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TMCNet:  SanDisk Announces First Quarter 2014 Results

[April 16, 2014]

SanDisk Announces First Quarter 2014 Results

MILPITAS, Calif. --(Business Wire)--

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, 2013SUMMARY 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 SHARESGAAP 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, 2013ASSETS 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 �


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