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Western Digital Reports Fiscal First Quarter 2023 Financial Results
News Summary
- First quarter revenue was
$3.74 billion , above the midpoint of guidance. - First quarter GAAP earnings per share (EPS) was
$0.08 and Non-GAAP EPS was$0.20 , non-GAAP EPS was impacted by higher tax rate. - First quarter GAAP operating income was
$158 million and Non-GAAP operating income was$307 million . - Expect fiscal second quarter 2023 revenue to be in the range of
$2.90 billion to$3.10 billion with Non-GAAP EPS in the range of$(0.25) to$0.05 .
“I am pleased to see the
Q1 2023 Financial Highlights |
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GAAP |
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Non-GAAP |
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Q1 2023 |
Q4 2022 |
Q/Q |
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Q1 2023 |
Q4 2022 |
Q/Q |
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Revenue ($M) |
|
$ |
3,736 |
|
$ |
4,528 |
|
down 17% |
|
$ |
3,736 |
|
$ |
4,528 |
|
down 17% |
Gross Margin |
|
|
26.3 |
% |
|
31.9 |
% |
down 5.6 ppt |
|
|
26.7 |
% |
|
32.3 |
% |
down 5.6 ppt |
Operating Expenses ($M) |
|
$ |
823 |
|
$ |
883 |
|
down 7% |
|
$ |
689 |
|
$ |
760 |
|
down 9% |
Operating Income ($M) |
|
$ |
158 |
|
$ |
562 |
|
down 72% |
|
$ |
307 |
|
$ |
702 |
|
down 56% |
Net Income ($M) |
|
$ |
27 |
|
$ |
301 |
|
* |
|
$ |
64 |
|
$ |
567 |
|
down 89% |
Earnings Per Share |
|
$ |
0.08 |
|
$ |
0.95 |
|
* |
|
$ |
0.20 |
|
$ |
1.78 |
|
down 89% |
* not a meaningful figure |
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GAAP |
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Non-GAAP |
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Q1 2023 |
Q1 2022 |
Y/Y |
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Q1 2023 |
Q1 2022 |
Y/Y |
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Revenue ($M) |
|
$ |
3,736 |
|
$ |
5,051 |
|
down 26% |
|
$ |
3,736 |
|
$ |
5,051 |
|
down 26% |
Gross Margin |
|
|
26.3 |
% |
|
33.0 |
% |
down 6.7 ppt |
|
|
26.7 |
% |
|
33.9 |
% |
down 7.2 ppt |
Operating Expenses ($M) |
|
$ |
823 |
|
$ |
887 |
|
down 7% |
|
$ |
689 |
|
$ |
761 |
|
down 9% |
Operating Income ($M) |
|
$ |
158 |
|
$ |
778 |
|
down 80% |
|
$ |
307 |
|
$ |
952 |
|
down 68% |
Net Income ($M) |
|
$ |
27 |
|
$ |
610 |
|
down 96% |
|
$ |
64 |
|
$ |
787 |
|
down 92% |
Earnings Per Share |
|
$ |
0.08 |
|
$ |
1.93 |
|
down 96% |
|
$ |
0.20 |
|
$ |
2.49 |
|
down 92% |
The company generated
Additional details can be found within the company’s earnings presentation, which is accessible online at investor.wdc.com.
End Market Summary |
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Revenue ($M) |
Q1 2023 |
Q4 2022 |
Q/Q |
Q1 2022 |
Y/Y |
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Cloud |
$ |
1,829 |
$ |
2,098 |
down 13% |
$ |
2,225 |
down 18% |
Client |
|
1,229 |
|
1,637 |
down 25% |
|
1,853 |
down 34% |
Consumer |
|
678 |
|
793 |
down 15% |
|
973 |
down 30% |
Total Revenue |
$ |
3,736 |
$ |
4,528 |
down 17% |
$ |
5,051 |
down 26% |
In the fiscal first quarter:
- Cloud represented 49% of total revenue. Sequentially, continued momentum in capacity enterprise drives sold to
U.S. cloud customers and an increase in smart video hard drives demand partly offset the decline in all other hard drive product channels and flash. The year-over-year decrease was due to broad-based decline across both hard drive and flash products. - Client represented 33% of total revenue. Sequentially, the decline was attributed to flash, driven by inventory reduction at PC OEMs and lower pricing. The year-over-year decrease resulted primarily from reduced flash pricing.
