Le Lézard
Classified in: Science and technology, Business, Covid-19 virus
Subjects: EARNINGS, Conference Call, Webcast

Western Digital Reports Fiscal Fourth Quarter and Fiscal Year 2022 Financial Results


Western Digital Corp. (Nasdaq: WDC) today reported fiscal fourth quarter and fiscal year 2022 financial results.

"I am proud of our team for driving strong fiscal year 2022 performance, during which revenue grew 11% and non-GAAP EPS increased 81%, demonstrating progress in unlocking the earnings potential of our business," said David Goeckeler, Western Digital CEO. "In addition to strong financial performance, fiscal year 2022 was a hallmark year for Western Digital from an innovation, product development and execution perspective. The combination of our innovation engine and the multiple channels to deliver our products to the market puts Western Digital in a great position to capitalize on the large and growing opportunities in storage ahead even in the midst of macro dynamics weighing on near-term demand."

Q4 2022 Financial Highlights

 

 

GAAP

 

Non-GAAP

 

 

 

 

 

 

 

 

 

 

 

Q4 2022

Q3 2022

Q/Q

 

Q4 2022

Q3 2022

Q/Q

Revenue ($M)

 

$4,528

$4,381

up 3%

 

$4,528

$4,381

up 3%

Gross Margin

 

31.9%

27.0%

up 4.9 ppt

 

32.3%

31.7%

up 0.6 ppt

Operating Expenses ($M)

 

$883

$857

up 3%

 

$760

$740

up 3%

Operating Income ($M)

 

$562

$324

up 73%

 

$702

$650

up 8%

Net Income ($M)

 

$301

$25

*

 

$567

$521

up 9%

Earnings Per Share

 

$0.95

$0.08

*

 

$1.78

$1.65

up 8%

* not a meaningful figure

 

 

GAAP

 

Non-GAAP

 

 

 

 

 

 

 

 

 

 

 

Q4 2022

Q4 2021

Y/Y

 

Q4 2022

Q4 2021

Y/Y

Revenue ($M)

 

$4,528

$4,920

down 8%

 

$4,528

$4,920

down 8%

Gross Margin

 

31.9%

31.8%

up 0.1 ppt

 

32.3%

32.9%

down 0.6 ppt

Operating Expenses ($M)

 

$883

$891

down 1%

 

$760

$790

down 4%

Operating Income ($M)

 

$562

$675

down 17%

 

$702

$828

down 15%

Net Income ($M)

 

$301

$622

down 52%

 

$567

$680

down 17%

Earnings Per Share

 

$0.95

$1.97

down 52%

 

$1.78

$2.16

down 18%

The company generated $295 million in cash flow from operations, made a scheduled and discretionary debt repayment of $150 million and ended the quarter with $2.33 billion of total cash and cash equivalents.

Fiscal Year 2022 Financial Highlights

 

 

GAAP

 

Non-GAAP

 

 

 

 

 

 

 

 

 

 

 

2022

2021

Y/Y

 

2022

2021

Y/Y

Revenue ($M)

 

$18,793

$16,922

up 11%

 

$18,793

$16,922

up 11%

Gross Margin

 

31.3%

26.7%

up 4.6 ppt

 

32.9%

28.6%

up 4.3 ppt

Operating Expenses ($M)

 

$3,483

$3,301

up 6%

 

$3,002

$2,926

up 3%

Operating Income ($M)

 

$2,391

$1,220

up 96%

 

$3,186

$1,906

up 67%

Net Income ($M)

 

$1,500

$821

up 83%

 

$2,599

$1,406

up 85%

Earnings Per Share

 

$4.75

$2.66

up 79%

 

$8.22

$4.55

up 81%

Additional details can be found within the company's earnings presentation, which is accessible online at investor.wdc.com.

