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Western Digital Announces Financial Results for First Quarter Fiscal Year 2019
In the year-ago quarter, the company reported revenue of
The company generated
“Our fiscal first quarter results reflected strength in capacity enterprise, surveillance hard drives and embedded flash solutions, with each growing revenue over 30% from the year-ago quarter,” said
The investment community conference call to discuss these results and the company’s guidance for the second fiscal quarter of 2019 will be broadcast live online today at
About
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 first fiscal quarter ended
| WESTERN DIGITAL CORPORATION | |||||||||||
| PRELIMINARY CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||||||
| (in millions; unaudited; on a US GAAP basis) | |||||||||||
| Sept. 28, | June 29, | ||||||||||
| 2018 | 2018 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 4,646 | $ | 5,005 | |||||||
| Accounts receivable, net | 2,219 | 2,197 | |||||||||
| Inventories | 3,119 | 2,944 | |||||||||
| Other current assets | 587 | 492 | |||||||||
| Total current assets | 10,571 | 10,638 | |||||||||
| Property, plant and equipment, net | 3,054 | 3,095 | |||||||||
| Notes receivable and investments in Flash Ventures | 2,028 | 2,105 | |||||||||
| Goodwill | 10,072 | 10,075 | |||||||||
| Other intangible assets, net | 2,404 | 2,680 | |||||||||
| Other non-current assets | 576 | 642 | |||||||||
| Total assets | $ | 28,705 | $ | 29,235 | |||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 2,081 | $ | 2,265 | |||||||
| Accounts payable to related parties | 286 | 259 | |||||||||
| Accrued expenses | 1,305 | 1,274 | |||||||||
| Accrued compensation | 500 | 479 | |||||||||
| Current portion of long-term debt | 213 | 179 | |||||||||
| Total current liabilities | 4,385 | 4,456 | |||||||||
| Long-term debt | 10,930 | 10,993 | |||||||||
| Other liabilities | 2,015 | 2,255 | |||||||||
| Total liabilities | 17,330 | 17,704 | |||||||||
| Total shareholders' equity | 11,375 | 11,531 | |||||||||
| Total liabilities and shareholders' equity | $ | 28,705 | $ | 29,235 | |||||||
| WESTERN DIGITAL CORPORATION | |||||||||||||
| PRELIMINARY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||
| (in millions, except per share amounts; unaudited; on a US GAAP basis) | |||||||||||||
| Three Months Ended | |||||||||||||
| Sept. 28, | Sept. 29, | ||||||||||||
| 2018 | 2017 | ||||||||||||
| Revenue, net | $ | 5,028 | $ | 5,181 | |||||||||
| Cost of revenue | 3,364 | 3,268 | |||||||||||
| Gross profit | 1,664 | 1,913 | |||||||||||
| Operating expenses: | |||||||||||||
| Research and development | 576 | 592 | |||||||||||
| Selling, general and administrative | 356 | 364 | |||||||||||
| Employee termination, asset impairment and other charges | 46 | 52 | |||||||||||
| Total operating expenses | 978 | 1,008 | |||||||||||
| Operating income | 686 | 905 | |||||||||||
| Interest and other expense, net | (103 | ) | (195 | ) | |||||||||
| Income before taxes | 583 | 710 | |||||||||||
| Income tax expense | 72 | 29 | |||||||||||
| Net income | $ | 511 | $ | 681 | |||||||||
| Income per common share: | |||||||||||||
| Basic | $ | 1.75 | $ | 2.31 | |||||||||
| Diluted | $ | 1.71 | $ | 2.23 | |||||||||
| Weighted average shares outstanding: | |||||||||||||
| Basic | 292 | 295 | |||||||||||
| Diluted | 298 | 306 | |||||||||||
| WESTERN DIGITAL CORPORATION | |||||||||||
| PRELIMINARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||||
| (in millions; unaudited; on a US GAAP basis) | |||||||||||
| Three Months Ended | |||||||||||
| Sept. 28, | Sept. 29, | ||||||||||
| 2018 | 2017 | ||||||||||
| Operating Activities | |||||||||||
| Net income | $ | 511 | $ | 681 | |||||||
|
Adjustments to reconcile net income to net cash provided by operations: |
|||||||||||
| Depreciation and amortization | 480 | 533 | |||||||||
| Stock-based compensation | 79 | 97 | |||||||||
| Deferred income taxes | 201 | 36 | |||||||||
| Loss on disposal of assets | 2 | 1 | |||||||||
| Write-off of issuance costs and amortization of debt discounts | 9 | 10 | |||||||||
| Other non-cash operating activities, net | 20 | 11 | |||||||||
| Changes in: | |||||||||||
| Accounts receivable, net | (22 | ) | (148 | ) | |||||||
| Inventories | (175 | ) | 44 | ||||||||
| Accounts payable | (77 | ) | (146 | ) | |||||||
| Accounts payable to related parties | 27 | 20 | |||||||||
| Accrued expenses | 34 | 164 | |||||||||
| Accrued compensation | 20 | (38 | ) | ||||||||
| Other assets and liabilities, net | (404 | ) | (132 | ) | |||||||
| Net cash provided by operating activities | 705 | 1,133 | |||||||||
| Investing Activities | |||||||||||
| Purchases of property, plant and equipment, net | (277 | ) | (155 | ) | |||||||
| Activity related to Flash Ventures, net | 29 | (131 | ) | ||||||||
| Acquisitions, net of cash acquired | - | (93 | ) | ||||||||
| Investment activity, net | (2 | ) | (22 | ) | |||||||
| Strategic investments and other, net | (9 | ) | 23 | ||||||||