- Consumer represented 18% of revenue. On both a sequential and year-over-year basis, the revenue decline was due to flash pricing and lower retail HDD shipments.
Business Outlook for Fiscal Second Quarter of 2023 |
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Three Months Ending |
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GAAP(1) |
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Non-GAAP(1) |
Revenue ($B) |
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Gross margin |
19.5% - 21.5% |
|
20.0% - 22.0% |
Operating expenses ($M) |
|
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Interest and other expense, net ($M) |
|
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Tax benefit ($M)(2) |
N/A |
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Diluted earnings per share |
N/A |
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Diluted shares outstanding (in millions) |
~319 |
|
~319 |
(1) Non-GAAP gross margin guidance excludes stock-based compensation expense of approximately
(2) The Non-GAAP tax benefit in dollars is determined based on a percentage of Non-GAAP pre-tax income or loss. Due to differences in the tax treatment of items excluded from our Non-GAAP net income; the fact that our GAAP tax expense or benefit in dollars recorded in any interim period is based on an estimated forecasted GAAP tax rate for the full year, excluding loss jurisdictions; and because our GAAP taxes recorded in any interim period are dependent on the timing and determination of certain GAAP operating expenses, our estimated Non-GAAP tax dollars may differ from our GAAP tax dollars.
The investment community conference call to discuss these results and the company’s business outlook for the fiscal second quarter of 2023 will be broadcast live online today at
About
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of federal securities laws, including statements regarding expectations for the company’s business outlook and financial performance for the fiscal second quarter of 2023; demand trends; market conditions; product ramps; and the impact of organizational and portfolio improvements. 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 fiscal first quarter ended
PRELIMINARY CONDENSED CONSOLIDATED BALANCE SHEETS (in millions; unaudited; on a US GAAP basis) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
$ |
2,049 |
|
$ |
2,327 |
Accounts receivable, net |
|
2,422 |
|
|
2,804 |
Inventories |
|
3,862 |
|
|
3,638 |
Other current assets |
|
738 |
|
|
684 |
Total current assets |
|
9,071 |
|
|
9,453 |
Property, plant and equipment, net |
|
3,718 |
|
|
3,670 |
Notes receivable and investments in |
|
1,219 |
|
|
1,396 |
|
|
10,037 |
|
|
10,041 |
Other intangible assets, net |
|
174 |
|
|
213 |
Other non-current assets |
|
1,467 |
|
|
1,486 |
Total assets |
$ |
25,686 |
|
$ |
26,259 |
LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
$ |
1,686 |
|
$ |
1,902 |
Accounts payable to related parties |
|
295 |
|
|
320 |
Accrued expenses |
|
1,592 |
|
|
1,636 |
Income taxes payable |
|
986 |
|
|
869 |
Accrued compensation |
|
407 |
|
|
510 |
Total current liabilities |
|
4,966 |
|
|
5,237 |
Long-term debt |
|
7,071 |
|
|
7,022 |
Other liabilities |
|
1,542 |
|
|
1,779 |
Total liabilities |
|
13,579 |
|
|
14,038 |
Total shareholders’ equity |
|
12,107 |
|
|
12,221 |
Total liabilities and shareholders’ equity |
$ |
25,686 |
|
$ |
26,259 |
PRELIMINARY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in millions, except per share amounts; unaudited; on a US GAAP basis) |
