SanDisk Announces First Quarter Results

Delivers record first quarter revenue

MILPITAS, Calif.--()--SanDisk Corporation (NASDAQ: SNDK), a global leader in flash memory storage solutions, announced today results for the first quarter ended March 31, 2013. First quarter revenue of $1.34 billion increased 11 percent on a year-over-year basis and decreased 13 percent on a sequential basis.

On a GAAP(1) basis, first quarter net income was $166 million, or $0.68 per diluted share, compared to net income of $114 million, or $0.46 per diluted share, in the first quarter of fiscal 2012 and $214 million, or $0.87 per diluted share, in the fourth quarter of fiscal 2012.

On a non-GAAP(2) basis, first quarter net income was $207 million, or $0.84 per diluted share, compared to net income of $156 million, or $0.63 per diluted share, in the first quarter of fiscal 2012 and net income of $257 million, or $1.05 per diluted share, in the fourth quarter of fiscal 2012. For reconciliation of non-GAAP to GAAP results, see accompanying financial tables and footnotes.

“Our SSD products drove 20 percent of sales and we delivered a record first quarter retail revenue,” said Sanjay Mehrotra, president and chief executive officer of SanDisk. “Our strong results reflect an improved product mix and continued favorable industry supply and demand conditions. We believe our position in enterprise and client SSD markets, differentiated retail brand and continued focus on profitable growth provide us with solid momentum for continued gains in 2013.”

FIRST QUARTER 2013 KEY FINANCIAL METRICS

Metric   GAAP   Non-GAAP
in millions, except percentages and per share amounts   Q113   Q112   Q412 Q113   Q112   Q412
Revenue   $1,341   $1,206   $1,542 $1,341   $1,206   $1,542
Gross Profit $532   $417   $603 $543   $432   $615
percent of revenue   39.6%   34.5%   39.1% 40.5%   35.8%   39.9%
Operating Income $254 $192 $336 $288 $227 $368
percent of revenue   18.9%   15.9%   21.8% 21.5%   18.8%   23.9%
Diluted EPS   $0.68   $0.46   $0.87 $0.84   $0.63   $1.05

At the end of the first quarter of fiscal 2013, SanDisk’s cash and short and long-term marketable investments totaled $6.19 billion. Cash flow from operations in the first quarter of fiscal 2013 totaled $474 million.

CONFERENCE CALL

SanDisk’s first quarter of fiscal 2013 conference call is scheduled for 2:00 P.M., Pacific Time, Wednesday, April 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 719-325-2348 and the dial-in password is 5944048. 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 position in the SSD markets, our differentiated retail brand position and our intended financial plans, including our continued focus on profitable growth and our anticipated momentum for continued gains in 2013, 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;
  • 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 Annual Report on Form 10-K for the fiscal year ended December 30, 2012.

(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
March 31, 2013 April 1, 2012
 
Revenues $ 1,340,729 $ 1,205,561
 
Cost of revenues 799,383 775,320
Amortization of acquisition-related intangible assets   9,830     13,731  
Total cost of revenues 809,213 789,051
   
Gross profit 531,516 416,510
 
Operating expenses:
Research and development 171,125 140,957
Sales and marketing 59,127 49,035
General and administrative 45,104 32,591
Amortization of acquisition-related intangible assets   2,369     2,063  
Total operating expenses   277,725     224,646  
 
Operating income 253,791 191,864
 
Other income (expense), net   (19,897 )   (25,316 )
 
Income before income taxes 233,894 166,548
 
Provision for income taxes 67,665 52,163
           
Net income $ 166,229   $ 114,385  
 
Net income per share:
Basic $ 0.69 $ 0.47
Diluted $ 0.68 $ 0.46
 
Shares used in computing net income per share:
Basic 242,519 242,883
Diluted 245,577 247,102
 
   
SanDisk Corporation
Reconciliation of Preliminary GAAP to Non-GAAP Operating Results (1)
(in thousands, except per share data, unaudited)
 
