Sandisk (NASDAQ:SNDK)
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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