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Three Months Ended |
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Revenue, net |
$ |
3,736 |
|
|
$ |
5,051 |
|
Cost of revenue |
|
2,755 |
|
|
|
3,386 |
|
Gross profit |
|
981 |
|
|
|
1,665 |
|
Operating expenses: |
|
|
|
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Research and development |
|
552 |
|
|
|
578 |
|
Selling, general and administrative |
|
247 |
|
|
|
291 |
|
Employee termination, asset impairment and other charges |
|
24 |
|
|
|
18 |
|
Total operating expenses |
|
823 |
|
|
|
887 |
|
Operating income |
|
158 |
|
|
|
778 |
|
Interest and other expense, net |
|
(74 |
) |
|
|
(74 |
) |
Income before taxes |
|
84 |
|
|
|
704 |
|
Income tax expense |
|
57 |
|
|
|
94 |
|
Net income |
$ |
27 |
|
|
$ |
610 |
|
|
|
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|
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Income per common share: |
|
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|
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Basic |
$ |
0.09 |
|
|
$ |
1.97 |
|
Diluted |
$ |
0.08 |
|
|
$ |
1.93 |
|
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Weighted average shares outstanding: |
|
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|
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Basic |
|
316 |
|
|
|
310 |
|
Diluted |
|
319 |
|
|
|
316 |
|
PRELIMINARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions; unaudited; on a US GAAP basis) |
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Three Months Ended |
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Operating Activities |
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Net income |
$ |
27 |
|
|
$ |
610 |
|
Adjustments to reconcile net income to net cash provided by operations: |
|
|
|
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Depreciation and amortization |
|
216 |
|
|
|
250 |
|
Stock-based compensation |
|
86 |
|
|
|
76 |
|
Deferred income taxes |
|
(42 |
) |
|
|
27 |
|
Gain on disposal of assets |
|
1 |
|
|
|
— |
|
Amortization of debt issuance costs and discounts |
|
3 |
|
|
|
10 |
|
Other non-cash operating activities, net |
|
44 |
|
|
|
(12 |
) |
Changes in: |
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|
|
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Accounts receivable, net |
|
382 |
|
|
|
(188 |
) |
Inventories |
|
(224 |
) |
|
|
73 |
|
Accounts payable |
|
(125 |
) |
|
|
(41 |
) |
Accounts payable to related parties |
|
(25 |
) |
|
|
(20 |
) |
Accrued expenses |
|
(44 |
) |
|
|
(1 |
) |
Income taxes payable |
|
117 |
|
|
|
(35 |
) |
Accrued compensation |
|
(104 |
) |
|
|
(67 |
) |
Other assets and liabilities, net |
|
(306 |
) |
|
|
(161 |
) |
Net cash provided by operating activities |
|
6 |
|
|
|
521 |
|
Investing Activities |
|
|
|
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Purchases of property, plant and equipment, net |
|
(320 |
) |
|
|
(245 |
) |
Activity related to |
|
99 |
|
|
|
(52 |
) |
Strategic Investments and other, net |
|
(3 |
) |
|
|
(15 |
) |
Net cash used in investing activities |
|
(224 |
) |
|
|
(312 |
) |
Financing Activities |
|
|
|
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Employee stock plans, net |
|
(50 |
) |
|
|
(76 |
) |
Repayment of debt and revolving credit facility |
|
— |
|
|
|
(213 |
) |
Net cash used in financing activities |
|
(50 |
) |
|
|
(289 |
) |
Effect of exchange rate changes on cash |
|
(10 |
) |
|
|
— |
|
