Western Digital Corp. (Nasdaq: WDC) today reported revenue of
$4.2 billion for its second fiscal quarter ended January 3, 2020.
Operating income was $50 million with a net loss of $139 million,
or ($0.47) per share. Excluding certain non-GAAP adjustments, the
company achieved non-GAAP operating income of $333 million and
non-GAAP net income of $187 million, or $0.62 per share.
In the year-ago quarter, the company reported revenue of $4.2
billion, operating income of $176 million and a net loss of $487
million, or ($1.68) per share. Non-GAAP operating income in the
year-ago quarter was $589 million and non-GAAP net income was $424
million, or $1.45 per share.
The company generated $257 million in cash from operations
during the second fiscal quarter of 2020, and ended the quarter
with $3.1 billion of total cash and cash equivalents. The company
returned $149 million to shareholders through dividends and used
$388 million to reduce debt. On November 14, 2019, the company
declared a cash dividend of $0.50 per share of its common stock,
which was paid to shareholders on January 21, 2020.
“The December quarter results reflect strong execution in our
product roadmap, success in increasing our hard drive gross margin,
and an improving flash market,” said Steve Milligan, chief
executive officer, Western Digital. “We expect an accelerated
recovery in our flash gross margins, which coupled with ongoing
strength in demand for both hard drives and flash, positions us
well for continued profitable growth in calendar year 2020.”
Business Outlook for Third Fiscal Quarter of 2020
Three Months Ending
April 3, 2020
GAAP(1)
Non-GAAP(1)
Revenue ($ in billions)
$4.1 - $4.3
$4.1 - $4.3
Gross margin
~ 24.5% - 25.5%
~ 28.5% - 29.5%
Operating expenses ($ in millions)
$850 - $870
$740 - $760
Interest and other expense, net ($ in
millions)
$85 - $90
$80 - $85
Tax rate
N/A
~ 25% - 27% (2)
Diluted earnings per share
N/A
$0.85 - $1.05
Diluted shares outstanding (in
millions)
~ 305
~ 305
_______________
(1) Non-GAAP gross margin guidance excludes amortization of
acquired intangible assets, stock-based compensation expense, and
charges related to cost saving initiatives totaling approximately
$150 million to $170 million. The company’s non-GAAP operating
expenses guidance excludes amortization of acquired intangible
assets; stock-based compensation expense; employee termination,
asset impairment and other charges; and charges related to cost
saving initiatives totaling approximately $100 million to $120
million. The company's non-GAAP interest and other expense guidance
excludes approximately $5 million of convertible debt activity. In
the aggregate, non-GAAP diluted earnings per share guidance
excludes these items totaling $255 million to $295 million. The
timing and amount of these charges excluded from non-GAAP gross
margin, non-GAAP operating expenses, non-GAAP interest and other
expense, net and non-GAAP diluted earnings per share cannot be
further allocated or quantified with certainty. Additionally, the
timing and amount of additional charges the company excludes from
its non-GAAP tax rate and non-GAAP diluted earnings per share are
dependent on the timing and determination of certain actions and
cannot be reasonably predicted. Accordingly, full reconciliations
of non-GAAP gross margin, non-GAAP operating expenses, non-GAAP
interest and other expense, non-GAAP tax rate and non-GAAP diluted
earnings per share to the most directly comparable GAAP financial
measures (gross margin, operating expenses, interest and other
expense, tax rate and diluted earnings per share, respectively) are
not available without unreasonable effort.
(2) The non-GAAP tax rates provided are based on a percentage of
non-GAAP pre-tax income.
Investor Communications
The investment community conference call to discuss these
results and the company’s business outlook for the third fiscal
quarter of 2020 will be broadcast live online today at 2:00 p.m.
Pacific/5:00 p.m. Eastern. The live and archived conference
call/webcast and the earnings presentation can be accessed online
at investor.wdc.com.
About Western Digital
Western Digital, a leader in data infrastructure, creates
environments for data to thrive. The company is driving the
innovation needed to help customers capture, preserve, access and
transform an ever-increasing diversity of data. Everywhere data
lives, from advanced data centers to mobile sensors to personal
devices, the company's industry-leading solutions deliver the
possibilities of data. Western Digital data-centric solutions are
comprised of the Western Digital®, G-Technology™, SanDisk® and WD®
brands. Financial and investor information is available on the
company's Investor Relations website at investor.wdc.com.