Three months ended
March 31, 2013 April 1, 2012
 
SUMMARY RECONCILIATION OF NET INCOME
GAAP NET INCOME $ 166,229 $ 114,385
Share-based compensation (a) 21,734 19,080
Amortization of acquisition-related intangible assets (b) 12,199 15,794
Convertible debt interest (c) 23,577 21,887
Income tax adjustments (d)   (16,842 )   (14,830 )
NON-GAAP NET INCOME $ 206,897   $ 156,316  
 
 
GAAP COST OF REVENUES $ 809,213 $ 789,051
Share-based compensation (a) (1,717 ) (1,537 )
Amortization of acquisition-related intangible assets (b)   (9,830 )   (13,731 )
NON-GAAP COST OF REVENUES $ 797,666   $ 773,783  
 
GAAP GROSS PROFIT $ 531,516 $ 416,510
Share-based compensation (a) 1,717 1,537
Amortization of acquisition-related intangible assets (b)   9,830     13,731  
NON-GAAP GROSS PROFIT $ 543,063   $ 431,778  
 
GAAP RESEARCH AND DEVELOPMENT EXPENSES $ 171,125 $ 140,957
Share-based compensation (a)   (11,640 )   (10,027 )
NON-GAAP RESEARCH AND DEVELOPMENT EXPENSES $ 159,485   $ 130,930  
 
GAAP SALES AND MARKETING EXPENSES $ 59,127 $ 49,035
Share-based compensation (a)   (3,871 )   (3,629 )
NON-GAAP SALES AND MARKETING EXPENSES $ 55,256   $ 45,406  
 
GAAP GENERAL AND ADMINISTRATIVE EXPENSES $ 45,104 $ 32,591
Share-based compensation (a)   (4,506 )   (3,887 )
NON-GAAP GENERAL AND ADMINISTRATIVE EXPENSES $ 40,598   $ 28,704  
 
GAAP TOTAL OPERATING EXPENSES $ 277,725 $ 224,646
Share-based compensation (a) (20,017 ) (17,543 )
Amortization of acquisition-related intangible assets (b)   (2,369 )   (2,063 )
NON-GAAP TOTAL OPERATING EXPENSES $ 255,339   $ 205,040  
 
GAAP OPERATING INCOME $ 253,791 $ 191,864
Cost of revenues adjustments (a) (b) 11,547 15,268
Operating expense adjustments (a) (b)   22,386     19,606  
NON-GAAP OPERATING INCOME $ 287,724   $ 226,738  
 
GAAP OTHER INCOME (EXPENSE), NET $ (19,897 ) $ (25,316 )
Convertible debt interest (c)   23,577     21,887  
NON-GAAP OTHER INCOME (EXPENSE), NET $ 3,680   $ (3,429 )
 
GAAP NET INCOME $ 166,229 $ 114,385
Cost of revenues adjustments (a) (b) 11,547 15,268
Operating expense adjustments (a) (b) 22,386 19,606
Convertible debt interest (c) 23,577 21,887
Income tax adjustments (d)   (16,842 )   (14,830 )
NON-GAAP NET INCOME $ 206,897   $ 156,316  
 
Diluted net income per share:
GAAP $ 0.68 $ 0.46
Non-GAAP $ 0.84 $ 0.63
 
Shares used in computing diluted net income per share:
GAAP 245,577 247,102
Non-GAAP 245,596 247,192
 
 
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)
 
 
March 31, 2013 December 30, 2012
 
ASSETS
Current assets:
Cash and cash equivalents $ 1,148,110 $ 995,470
Short-term marketable securities 2,162,073 1,880,034
Accounts receivable, net 439,496 626,025
Inventory 733,937 750,075
Deferred taxes 94,488 93,877
Other current assets   272,757     260,879  
Total current assets 4,850,861 4,606,360
 
Long-term marketable securities 2,882,710 2,835,931
Property and equipment, net 659,222 665,542
Notes receivable and investments in Flash Ventures 1,286,073 1,460,112
Deferred taxes 118,481 168,718
Goodwill 202,336 201,735
Intangible assets, net 228,588 246,919
Other non-current assets   148,168     153,810  
Total assets $ 10,376,439   $ 10,339,127  
 