Net decrease in cash and cash equivalents |
|
(278 |
) |
|
|
(80 |
) |
Cash and cash equivalents, beginning of period |
|
2,327 |
|
|
|
3,370 |
|
Cash and cash equivalents, end of period |
$ |
2,049 |
|
|
$ |
3,290 |
|
Supplemental Operating Segment Results (in millions; except percentages; unaudited) |
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Three Months Ended |
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Net revenue: |
|
|
|
||||
Flash |
$ |
1,722 |
|
|
$ |
2,490 |
|
HDD |
|
2,014 |
|
|
|
2,561 |
|
Total net revenue |
$ |
3,736 |
|
|
$ |
5,051 |
|
Gross profit: |
|
|
|
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Flash |
$ |
422 |
|
|
$ |
921 |
|
HDD |
|
574 |
|
|
|
792 |
|
Total gross profit for segments |
|
996 |
|
|
|
1,713 |
|
Unallocated corporate items: |
|
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|
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Stock-based compensation expense |
|
(14 |
) |
|
|
(9 |
) |
Amortization of acquired intangible assets |
|
(1 |
) |
|
|
(39 |
) |
Total unallocated corporate items |
|
(15 |
) |
|
|
(48 |
) |
Consolidated gross profit |
$ |
981 |
|
|
$ |
1,665 |
|
Gross margin: |
|
|
|
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Flash |
|
24.5 |
% |
|
|
37.0 |
% |
HDD |
|
28.5 |
% |
|
|
30.9 |
% |
Total gross margin for segments |
|
26.7 |
% |
|
|
33.9 |
% |
Consolidated gross margin |
|
26.3 |
% |
|
|
33.0 |
% |
The Company manages and reports under two reportable segments: flash-based products (“Flash”) and hard disk drives (“HDD”). In the table above, total gross profit for segments and total gross margin for segments are Non-GAAP financial measures, which are also referred to herein as Non-GAAP gross profit and Non-GAAP gross margin, respectively.
PRELIMINARY RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (in millions; unaudited) |
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Three Months Ended |
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|
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|
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GAAP cost of revenue |
$ |
2,755 |
|
|
$ |
3,083 |
|
|
$ |
3,386 |
|
Stock-based compensation expense |
|
(14 |
) |
|
|
(12 |
) |
|
|
(9 |
) |
Amortization of acquired intangible assets |
|
(1 |
) |
|
|
(1 |
) |
|
|
(39 |
) |
Contamination related charges |
|
— |
|
|
|
(4 |
) |
|
|
— |
|
Non-GAAP cost of revenue |
$ |
2,740 |
|
|
$ |
3,066 |
|
|
$ |
3,338 |
|
|
|
|
|
|
|
||||||
GAAP gross profit |
$ |
981 |
|
|
$ |
1,445 |
|
|
$ |
1,665 |
|
Stock-based compensation expense |
|
14 |
|
|
|
12 |
|
|
|
9 |
|
Amortization of acquired intangible assets |
|
1 |
|
|
|
1 |
|
|
|
39 |
|
Contamination related charges |
|
— |
|
|
|
4 |
|
|
|
— |
|
Non-GAAP gross profit |
$ |
996 |
|
|
$ |
1,462 |
|
|
$ |
1,713 |
|
|
|
|
|
|
|
||||||
GAAP operating expenses |
$ |
823 |
|
|
$ |
883 |
|
|
$ |
887 |
|
Stock-based compensation expense |
|
(72 |
) |
|
|
(65 |
) |
|
|
(67 |
) |
Amortization of acquired intangible assets |
|
(38 |
) |
|
|
(39 |
) |
|
|
(39 |
) |
Employee termination, asset impairment and other charges |
|
(24 |
) |
|
|
(19 |
) |
|
|
(18 |
) |
Other |
|
— |
|
|
|
— |
|
|
|
(2 |
) |
Non-GAAP operating expenses |
$ |
689 |
|
|
$ |
760 |
|
|
$ |
761 |
|
|
|
|
|
|
|
||||||
GAAP operating income |
$ |
158 |
|
|
$ |
562 |
|
|
$ |
778 |
|
Cost of revenue adjustments |
|
15 |
|
|
|
17 |
|
|
|
48 |
|
Operating expense adjustments |
|
134 |
|
|
|
123 |
|
|
|
126 |
|
Non-GAAP operating income |
$ |
307 |
|
|
$ |
702 |
|
|
$ |
952 |