Forward-Looking Statements
This press release contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995, including statements concerning the company’s preliminary
financial results for its second fiscal quarter ended January 3,
2020; the company’s business outlook for the third fiscal quarter
of 2020; expectations regarding market conditions; the company's
product portfolio; and our expected future financial performance.
These forward-looking statements are based on management’s current
expectations and are subject to risks and uncertainties that could
cause actual results to differ materially from those expressed or
implied in the forward-looking statements. The preliminary
financial results for the company’s second fiscal quarter ended
January 3, 2020 included in this press release represent the most
current information available to management. The company’s actual
results when disclosed in its Form 10-Q may differ from these
preliminary results as a result of the completion of the company’s
financial closing procedures; final adjustments; completion of the
review by the company’s independent registered accounting firm; and
other developments that may arise between now and the disclosure of
the final results. Other risks and uncertainties that could cause
actual results to differ materially from those expressed or implied
in the forward-looking statements include: volatility in global
economic conditions; business conditions and growth in the storage
ecosystem; impact of restructuring activities and cost saving
initiatives; impact of competitive products and pricing; market
acceptance and cost of commodity materials and specialized product
components; actions by competitors; unexpected advances in
competing technologies; our development and introduction of
products based on new technologies and expansion into new data
storage markets; risks associated with acquisitions, divestitures,
mergers and joint ventures; difficulties or delays in
manufacturing; the outcome of legal proceedings; and other risks
and uncertainties listed in the company’s filings with the
Securities and Exchange Commission (the “SEC”), including the
company’s Form 10-Q filed with the SEC on November 12, 2019, to
which your attention is directed. You should not place undue
reliance on these forward-looking statements, which speak only as
of the date hereof, and the company undertakes no obligation to
update these forward-looking statements to reflect new information
or events.
Western Digital, the Western Digital logo, G-Technology, SanDisk
and WD are registered trademarks or trademarks of Western Digital
Corporation or its affiliates in the US and/or other countries.
WESTERN DIGITAL
CORPORATION
PRELIMINARY CONDENSED
CONSOLIDATED BALANCE SHEETS
(in millions; unaudited; on a
US GAAP basis)
January 3,
2020
June 28,
2019
ASSETS
Current assets:
Cash and cash equivalents
$
3,137
$
3,455
Accounts receivable, net
1,791
1,204
Inventories
3,122
3,283
Other current assets
577
535
Total current assets
8,627
8,477
Property, plant and equipment, net
2,722
2,843
Notes receivable and investments in Flash
Ventures
2,321
2,791
Goodwill
10,069
10,076
Other intangible assets, net
1,311
1,711
Other non-current assets
810
472
Total assets
$
25,860
$
26,370
LIABILITIES AND SHAREHOLDERS’
EQUITY
Current liabilities:
Accounts payable
$
1,736
$
1,567
Accounts payable to related parties
364
331
Accrued expenses
1,559
1,296
Accrued compensation
537
347
Current portion of long-term debt
286
276
Total current liabilities
4,482
3,817
Long-term debt
9,547
10,246
Other liabilities
2,452
2,340
Total liabilities
16,481
16,403
Total shareholders’ equity
9,379
9,967
Total liabilities and shareholders’
equity
$
25,860
$
26,370
WESTERN DIGITAL
CORPORATION
PRELIMINARY CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share
amounts; unaudited; on a US GAAP basis)
Three Months Ended
Six Months Ended
January 3,
2020
December 28,
2018
January 3,
2020
December 28,
2018
Revenue, net
$
4,234
$
4,233
$
8,274
$
9,261
Cost of revenue
3,299
