SanDisk Announces Second Quarter Results

SanDisk Announces Second Quarter Results

Delivers Record Second Quarter Revenue

MILPITAS, Calif.--(BUSINESS WIRE)-- SanDisk Corporation (NASDAQ: SNDK), a global leader in flash memory storage solutions, today announced results for the second quarter ended June 30, 2013. Second quarter revenue of $1.48 billion increased 43 percent on a year-over-year basis and increased 10 percent sequentially.

On a GAAP(1) basis, second quarter net income was $262 million, or $1.06 per diluted share, compared to net income of $13 million, or $0.05 per diluted share, in the second quarter of fiscal 2012 and $166 million, or $0.68 per diluted share, in the first quarter of fiscal 2013.

On a non-GAAP(2) basis, second quarter net income was $299 million, or $1.21 per diluted share, compared to net income of $51 million, or $0.21 per diluted share, in the second quarter of fiscal 2012 and net income of $207 million, or $0.84 per diluted share, in the first quarter of fiscal 2013. For reconciliation of non-GAAP to GAAP results, see accompanying financial tables and footnotes.

“We delivered record second quarter results driven by increasing momentum across our business. We achieved solid revenue growth in our embedded solutions portfolio with many design wins ramping into production,” said Sanjay Mehrotra, president and chief executive officer of SanDisk. “We are excited about our pending acquisition of SMART Storage Systems, as it accelerates our growth in enterprise storage. The growth drivers of our business are vibrant and SanDisk is poised for further gains.”

SECOND QUARTER 2013 KEY FINANCIAL METRICS

 

Metric     GAAP         Non-GAAP
in millions, except percentages and per share amounts     Q213     Q212     Q113         Q213     Q212     Q113
Revenue     $ 1,476       $ 1,032       $ 1,341           $ 1,476       $ 1,032       $ 1,341  
Gross Profit $ 677     $ 281     $ 532         $ 689     $ 292     $ 543
percent of revenue       45.8 %       27.2 %       39.6 %           46.7 %       28.3 %       40.5 %
Operating Income $ 393 $ 36 $ 254 $ 429 $ 68 $ 288
percent of revenue       26.6 %       3.5 %       18.9 %           29.0 %       6.6 %       21.5 %
Diluted EPS     $ 1.06       $ 0.05       $ 0.68           $ 1.21       $ 0.21       $ 0.84  

At the end of the second quarter of fiscal 2013, SanDisk’s cash and short and long-term marketable investments totaled $5.4 billion. Cash flow from operations in the second quarter of fiscal 2013 totaled $391 million.

CONFERENCE CALL

SanDisk’s second quarter of fiscal 2013 conference call is scheduled for 2:00 P.M., Pacific Time, Wednesday, July 17, 2013. 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 719-325-4838 and the dial-in password is 5031920. 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  ) is a global leader in flash memory storage solutions, from research and development, product design and manufacturing to branding and distribution for commercial and retail channels. Since 1988, SanDisk’s innovations in flash memory and storage system technologies have provided customers with new and transformational digital experiences. SanDisk’s diverse product portfolio includes flash memory cards and embedded solutions used in smart phones, tablets, digital cameras, camcorders, digital media players and other consumer electronic devices, as well as USB flash drives and solid-state drives (SSD) for the computing market. SanDisk’s products are used by consumers and enterprise customers around the world.

SanDisk is a Silicon Valley-based S&P 500 and Fortune 500 company, with more than half its sales outside the United States. For more information, visit www.sandisk.com.

© 2013 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 press release contains certain forward-looking statements, including statements about our business prospects, our pending acquisition of SMART Storage Systems, our growth in the enterprise solutions space, and our anticipated momentum for continued gains in 2013 and across our business, that are based on our current expectations and subject to numerous risks and uncertainties that may cause these forward-looking statements to be inaccurate and significantly harm our business, financial condition and results of operations. We undertake no obligation 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 and lower or negative product gross margins;
  • inability to reduce our manufacturing costs to keep pace with reductions in average selling prices;
  • potential delays in product development or lack of customer acceptance of our solutions, particularly OEM products such as our embedded flash storage solutions, and client and enterprise SSD solutions;
  • inability to continue to penetrate the client and enterprise SSD markets, or the failure of existing markets for flash memory to grow;
  • delays in the timing of the acquisition or successful integration of SMART Storage Systems and our inability to achieve the expected benefits from the acquisition in a timely manner, or at all;
  • inability to enhance current products or develop new products on a timely basis or in advance of our competitors;
  • excess inventory or lost sales resulting from unpredictable or changing demand for our products;
  • excess, insufficient or mismatched captive memory output or capacity, which could result in lower average selling-prices, financial charges and impairments, lost sales and market growth opportunities, lower gross margins or other consequences; 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 first fiscal quarter ended March 31, 2013.