|
|
|
|
|
|
|
||||||
GAAP interest and other expense, net |
$ |
(74 |
) |
|
$ |
(51 |
) |
|
$ |
(74 |
) |
Non-cash economic interest and Other |
|
(1 |
) |
|
|
(14 |
) |
|
|
6 |
|
Non-GAAP interest and other expense, net |
$ |
(75 |
) |
|
$ |
(65 |
) |
|
$ |
(68 |
) |
|
|
|
|
|
|
||||||
GAAP income tax expense |
$ |
57 |
|
|
$ |
210 |
|
|
$ |
94 |
|
Income tax adjustments |
|
111 |
|
|
|
(140 |
) |
|
|
3 |
|
Non-GAAP income tax expense |
$ |
168 |
|
|
$ |
70 |
|
|
$ |
97 |
|
PRELIMINARY RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (in millions, except per share amounts; unaudited) |
|||||||||||
Three Months Ended |
|||||||||||
|
|
|
|
|
|
||||||
GAAP Net income |
$ |
27 |
|
|
$ |
301 |
|
|
$ |
610 |
|
Stock-based compensation expense |
|
86 |
|
|
|
77 |
|
|
|
76 |
|
Amortization of acquired intangible assets |
|
39 |
|
|
|
40 |
|
|
|
78 |
|
Contamination related charges |
|
— |
|
|
|
4 |
|
|
|
— |
|
Employee termination, asset impairment and other charges |
|
24 |
|
|
|
19 |
|
|
|
18 |
|
Non-cash economic interest and Other |
|
(1 |
) |
|
|
(14 |
) |
|
|
8 |
|
Income tax adjustments |
|
(111 |
) |
|
|
140 |
|
|
|
(3 |
) |
Non-GAAP net income |
$ |
64 |
|
|
$ |
567 |
|
|
$ |
787 |
|
|
|
|
|
|
|
||||||
Diluted income per common share |
|
|
|
|
|
||||||
GAAP |
$ |
0.08 |
|
|
$ |
0.95 |
|
|
$ |
1.93 |
|
Non-GAAP |
$ |
0.20 |
|
|
$ |
1.78 |
|
|
$ |
2.49 |
|
|
|
|
|
|
|
||||||
Diluted weighted average shares outstanding: |
|
|
|
|
|
||||||
GAAP |
|
319 |
|
|
|
318 |
|
|
|
316 |
|
Non-GAAP |
|
319 |
|
|
|
318 |
|
|
|
316 |
|
|
|
|
|
|
|
||||||
Cash flows |
|
|
|
|
|
||||||
Cash flow provided by operating activities |
$ |
6 |
|
|
$ |
295 |
|
|
$ |
521 |
|
Purchases of property, plant and equipment, net |
|
(320 |
) |
|
|
(278 |
) |
|
|
(245 |
) |
Activity related to |
|
99 |
|
|
|
(114 |
) |
|
|
(52 |
) |
Free cash flow |
$ |
(215 |
) |
|
$ |
(97 |
) |
|
$ |
224 |
|
To supplement the condensed consolidated financial statements presented in accordance with
As described above, the company excludes the following items from its Non-GAAP measures:
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.
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.
Contamination related charges. In
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. In addition, the company may record credits related to gains upon sale of property due to restructuring or reversals of charges recorded in prior periods. These charges or credits are inconsistent in amount and frequency, and the company believes they are not indicative of the underlying performance of its business.
Non-cash economic interest. 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 they are not indicative of the underlying performance of its business.
Other adjustments. From time-to-time, the company incurs 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 also include adjustments to estimates related to the current status of the rules and regulations governing the transition to the Tax Cuts and Jobs Act and the re-measurement of certain unrecognized tax benefits primarily related to tax positions taken in prior quarters, including interest. These adjustments are excluded because the company believes that they are not indicative of the underlying performance of its ongoing business.
Additionally, free cash flow is defined as cash flows provided by operating activities less purchases of property, plant and equipment, net, and the activity related to
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