LIABILITIES
Current liabilities:
Accounts payable trade $ 257,357 $ 254,459
Accounts payable to related parties 176,905 214,806
Convertible short-term debt 921,007 906,708
Other current accrued liabilities 296,177 257,539
Deferred income on shipments to distributors and retailers and deferred revenue   221,644     248,155  

Total current liabilities

1,873,090 1,881,667
 
Convertible long-term debt 799,628 789,913
Non-current liabilities   383,957     407,947  
Total liabilities   3,056,675     3,079,527  
 
EQUITY
Stockholders' equity:
Common stock 5,104,792 5,027,512
Retained earnings 2,175,088 2,071,268
Accumulated other comprehensive income   42,552     165,121  
Total stockholders' equity 7,322,432 7,263,901
Non-controlling interests   (2,668 )   (4,301 )
Total equity   7,319,764     7,259,600  
Total liabilities and equity $ 10,376,439   $ 10,339,127  
 
   
SanDisk Corporation
Preliminary Condensed Consolidated Statements of Cash Flows
(in thousands, unaudited)
 
 
Three months ended
March 31, 2013 April 1, 2012
Cash flows from operating activities:
Net income $ 166,229 $ 114,385
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred taxes 53,151 5,503
Depreciation 53,017 33,178
Amortization 65,151 67,156
Provision for doubtful accounts (197 ) (1,285 )
Share-based compensation expense 21,734 19,080
Excess tax benefit from share-based plans (8,450 ) (8,597 )
Impairment and other (3,173 ) (5,454 )
Other non-operating 136 7,652
Changes in operating assets and liabilities:
Accounts receivable, net 186,726 199,437
Inventory 16,776 (85,212 )
Other assets (20,156 ) 26,743
Accounts payable trade 2,898 (34,293 )
Accounts payable to related parties (37,901 ) (75,203 )
Other liabilities   (22,290 )   (195,916 )
Total adjustments   307,422     (47,211 )
 
Net cash provided by operating activities   473,651     67,174  
 
Cash flows from investing activities:
Purchases of short and long-term marketable securities (1,150,347 ) (756,357 )
Proceeds from sales of short and long-term marketable securities 513,354 625,736
Proceeds from maturities of short and long-term marketable securities 293,205 192,842
Acquisition of property and equipment, net (48,352 ) (144,218 )
Investment in Flash Ventures

(12,526 )
Notes receivable issuances to Flash Ventures (51,130 )
Notes receivable proceeds from Flash Ventures 53,586 63,833
Purchased technology and other assets (237 ) (28 )
Acquisitions, net of cash acquired   (142 )   (54,538 )
Net cash used in investing activities   (338,933 )   (136,386 )
 
Cash flows from financing activities:
Proceeds from employee stock programs 93,075 45,318
Distribution to non-controlling interests (87 )
Excess tax benefit from share-based plans 8,450 8,597
Share repurchase program (89,621 ) (60,911 )
Net cash received for share repurchase contracts   1,142  

Net cash provided by (used in) financing activities

  11,817     (5,854 )
 
Effect of changes in foreign currency exchange rates on cash   6,105     833  
 
Net increase (decrease) in cash and cash equivalents 152,640 (74,233 )
 
Cash and cash equivalents at beginning of period 995,470 1,167,496
   
Cash and cash equivalents at end of period $ 1,148,110   $ 1,093,263  
 

Contacts

SanDisk Corporation
Investor Contacts:
Jay Iyer, 408-801-2067
jay.iyer@sandisk.com
Brendan Lahiff, 408-801-1732
brendan.lahiff@sandisk.com
or
Media Contact:
Lee Garvin Flanagin, 408-801-2463
lee.flanagan@sandisk.com

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Contacts

SanDisk Corporation
Investor Contacts:
Jay Iyer, 408-801-2067
jay.iyer@sandisk.com
Brendan Lahiff, 408-801-1732
brendan.lahiff@sandisk.com
or
Media Contact:
Lee Garvin Flanagin, 408-801-2463
lee.flanagan@sandisk.com