End Market Summary

Revenue ($M)

Q4 2022

Q3 2022

Q/Q

Q4 2021

Y/Y

2022

2021

Y/Y

Cloud

$2,098

$1,774

up 18%

$1,995

up 5%

$8,017

$5,723

up 40%

Client

1,637

1,732

down 5%

1,895

down 14%

7,076

7,281

down 3%

Consumer

793

875

down 9%

1,030

down 23%

3,700

3,918

down 6%

Total Revenue

$4,528

$4,381

up 3%

$4,920

down 8%

$18,793

$16,922

up 11%

In the fiscal fourth quarter:

In fiscal year 2022:

Business Outlook for Fiscal First Quarter of 2023

 

Three Months Ending

September 30, 2022

 

GAAP(1)

 

Non-GAAP(1)

Revenue ($B)

$3.60 - $3.80

 

$3.60 - $3.80

Gross margin

27.1% - 29.1%

 

27.5% - 29.5%

Operating expenses ($M)

$870 - $890

 

$760 - $780

Interest and other expense, net ($M)

~$70

 

~$70

Tax rate

N/A

 

28% - 30%(2)

Diluted earnings per share

N/A

 

$0.35 - $0.65

Diluted shares outstanding (in millions)

~319

 

~319

_____________

(1) Non-GAAP gross margin guidance excludes stock-based compensation expense of approximately $10 million to $15 million. The company's Non-GAAP operating expenses guidance excludes amortization of acquired intangible assets and stock-based compensation expense, totaling approximately $100 million to $120 million. In the aggregate, Non-GAAP diluted earnings per share guidance excludes these items totaling $110 million to $135 million. The timing and amount of these charges excluded from Non-GAAP gross margin, Non-GAAP operating expenses, and Non-GAAP diluted earnings per share cannot be further allocated or quantified with certainty. Additionally, the timing and amount of additional charges the company excludes from its Non-GAAP tax rate and Non-GAAP diluted earnings per share are dependent on the timing and determination of certain actions and cannot be reasonably predicted. Accordingly, full reconciliations of Non-GAAP gross margin, Non-GAAP operating expenses, Non-GAAP tax rate and Non-GAAP diluted earnings per share to the most directly comparable GAAP financial measures (gross margin, operating expenses, tax rate and diluted earnings per share, respectively) are not available without unreasonable effort.

(2) The Non-GAAP tax rate provided is based on a percentage of Non-GAAP pre-tax income. Due to differences in the tax treatment of items excluded from our Non-GAAP net income and because our tax rate is based on an estimated forecasted annual GAAP tax rate, our estimated Non-GAAP tax rate may differ from our GAAP tax rate and from our actual tax rates. Tax law changes that became effective for our fiscal year 2023 require the capitalization of certain R&D costs that were previously eligible for immediate deduction from taxable income. The impact of these tax law changes is expected to include an immediate increase in our tax rate of approximately 12 percentage points, which is reflected in the guidance provided in the table above. This impact on the tax rate is expected to decrease gradually over time.

Investor Communications

The investment community conference call to discuss these results and the company's business outlook for the fiscal first quarter of 2023 will be broadcast live online today at 5:30 a.m. Pacific/8:30 a.m. Eastern. The live and archived conference call/webcast and the earnings presentation can be accessed online at investor.wdc.com.

About Western Digital

Western Digital is on a mission to unlock the potential of data by harnessing the possibility to use it. With Flash and HDD franchises, underpinned by advancements in memory technologies, we create breakthrough innovations and powerful data storage solutions that enable the world to actualize its aspirations. Core to our values, we recognize the urgency to combat climate change and have committed to ambitious carbon reduction goals approved by the Science Based Targets initiative. Learn more about Western Digital and the Western Digital®, SanDisk® and WD® brands at www.westerndigital.com.

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 first quarter of 2023; demand trends, and market conditions; and the potential for the company's innovation engine and multiple channels to market to drive future performance. 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 fourth quarter ended July 1, 2022 and fiscal year 2022 included in this press release represent the most current information available to management. The company's actual results when disclosed in its Form 10-K may differ from these preliminary results as a result of the completion of the company's financial closing procedures; final adjustments; completion of the review and audit by the company's independent registered accounting firm; and other developments that may arise between now and the disclosure of the final results. Other risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements include: future responses to and effects of the COVID-19 pandemic; volatility in global economic conditions; impact of business and market conditions; the outcome and impact of our ongoing strategic review, including with respect to customer and supplier relationships, regulatory and contractual restrictions, stock price volatility and the diversion of management's attention from ongoing business operations and opportunities; impact of competitive products and pricing; our development and introduction of products based on new technologies and expansion into new data storage markets; risks associated with cost saving initiatives, restructurings, acquisitions, divestitures, mergers, joint ventures and our strategic relationships; difficulties or delays in manufacturing or other supply chain disruptions; hiring and retention of key employees; our level of debt and other financial obligations; changes to our relationships with key customers; disruptions in operations from cybersecurity incidents or other system security risks; actions by competitors; risks associated with compliance with changing legal and regulatory requirements and the outcome of legal proceedings; and other risks and uncertainties listed in the company's filings with the Securities and Exchange Commission (the "SEC"), including the company's Form 10-K filed with the SEC on August 27, 2021, to which your attention is directed. You should not place undue reliance on these forward-looking statements, which speak only as of the date hereof, and the company undertakes no obligation to update or revise these forward-looking statements to reflect new information or events, except as required by law.