3,189
6,581
6,553
Gross profit
935
1,044
1,693
2,708
Operating expenses:
Research and development
578
539
1,152
1,115
Selling, general and administrative
298
309
603
665
Employee termination, asset impairment and
other charges
9
20
17
66
Total operating expenses
885
868
1,772
1,846
Operating income (loss)
50
176
(79
)
862
Interest and other expense, net
(90
)
(95
)
(198
)
(198
)
Income (loss) before taxes
(40
)
81
(277
)
664
Income tax expense
99
568
138
640
Net income (loss)
$
(139
)
$
(487
)
$
(415
)
$
24
Income (loss) per common share
Basic
$
(0.47
)
$
(1.68
)
$
(1.40
)
$
0.08
Diluted
$
(0.47
)
$
(1.68
)
$
(1.40
)
$
0.08
Weighted average shares outstanding:
Basic
298
290
297
291
Diluted
298
290
297
296
WESTERN DIGITAL
CORPORATION
PRELIMINARY CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions; unaudited; on a
US GAAP basis)
Three Months Ended
Six Months Ended
January 3,
2020
December 28,
2018
January 3,
2020
December 28,
2018
Operating Activities
Net income (loss)
$
(139
)
$
(487
)
$
(415
)
$
24
Adjustments to reconcile net income (loss)
to net cash provided by operations:
Depreciation and amortization
399
472
805
952
Stock-based compensation
77
79
154
158
Deferred income taxes
(15
)
80
(42
)
281
Loss (gain) on disposal of assets
(14
)
(1
)
(12
)
1
Amortization of debt discounts
10
10
20
19
Other non-cash operating activities,
net
1
17
(20
)
37
Changes in:
Accounts receivable, net
(344
)
504
(587
)
482
Inventories
160
(308
)
155
(483
)
Accounts payable
15
(179
)
170
(256
)
Accounts payable to related parties
(143
)
24
33
51
Accrued expenses
227
220
327
254
Accrued compensation
116
(154
)
191
(134
)
Other assets and liabilities, net
(93
)
192
(269
)
(212
)
Net cash provided by operating
activities
257
469
510
1,174
Investing Activities
Purchases of property, plant and
equipment, net
(160
)
(220
)
(305
)
(497
)
Acquisitions, net of cash acquired
—
—
(22
)
—
Activity related to Flash Ventures,
net
280
(225
)
466
(196
)
Other
6
(21
)
21
(32
)
Net cash provided by (used in) investing
activities
126
(466
)
160
(725
)
Financing Activities
Employee stock plans, net
44
50
18
(8
)
Repurchases of common stock
—
—
—
(563
)
Dividends paid to shareholders
(149
)
(144
)
(296
)
(292
)
Repayment of debt
(388
)
(537
)
(707
)
(575
)
Net cash used in financing activities
(493
)
(631
)
(985
)
(1,438
)
Effect of exchange rate changes on
cash
(1
)
(5
)
(3
)
(3
)
Net decrease in cash and cash
equivalents
(111
)
(633
)
(318
)
(992
)
Cash and cash equivalents, beginning of
period
3,248
4,646
3,455
5,005
Cash and cash equivalents, end of
period
$
3,137
$
4,013
$
3,137
$
4,013
WESTERN DIGITAL
CORPORATION
PRELIMINARY RECONCILIATION OF
GAAP TO NON-GAAP FINANCIAL MEASURES
(in millions;
unaudited)
Three Months Ended
Six Months Ended
January 3,
2020
December 28,
2018
January 3,
2020
December 28,
2018
GAAP cost of revenue
$
3,299
$
3,189
$
6,581
$
6,553
Amortization of acquired intangible
assets
(157
)
(215
)
(321
)
(450
)
Stock-based compensation expense
(13
)
(13
)
(25
)
(24
)
Charges related to cost saving
initiatives
(1
)
(6
)
(1
)
(7
)
Manufacturing underutilization charges
—
(49
)
—
(49
)
Power outage charges
—
—
(68
)
—
Other
8
—
8
—
Non-GAAP cost of revenue
$
3,136
$
2,906
$
6,174
$
6,023
GAAP gross profit
$
935
$
1,044
$
1,693
$
2,708
Amortization of acquired intangible
assets
157
215
321
450
Stock-based compensation expense
13
13
25
24
Charges related to cost saving
initiatives
1
6
1
7
Manufacturing underutilization charges
—
49
—
49
Power outage charges
—
—
68
—
Other
(8
)
—
(8
)
—
Non-GAAP gross profit
$
1,098
$
1,327
$
2,100
$
3,238
GAAP operating expenses
$
885
$
868
$
1,772
$
1,846
Amortization of acquired intangible
assets
(39
)
(41
)
(80
)
(82
)
Stock-based compensation expense
(64
)
(66
)
(129
)
(134
)
Employee termination, asset impairment and
other charges
(9
)
(20
)
(17
)
(66
)
Charges related to acquisitions and
dispositions
(2
)
—
(7
)
—
Charges related to cost saving
initiatives
(6
)
(2
)
(7
)
(5
)
Other
—
(1
)
—
(1
)
Non-GAAP operating expenses
$
765
$
738
$
1,532