| Net cash used in investing activities | (259 | ) | (378 | ) | |||||||
| Financing Activities | |||||||||||
| Employee stock plans, net | (58 | ) | (41 | ) | |||||||
| Repurchases of common stock | (563 | ) | - | ||||||||
| Dividends paid to shareholders | (148 | ) | (147 | ) | |||||||
| Settlement of debt hedge contracts | - | 26 | |||||||||
| Repayment of debt | (38 | ) | (62 | ) | |||||||
| Net cash used in financing activities | (807 | ) | (224 | ) | |||||||
| Effect of exchange rate changes on cash | 2 | 1 | |||||||||
| Net increase (decrease) in cash and cash equivalents | (359 | ) | 532 | ||||||||
| Cash and cash equivalents, beginning of period | 5,005 | 6,354 | |||||||||
| Cash and cash equivalents, end of period | $ | 4,646 | $ | 6,886 | |||||||
| WESTERN DIGITAL CORPORATION | |||||||||||||
| PRELIMINARY RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES | |||||||||||||
| (in millions, except per share amounts; unaudited) | |||||||||||||
| Three Months Ended | |||||||||||||
| Sept. 28, | Sept. 29, | ||||||||||||
| 2018 | 2017 | ||||||||||||
| GAAP cost of revenue | $ | 3,364 | $ | 3,268 | |||||||||
| Amortization of acquired intangible assets | (235 | ) | (279 | ) | |||||||||
| Stock-based compensation expense | (11 | ) | (13 | ) | |||||||||
| Charges related to cost saving initiatives | (1 | ) | 13 | ||||||||||
| Non-GAAP cost of revenue | $ | 3,117 | $ | 2,989 | |||||||||
| GAAP gross profit | $ | 1,664 | $ | 1,913 | |||||||||
| Amortization of acquired intangible assets | 235 | 279 | |||||||||||
| Stock-based compensation expense | 11 | 13 | |||||||||||
| Charges related to cost saving initiatives | 1 | (13 | ) | ||||||||||
| Non-GAAP gross profit | $ | 1,911 | $ | 2,192 | |||||||||
| GAAP operating expenses | $ | 978 | $ | 1,008 | |||||||||
| Amortization of acquired intangible assets | (41 | ) | (40 | ) | |||||||||
| Stock-based compensation expense | (68 | ) | (84 | ) | |||||||||
| Employee termination, asset impairment and other charges | (46 | ) | (52 | ) | |||||||||
| Acquisition-related charges | - | (4 | ) | ||||||||||
| Charges related to cost saving initiatives | (3 | ) | (9 | ) | |||||||||
| Non-GAAP operating expenses | $ | 820 | $ | 819 | |||||||||
| GAAP operating income | $ | 686 | $ | 905 | |||||||||
| Cost of revenue adjustments | 247 | 279 | |||||||||||
| Operating expense adjustments | 158 | 189 | |||||||||||
| Non-GAAP operating income | $ | 1,091 | $ | 1,373 | |||||||||
| GAAP interest and other expense, net | $ | (103 | ) | $ | (195 | ) | |||||||
| Convertible debt activity, net | 7 | - | |||||||||||
| Other | (3 | ) | (5 | ) | |||||||||
| Non-GAAP interest and other expense, net | $ | (99 | ) | $ | (200 | ) | |||||||
| GAAP income tax expense | $ | 72 | $ | 29 | |||||||||
| Income tax adjustments | 14 | 55 | |||||||||||
| Non-GAAP income tax expense | $ | 86 | $ | 84 | |||||||||
| GAAP net income | $ | 511 | $ | 681 | |||||||||
| Amortization of acquired intangible assets | 276 | 319 | |||||||||||
| Stock-based compensation expense | 79 | 97 | |||||||||||
| Employee termination, asset impairment and other charges | 46 | 52 | |||||||||||
| Acquisition-related charges | - | 4 | |||||||||||
| Charges related to cost saving initiatives | 4 | (4 | ) | ||||||||||
| Convertible debt activity, net | 7 | - | |||||||||||
| Other | (3 | ) | (5 | ) | |||||||||
| Income tax adjustments | (14 | ) | (55 | ) | |||||||||
| Non-GAAP net income | $ | 906 | $ | 1,089 | |||||||||
| Diluted income per common share: | |||||||||||||
| GAAP | $ | 1.71 | $ | 2.23 | |||||||||
| Non-GAAP | $ | 3.04 | $ | 3.56 | |||||||||
| Diluted weighted average shares outstanding: | |||||||||||||
| GAAP | 298 | 306 | |||||||||||
| Non-GAAP | 298 | 306 | |||||||||||
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, acquisition-related charges, charges related to cost saving initiatives, 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.
Acquisition-related charges. In connection with the company's business combinations, 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, 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 on assets.
Convertible debt activity, net. The company excludes non-cash economic interest expense associated with its convertible notes, the gains and losses on the conversion of its convertible senior notes and call option, and unrealized gains and losses related to the change in fair value of the exercise option and call option. These charges and gains and losses 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. Additionally, the income tax adjustments include the impact of updated estimates to the provisional one-time mandatory deemed repatriation tax as a result of the Tax Cuts and Jobs Act.
View source version on businesswire.com: https://www.businesswire.com/news/home/20181025005955/en/
Source:
Western Digital Corp.
Investor Contact:
T. Peter Andrew, 949.672.9655
peter.andrew@wdc.com
investor@wdc.com
or
Media Contact:
Jim Pascoe, 408.717.6999
jim.pascoe@wdc.com