Western Digital, the Western Digital logo, SanDisk and WD are registered trademarks or trademarks of Western Digital Corporation or its affiliates in the US and/or other countries.

WESTERN DIGITAL CORPORATION

PRELIMINARY CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions; unaudited; on a US GAAP basis)

 

July 1,
2022

 

July 2,
2021

 

 

 

 

ASSETS

Current assets:

 

 

 

Cash and cash equivalents

$

2,327

 

$

3,370

Accounts receivable, net

 

2,804

 

 

2,257

Inventories

 

3,638

 

 

3,616

Other current assets

 

684

 

 

514

Total current assets

 

9,453

 

 

9,757

Property, plant and equipment, net

 

3,670

 

 

3,188

Notes receivable and investments in Flash Ventures

 

1,396

 

 

1,586

Goodwill

 

10,041

 

 

10,066

Other intangible assets, net

 

213

 

 

442

Other non-current assets

 

1,486

 

 

1,093

Total assets

$

26,259

 

$

26,132

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

 

 

 

Accounts payable

$

1,902

 

$

1,934

Accounts payable to related parties

 

320

 

 

398

Accrued expenses

 

1,825

 

 

1,653

Accrued compensation

 

510

 

 

634

Current portion of long-term debt

 

?

 

 

251

Total current liabilities

 

4,557

 

 

4,870

Long-term debt

 

7,022

 

 

8,474

Other liabilities

 

2,459

 

 

2,067

Total liabilities

 

14,038

 

 

15,411

Total shareholders' equity

 

12,221

 

 

10,721

Total liabilities and shareholders' equity

$

26,259

 

$

26,132

WESTERN DIGITAL CORPORATION

PRELIMINARY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share amounts; unaudited; on a US GAAP basis)

 

Three Months Ended

 

Years Ended

 

July 1,
2022

 

July 2,
2021

 

July 1,
2022

 

July 2,
2021

Revenue, net

$

4,528

 

 

$

4,920

 

 

$

18,793

 

 

$

16,922

 

Cost of revenue

 

3,083

 

 

 

3,354

 

 

 

12,919

 

 

 

12,401

 

Gross profit

 

1,445

 

 

 

1,566

 

 

 

5,874

 

 

 

4,521

 

Operating expenses:

 

 

 

 

 

 

 

Research and development

 

598

 

 

 

598

 

 

 

2,323

 

 

 

2,243

 

Selling, general and administrative

 

266

 

 

 

297

 

 

 

1,117

 

 

 

1,105

 

Employee termination, asset impairment and other charges

 

19

 

 

 

(4

)

 

 

43

 

 

 

(47

)

Total operating expenses

 

883

 

 

 

891

 

 

 

3,483

 

 

 

3,301

 

Operating income

 

562

 

 

 

675

 

 

 

2,391

 

 

 

1,220

 

Interest and other expense, net

 

(51

)

 

 

(79

)

 

 

(268

)

 

 

(293

)

Income before taxes

 

511

 

 

 

596

 

 

 

2,123

 

 

 

927

 

Income tax expense/(benefit)

 

210

 

 

 

(26

)

 

 

623

 

 

 

106

 

Net income

$

301

 

 

$

622

 

 

$

1,500

 

 

$

821

 

 

 

 

 

 

 

 

 

Income per common share

 

 

 

 

 

 

 

Basic

$

0.96

 

 

$

2.03

 

 

$

4.81

 

 

$

2.69

 

Diluted

$

0.95

 

 

$

1.97

 

 

$

4.75

 

 