(1) GAAP represents U.S. Generally Accepted Accounting Principles.

(2) Non-GAAP represents GAAP excluding the impact of share-based compensation expense, amortization and write-off of acquisition-related intangible assets, non-cash economic interest expense associated with our convertible debt and related tax adjustments.

 
SanDisk Corporation
Preliminary Condensed Consolidated Statements of Operations
(in thousands, except per share amounts, unaudited)
                             
 
Three months ended Six months ended
June 30, 2013 July 1, 2012 June 30, 2013 July 1, 2012
 
Revenues $ 1,476,263 $ 1,032,255 $ 2,816,992 $ 2,237,816
 
Cost of revenues 789,614 742,297 1,588,997 1,517,617
Amortization of acquisition-related intangible assets   9,830     9,181     19,660     22,912  
Total cost of revenues 799,444 751,478 1,608,657 1,540,529
       
Gross profit 676,819 280,777 1,208,335 697,287
 
Operating expenses:
Research and development 172,041 152,397 343,166 293,354
Sales and marketing 63,601 52,261 122,728 101,296
General and administrative 46,877 37,692 91,981 70,283
Amortization and write-off of acquisition-related intangible assets   1,742     2,244     4,111     4,307  
Total operating expenses   284,261     244,594     561,986     469,240  
 
Operating income 392,558 36,183 646,349 228,047
 
Other income (expense), net   (9,101 )   (17,197 )   (28,998 )   (42,513 )
Income before income taxes 383,457 18,986 617,351 185,534
 
Provision for income taxes   121,668     6,017     189,333     58,180  
Net income $ 261,789   $ 12,969   $ 428,018   $ 127,354  
 
Net income per share:
Basic $ 1.08 $ 0.05 $ 1.77 $ 0.53
Diluted $ 1.06 $ 0.05 $ 1.74 $ 0.52
 
Shares used in computing net income per share:
Basic 241,519 242,276 242,019 242,579
Diluted 245,815 244,570 245,569 246,026
 
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 30, 2013 July 1, 2012 June 30, 2013 July 1, 2012
 
SUMMARY RECONCILIATION OF NET INCOME
GAAP NET INCOME $ 261,789 $ 12,969 $ 428,018 $ 127,354
Share-based compensation (a) 24,661 20,253 46,395 39,333
Amortization and write-off of acquisition-related intangible assets (b) 11,572 11,425 23,771 27,219
Convertible debt interest (c) 16,766 22,355 40,343 44,242
Income tax adjustments (d)   (15,816 )   (15,889 )   (32,658 )   (30,719 )
NON-GAAP NET INCOME $ 298,972   $ 51,113   $ 505,869   $ 207,429  
 
 
GAAP COST OF REVENUES $ 799,444 $ 751,478 $ 1,608,657 $ 1,540,529
Share-based compensation (a) (2,447 ) (1,923 ) (4,164 ) (3,460 )
Amortization of acquisition-related intangible assets (b)   (9,830 )   (9,181 )   (19,660 )   (22,912 )
NON-GAAP COST OF REVENUES $ 787,167   $ 740,374   $ 1,584,833   $ 1,514,157  
 
GAAP GROSS PROFIT $ 676,819 $ 280,777 $ 1,208,335 $ 697,287
Share-based compensation (a) 2,447 1,923 4,164 3,460
Amortization of acquisition-related intangible assets (b)   9,830     9,181     19,660     22,912  
NON-GAAP GROSS PROFIT $ 689,096   $ 291,881   $ 1,232,159   $ 723,659  
 
GAAP RESEARCH AND DEVELOPMENT EXPENSES $ 172,041 $ 152,397 $ 343,166 $ 293,354
Share-based compensation (a)   (12,704 )   (10,623 )   (24,344 )   (20,650 )
NON-GAAP RESEARCH AND DEVELOPMENT EXPENSES $ 159,337   $ 141,774   $ 318,822   $ 272,704  
 
GAAP SALES AND MARKETING EXPENSES $ 63,601 $ 52,261 $ 122,728 $ 101,296
Share-based compensation (a)   (4,701 )   (3,634 )   (8,572 )   (7,263 )
NON-GAAP SALES AND MARKETING EXPENSES $ 58,900   $ 48,627   $ 114,156   $ 94,033  
 
