other assets 10,900 (44,666 ) 10,381 (23,093 ) Accounts payable
trade 48,869 66,824 62,118 82,194 Accounts payable to related
parties (16,427 ) (4,188 ) (12,147 ) (50,975 ) Other liabilities
113,376 (48,542 ) (64,691 )
60,479 Total adjustments 325,035
105,554 405,080 541,980
Net cash provided by operating activities 587,696
382,413 1,210,635 1,246,857
Cash flows from investing activities:
Purchases of short and long-term marketable securities (597,716 )
(507,392 ) (3,376,250 ) (2,504,479 ) Proceeds from sales of short
and long-term marketable securities 1,527,752 1,277,691 3,621,418
3,125,350 Proceeds from maturities of short and long-term
marketable securities 184,395 127,695 563,890 634,600 Acquisition
of property and equipment, net (86,975 ) (50,866 ) (165,641 )
(170,715 ) Investment in Flash Ventures ― ― (24,296 ) ― Notes
receivable issuances to Flash Ventures (43,733 ) ― (131,692 ) ―
Notes receivable proceeds from Flash Ventures 14,451 ― 126,755
73,388 Purchased technology and other assets (3,036 ) (5,353 )
(4,589 ) (9,261 ) Acquisitions, net of cash acquired
(1,066,166 ) (304,178 ) (1,063,798 ) (304,320
) Net cash provided by (used in) investing activities
(71,028 ) 537,597 (454,203 ) 844,563
Cash flows from financing activities:
Repayment of debt financing ― ― ― (928,061 ) Distribution to
non-controlling interests ― ― ― (87 ) Proceeds from employee stock
programs 55,480 43,036 159,044 206,052 Excess tax benefit from
share-based plans 10,764 4,238 38,776 19,899 Dividends paid (67,045
) (50,638 ) (169,443 ) (50,638 ) Share repurchases (1)
(466,622 ) (1,069,545 ) (838,070 ) (1,439,539
) Net cash used in financing activities (467,423 )
(1,072,909 ) (809,693 ) (2,192,374 ) Effect of
changes in foreign currency exchange rates on cash (3,525 )
1,533 (2,150 ) 8,249 Net
increase (decrease) in cash and cash equivalents 45,720 (151,366 )
(55,411 ) (92,705 ) Cash and cash equivalents at beginning
of period 885,115 1,054,131 986,246 995,470
Cash and cash equivalents at end
of period $ 930,835 $ 902,765 $ 930,835 $
902,765
(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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