$

2.66

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

Basic

 

314

 

 

 

307

 

 

 

312

 

 

 

305

 

Diluted

 

318

 

 

 

315

 

 

 

316

 

 

 

309

 

WESTERN DIGITAL CORPORATION

PRELIMINARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions; unaudited; on a US GAAP basis)

 

Three Months Ended

 

Years Ended

 

July 1,
2022

 

July 2,
2021

 

July 1,
2022

 

July 2,
2021

Operating Activities

 

 

 

 

 

 

 

Net income

$

301

 

 

$

622

 

 

$

1,500

 

 

$

821

 

Adjustments to reconcile net income to net cash provided by operations:

 

 

 

 

 

 

 

Depreciation and amortization

 

221

 

 

 

251

 

 

 

929

 

 

 

1,212

 

Stock-based compensation

 

77

 

 

 

79

 

 

 

326

 

 

 

318

 

Deferred income taxes

 

73

 

 

 

(201

)

 

 

114

 

 

 

(242

)

Gain on disposal of assets

 

(2

)

 

 

(5

)

 

 

(16

)

 

 

(70

)

Gain on business divestiture

 

(9

)

 

 

?

 

 

 

(9

)

 

 

?

 

Amortization of debt issuance costs and discounts

 

10

 

 

 

10

 

 

 

44

 

 

 

40

 

Other non-cash operating activities, net

 

25

 

 

 

20

 

 

 

67

 

 

 

(6

)

Changes in:

 

 

 

 

 

 

 

Accounts receivable, net

 

(450

)

 

 

(353

)

 

 

(546

)

 

 

121

 

Inventories

 

23

 

 

 

67

 

 

 

(22

)

 

 

(546

)

Accounts payable

 

(29

)

 

 

150

 

 

 

(129

)

 

 

11

 

Accounts payable to related parties

 

(76

)

 

 

1

 

 

 

(78

)

 

 

(9

)

Accrued expenses

 

219

 

 

 

101

 

 

 

171

 

 

 

352

 

Accrued compensation

 

26

 

 

 

140

 

 

 

(123

)

 

 

162

 

Other assets and liabilities, net

 

(114

)

 

 

112

 

 

 

(348

)

 

 

(266

)

Net cash provided by operating activities

 

295

 

 

 

994

 

 

 

1,880

 

 

 

1,898

 

Investing Activities

 

 

 

 

 

 

 

Purchases of property, plant and equipment, net

 

(278

)

 

 

(304

)

 

 

(1,107

)

 

 

(1,003

)

Activity related to Flash Ventures, net

 

(114

)

 

 

102

 

 

 

(91

)

 

 

231

 

Strategic Investments and other, net

 

22

 

 

 

(1

)

 

 

6

 

 

 

7

 

Net cash used in investing activities

 

(370

)

 

 

(203

)

 

 

(1,192

)

 

 

(765

)

Financing Activities

 

 

 

 

 

 

 

Employee stock plans, net

 

55

 

 

 

58

 

 

 

32

 

 

 

78

 

Repayment of debt

 

(150

)

 

 

(213

)

 

 

(3,621

)

 

 

(886

)

Proceeds from debt

 

?

 

 

 

?

 

 

 

1,894

 

 

 

?

 

Debt issuance costs

 

?

 

 

 

?

 

 

 

(23

)

 

 

?

 

Other

 

?

 

 

 

?

 

 

 

?

 

 

 

(9

)

Net cash used in financing activities

 

(95

)

 

 

(155

)

 

 

(1,718

)

 

 

(817

)

Effect of exchange rate changes on cash

 

(8

)

 

 

?

 

 

 

(13

)

 

 

6

 

Net increase/(decrease) in cash and cash equivalents

 

(178

)

 

 

636

 

 

 

(1,043

)

 

 

322

 

Cash and cash equivalents, beginning of period

 

2,505

 

 

 

2,734

 

 

 

3,370

 

 

 

3,048

 

Cash and cash equivalents, end of period

$

2,327

 

 

$

3,370

 

 

$

2,327

 

 

$

3,370

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

Noncash exchange of Term Loan A-1 for Term Loan A-2

$

?

 

 

$

?

 

 

$

2,104

 

 

$

?