$
1,558
GAAP operating income (loss)
$
50
$
176
$
(79
)
$
862
Cost of revenue adjustments
163
283
407
530
Operating expense adjustments
120
130
240
288
Non-GAAP operating income
$
333
$
589
$
568
$
1,680
GAAP interest and other expense,
net
$
(90
)
$
(95
)
$
(198
)
$
(198
)
Convertible debt activity
7
6
14
13
Other
2
(4
)
4
(7
)
Non-GAAP interest and other expense,
net
$
(81
)
$
(93
)
$
(180
)
$
(192
)
GAAP income tax expense
$
99
$
568
$
138
$
640
Income tax adjustments
(34
)
(496
)
(38
)
(482
)
Non-GAAP income tax expense
$
65
$
72
$
100
$
158
WESTERN DIGITAL
CORPORATION
PRELIMINARY RECONCILIATION OF
GAAP TO NON-GAAP FINANCIAL MEASURES
(in millions, except per share
amounts; unaudited)
Three Months Ended
Six Months Ended
January 3,
2020
December 28,
2018
January 3,
2020
December 28,
2018
GAAP net income (loss)
$
(139
)
$
(487
)
$
(415
)
$
24
Amortization of acquired intangible
assets
196
256
401
532
Stock-based compensation expense
77
79
154
158
Employee termination, asset impairment and
other charges
9
20
17
66
Charges related to acquisitions and
dispositions
2
—
7
—
Charges related to cost saving
initiatives
7
8
8
12
Manufacturing underutilization charges
—
49
—
49
Power outage charges
—
—
68
—
Convertible debt activity
7
6
14
13
Other
(6
)
(3
)
(4
)
(6
)
Income tax adjustments
34
496
38
482
Non-GAAP net income
$
187
$
424
$
288
$
1,330
Diluted income (loss) per common
share
GAAP
$
(0.47
)
$
(1.68
)
$
(1.40
)
$
0.08
Non-GAAP
$
0.62
$
1.45
$
0.96
$
4.49
Diluted weighted average shares
outstanding:
GAAP
298
290
297
296
Non-GAAP
300
293
300
296
To supplement the condensed consolidated financial statements
presented in accordance with U.S. generally accepted accounting
principles (“GAAP”), the table above sets forth non-GAAP cost of
revenue; non-GAAP gross profit; non-GAAP operating expenses;
non-GAAP operating income; non-GAAP interest and other expense,
net; non-GAAP income tax expense; non-GAAP net income; and non-GAAP
diluted income per common share (“Non-GAAP measures”). These
Non-GAAP measures are not in accordance with, or an alternative
for, measures prepared in accordance with GAAP and may be different
from Non-GAAP measures used by other companies. The company
believes the presentation of these Non-GAAP measures, when shown in
conjunction with the corresponding GAAP measures, provides useful
information to investors for measuring the company’s earnings
performance and comparing it against prior periods. Specifically,
the company believes these Non-GAAP measures provide useful
information to both management and investors as they exclude
certain expenses, gains and losses that the company believes are
not indicative of its core operating results or because they are
consistent with the financial models and estimates published by
many analysts who follow the company and its peers. As discussed
further below, these Non-GAAP measures exclude the amortization of
acquired intangible assets, stock-based compensation expense,
employee termination, asset impairment and other charges, charges
related to acquisitions and dispositions, charges related to cost
saving initiatives, manufacturing underutilization charges, power
outage charges, convertible debt activity, other adjustments, and
income tax adjustments, and the company believes these measures
along with the related reconciliations to the GAAP measures provide
additional detail and comparability for assessing the company's
results. These Non-GAAP measures are some of the primary indicators
management uses for assessing the company's performance and
planning and forecasting future periods. 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.
As described above, the company excludes the following items
from its Non-GAAP measures:
Amortization of acquired intangible
assets. The company incurs expenses from the amortization of
acquired intangible assets over their economic lives. Such charges
are significantly impacted by the timing and magnitude of the
company's acquisitions and any related impairment charges.