GAAP GENERAL AND ADMINISTRATIVE EXPENSES $ 46,877 $ 37,692 $ 91,981 $ 70,283
Share-based compensation (a)   (4,809 )   (4,073 )   (9,315 )   (7,960 )
NON-GAAP GENERAL AND ADMINISTRATIVE EXPENSES $ 42,068   $ 33,619   $ 82,666   $ 62,323  
 
GAAP TOTAL OPERATING EXPENSES $ 284,261 $ 244,594 $ 561,986 $ 469,240
Share-based compensation (a) (22,214 ) (18,330 ) (42,231 ) (35,873 )
Amortization and write-off of acquisition-related intangible assets (b)   (1,742 )   (2,244 )   (4,111 )   (4,307 )
NON-GAAP TOTAL OPERATING EXPENSES $ 260,305   $ 224,020   $ 515,644   $ 429,060  
 
GAAP OPERATING INCOME $ 392,558 $ 36,183 $ 646,349 $ 228,047
Cost of revenues adjustments (a) (b) 12,277 11,104 23,824 26,372
Operating expense adjustments (a) (b)   23,956     20,574     46,342     40,180  
NON-GAAP OPERATING INCOME $ 428,791   $ 67,861   $ 716,515   $ 294,599  
 
GAAP OTHER INCOME (EXPENSE), NET $ (9,101 ) $ (17,197 ) $ (28,998 ) $ (42,513 )
Convertible debt interest (c)   16,766     22,355     40,343     44,242  
NON-GAAP OTHER INCOME (EXPENSE), NET $ 7,665   $ 5,158   $ 11,345   $ 1,729  
 
GAAP NET INCOME $ 261,789 $ 12,969 $ 428,018 $ 127,354
Cost of revenues adjustments (a) (b) 12,277 11,104 23,824 26,372
Operating expense adjustments (a) (b) 23,956 20,574 46,342 40,180
Convertible debt interest (c) 16,766 22,355 40,343 44,242
Income tax adjustments (d)   (15,816 )   (15,889 )   (32,658 )   (30,719 )
NON-GAAP NET INCOME $ 298,972   $ 51,113   $ 505,869   $ 207,429  
 
 
Diluted net income per share:
GAAP $ 1.06 $ 0.05 $ 1.74 $ 0.52
Non-GAAP $ 1.21 $ 0.21 $ 2.06 $ 0.84
 
Shares used in computing diluted net income per share:
GAAP 245,815 244,570 245,569 246,026
Non-GAAP 246,149 244,701 245,767 246,026
 
SanDisk Corporation
Reconciliation of Preliminary GAAP to Non-GAAP Operating Results (1)
     
 
(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 the Company. For example, because the non-GAAP results exclude the expenses we recorded for share-based compensation, amortization and write-off of acquisition-related intangible assets related to acquisitions of Matrix Semiconductor, Inc. in January 2006, Pliant Technology, Inc. in May 2011, FlashSoft Corporation in February 2012 and Schooner Information Technology, Inc. in June 2012, 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. 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 and write-off 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 and write-off of acquisition-related intangible assets, primarily core technology, developed technology, customer relationships and trademarks related to the acquisitions of Matrix Semiconductor, Inc. (January 2006), Pliant Technology, Inc. (May 2011), FlashSoft Corporation (February 2012) and Schooner Information Technology, Inc. (June 2012).
 
(c) Incremental interest expense relating to the non-cash economic interest expense associated with the Company's 1% Sr. Convertible Notes due 2013 and 1.5% Sr. Convertible Notes due 2017.
 
(d) Income taxes associated with certain non-GAAP to GAAP adjustments.
 
SanDisk Corporation
Preliminary Condensed Consolidated Balance Sheets
(in thousands, unaudited)
                 
 
June 30, 2013 December 30, 2012
 
ASSETS
Current assets:
Cash and cash equivalents $ 1,054,131 $ 995,470
Short-term marketable securities 1,533,898 1,880,034
Accounts receivable, net 636,093 626,025
Inventory 723,403 750,075
Deferred taxes 95,423 93,877
Other current assets   251,931     260,879  
Total current assets 4,294,879 4,606,360
 
Long-term marketable securities 2,766,474 2,835,931
Property and equipment, net 674,249 665,542
Notes receivable and investments in Flash Ventures 1,204,740 1,460,112
Deferred taxes 115,789 168,718
Goodwill 202,336 201,735
Intangible assets, net 210,883 246,919
Other non-current assets   149,646     153,810  
Total assets $ 9,618,996   $ 10,339,127  
 
LIABILITIES
Current liabilities:
Accounts payable trade $ 269,829 $ 254,459
Accounts payable to related parties 168,019 214,806
Convertible short-term debt - 906,708
Other current accrued liabilities 413,471 257,539
Deferred income on shipments to distributors and retailers and deferred revenue   256,664     248,155  
Total current liabilities 1,107,983 1,881,667
 
Convertible long-term debt 809,626 789,913
Non-current liabilities   356,581     407,947  
Total liabilities   2,274,190     3,079,527  
 
EQUITY
Stockholders' equity:
Common stock 5,124,529 5,027,512
Retained earnings 2,235,001 2,071,268
Accumulated other comprehensive income (loss)   (11,686 )   165,121  
Total stockholders' equity 7,347,844 7,263,901
Non-controlling interests   (3,038 )   (4,301 )
Total equity   7,344,806     7,259,600  
Total liabilities and equity $ 9,618,996   $ 10,339,127  
 
SanDisk Corporation
Preliminary Condensed Consolidated Statements of Cash Flows
(in thousands, unaudited)
                           
 
Three months ended Six months ended
June 30, 2013 July 1, 2012 June 30, 2013

July 1, 2012

Cash flows from operating activities:
Net income $ 261,789 $ 12,969 $ 428,018 $ 127,354
 
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred taxes 12,343 460 65,494 5,963
Depreciation 55,195 36,525 108,212 69,703
Amortization 56,095 65,124 121,246 132,280
Provision for doubtful accounts 1,339 (439 ) 1,142 (1,724 )
Share-based compensation expense 24,661 20,253 46,395 39,333
Excess tax benefit from share-based plans (7,211 ) (2,424 ) (15,661 ) (11,021 )
Impairment and other (2,343 ) (4,417 ) (5,516 ) (9,871 )
Other non-operating (496 ) 1,788 (360 ) 9,440
Changes in operating assets and liabilities:
Accounts receivable, net (197,936 ) (4,928 ) (11,210 ) 194,509
Inventory 10,731 (98,503 ) 27,507 (183,715 )
Other assets 41,729 33,531 21,573 60,274
Accounts payable trade 12,472 30,883 15,370 (3,410 )
Accounts payable to related parties (8,886 ) 33,771 (46,787 ) (41,432 )
Other liabilities   131,311     (105,478 )   109,021     (301,394 )
Total adjustments   129,004     6,146     436,426     (41,065 )
 
Net cash provided by operating activities   390,793     19,115     864,444     86,289  
 
Cash flows from investing activities:
Purchases of short and long-term marketable securities (846,740 ) (605,709 ) (1,997,087 ) (1,362,066 )
Proceeds from sales of short and long-term marketable securities 1,334,305 547,444 1,847,659 1,173,180
Proceeds from maturities of short and long-term marketable securities 213,700 214,588 506,905 407,430
Acquisition of property and equipment, net (71,497 ) (96,076 ) (119,849 ) (240,294 )
Investment in Flash Ventures (37,913 ) (50,439 )
Notes receivable issuances to Flash Ventures (91,186 ) (142,316 )
Notes receivable proceeds from Flash Ventures 19,802 147,953 73,388 211,786
Purchased technology and other assets (3,671 ) (194 ) (3,908 ) (222 )
Acquisitions, net of cash acquired   (14,666 )   (142 )   (69,204 )
Net cash provided by (used in) investing activities   645,899     64,241     306,966     (72,145 )
 
Cash flows from financing activities:
Repayment of debt financing (928,061 ) (928,061 )
Proceeds from employee stock programs 69,941 5,354 163,016 50,672
Distribution to non-controlling interests (87 )
Excess tax benefit from share-based plans 7,211 2,424 15,661 11,021
Share repurchase program (280,373 ) (93,164 ) (369,994 ) (154,075 )
Net cash received (paid) for share repurchase contracts   (20,000 )   (18,858 )
Net cash used in financing activities   (1,131,282 )   (105,386 )   (1,119,465 )   (111,240 )
 
Effect of changes in foreign currency exchange rates on cash   611     (779 )   6,716     54  
 
Net increase (decrease) in cash and cash equivalents (93,979 ) (22,809 ) 58,661 (97,042 )
 
Cash and cash equivalents at beginning of period 1,148,110 1,093,263 995,470 1,167,496
       
Cash and cash equivalents at end of period $ 1,054,131   $ 1,070,454   $ 1,054,131   $ 1,070,454  



SanDisk Corporation
Investor:
Brendan Lahiff, 408-801-1732
brendan.lahiff@sandisk.com
or
Jay Iyer, 408-801-2067
jay.iyer@sandisk.com
or
Media:
Tom Beermann, 408-801-1443
tom.beermann@sandisk.com

KEYWORDS:   United States  North America  California

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