Stock-based compensation expense.
Because of the variety of equity awards used by companies, the
varying methodologies for determining stock-based compensation
expense, the subjective assumptions involved in those
determinations, and the volatility in valuations that can be driven
by market conditions outside the company's control, the company
believes excluding stock-based compensation expense enhances the
ability of management and investors to understand and assess the
underlying performance of its business over time and compare it
against the company's peers, a majority of whom also exclude
stock-based compensation expense from their non-GAAP results.
Employee termination, asset impairment and
other charges. From time-to-time, in order to realign the
company's operations with anticipated market demand or to achieve
cost synergies from the integration of acquisitions, the company
may terminate employees and/or restructure its operations. From
time-to-time, the company may also incur charges from the
impairment of intangible assets and other long-lived assets. These
charges (including any reversals of charges recorded in prior
periods) are inconsistent in amount and frequency, and the company
believes are not indicative of the underlying performance of its
business.
Charges related to acquisitions and
dispositions. In connection with the company's business
combinations or dispositions, the company incurs expenses which it
would not have otherwise incurred as part of its business
operations. These expenses include third-party professional service
and legal fees, third-party integration services, severance costs,
non-cash adjustments to the fair value of acquired inventory,
contract termination costs, and retention bonuses. The company may
also experience other accounting impacts in connection with these
transactions. These charges and impacts are related to acquisitions
and dispositions, are inconsistent in amount and frequency, and the
company believes are not indicative of the underlying performance
of its business.
Charges related to cost saving
initiatives. In connection with the transformation of the
company's business, the company has incurred charges related to
cost saving initiatives which do not qualify for special accounting
treatment as exit or disposal activities. These charges, which the
company believes are not indicative of the underlying performance
of its business, primarily relate to costs associated with
rationalizing the company's channel partners or vendors,
transforming the company's information systems infrastructure,
integrating the company's product roadmap, and accelerated
depreciation of assets.
Manufacturing underutilization
charges. In response to flash business conditions, the
company temporarily reduced its wafer starts during fiscal 2019 at
its flash-based memory manufacturing facilities operated through
its strategic partnership with Kioxia Corporation. The temporary
abnormal reduction in output resulted in flash manufacturing
underutilization charges which were expensed as incurred. These
charges are inconsistent in amount and frequency, and the company
believes these charges are not part of the ongoing operation of its
business.
Power outage charges. In June 2019,
an unexpected power outage incident occurred at the flash-based
memory manufacturing facilities operated through the company's
strategic partnership with Kioxia Corporation in Yokkaichi, Japan.
The power outage incident resulted in the write-off of damaged
inventory and unabsorbed manufacturing overhead costs which are
expensed as incurred. These charges are inconsistent in amount and
frequency, and the company believes these charges are not part of
the ongoing production operation of its business.
Convertible debt activity. The
company excludes non-cash economic interest expense associated with
its convertible notes. These charges do not reflect the company's
operating results, and the company believes are not indicative of
the underlying performance of its business.
Other adjustments. From
time-to-time, the company sells or impairs investments or other
assets which are not considered necessary to its business
operations, or incurs other charges or gains that the company
believes are not a part of the ongoing operation of its business.
The resulting expense or benefit is inconsistent in amount and
frequency.
Income tax adjustments. Income tax
adjustments include the difference between income taxes based on a
forecasted annual non-GAAP tax rate and a forecasted annual GAAP
tax rate as a result of the timing of certain non-GAAP pre-tax
adjustments. The income tax adjustments include the company’s final
adjustments for the tax effects of the Tax Cuts and Jobs Act
allowed within the one-year measurement period that ended on
December 22, 2018, as well as estimates related to the current
status of the rules and regulations governing the transition to the
Tax Cuts and Jobs Act. These adjustments are excluded because they
are infrequent and the company believes that they are not
indicative of the underlying performance of its business.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200130005777/en/
Western Digital Corp.
Investor Contact: T. Peter Andrew 949.672.9655
peter.andrew@wdc.com investor@wdc.com
Media Contact: Jim Pascoe 408.717.6999 jim.pascoe@wdc.com
Western Digital (NASDAQ:WDC)
Historical Stock Chart
From Apr 2024 to May 2024
Western Digital (NASDAQ:WDC)
Historical Stock Chart
From May 2023 to May 2024