 

WESTERN DIGITAL CORPORATION

Supplemental Operating Segment Results

(in millions; except percentages; unaudited)

 

Three Months Ended

 

Years Ended

 

July 1,
2022

 

July 2,
2021

 

July 1,
2022

 

July 2,
2021

 

 

 

 

Net revenue:

 

 

 

 

 

 

 

Flash

$

2,400

 

 

$

2,419

 

 

$

9,753

 

 

$

8,706

 

HDD

 

2,128

 

 

 

2,501

 

 

 

9,040

 

 

 

8,216

 

Total net revenue

$

4,528

 

 

$

4,920

 

 

$

18,793

 

 

$

16,922

 

Gross profit:

 

 

 

 

 

 

 

Flash

$

862

 

 

$

859

 

 

$

3,527

 

 

$

2,611

 

HDD

 

600

 

 

 

759

 

 

 

2,661

 

 

 

2,221

 

Total gross profit for segments

 

1,462

 

 

 

1,618

 

 

 

6,188

 

 

 

4,832

 

Unallocated corporate items:

 

 

 

 

 

 

 

Contamination related charges

 

(4

)

 

 

?

 

 

 

(207

)

 

 

?

 

Amortization of acquired intangible assets

 

(1

)

 

 

(38

)

 

 

(66

)

 

 

(331

)

Stock-based compensation expense

 

(12

)

 

 

(14

)

 

 

(48

)

 

 

(55

)

Recoveries from a power outage incident

 

?

 

 

 

?

 

 

 

7

 

 

 

75

 

Total unallocated corporate items

 

(17

)

 

 

(52

)

 

 

(314

)

 

 

(311

)

Consolidated gross profit

$

1,445

 

 

$

1,566

 

 

$

5,874

 

 

$

4,521

 

Gross margin:

 

 

 

 

 

 

 

Flash

 

35.9

%

 

 

35.5

%

 

 

36.2

%

 

 

30.0

%

HDD

 

28.2

%

 

 

30.3

%

 

 

29.4

%

 

 

27.0

%

Total gross margin for segments

 

32.3

%

 

 

32.9

%

 

 

32.9

%

 

 

28.6

%

Consolidated gross margin

 

31.9

%

 

 

31.8

%

 

 

31.3

%

 

 

26.7

%

Historically, the company had been managed and reported under a single operating segment. Late in the first quarter of fiscal 2021, the company announced a decision to reorganize its business by forming two separate product business units: flash-based products ("Flash") and hard disk drives ("HDD"). To align with the new operating model and business structure, the company made management organizational changes and implemented new reporting modules and processes to provide discrete information to manage the business. Effective July 3, 2021, management finalized its assessment of its operating segments and now reports two segments: Flash and 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.

WESTERN DIGITAL CORPORATION

PRELIMINARY RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(in millions; unaudited)

 

Three Months Ended

 

Years Ended

 

July 1,
2022

 

April 1,
2022

 

July 2,
2021

 

July 1,
2022

 

July 2,
2021

GAAP cost of revenue

$

3,083

 

 

$

3,200

 

 

$

3,354

 

 

$

12,919

 

 

$

12,401

 

Contamination related charges

 

(4

)

 

 

(203

)

 

 

?

 

 

 

(207

)

 

 

?

 

Stock-based compensation expense

 

(12

)

 

 

(13

)

 

 

(14

)

 

 

(48

)

 

 

(55

)

Amortization of acquired intangible assets

 

(1

)

 

 

?

 

 

 

(38

)

 

 

(66

)

 

 

(331

)

Recoveries from a power outage incident

 

?

 

 

 

7

 

 

 

?

 

 

 

7

 

 

 

75

 

Non-GAAP cost of revenue

$

3,066

 

 

$

2,991

 

 

$

3,302

 

 

$

12,605

 

 

$

12,090

 

 

 

 

 

 

 

 

 

 

 

GAAP gross profit

$

1,445

 

 

$

1,181

 

 

$

1,566

 

 

$

5,874

 

 

$

4,521

 

Contamination related charges

 

4

 

 

 

203

 

 

 

?

 

 

 

207

 

 

 

?

 

Stock-based compensation expense

 

12

 

 

 

13

 

 

 

14

 

 

 

48

 

 

 

55

 

Amortization of acquired intangible assets

 

1

 

 

 

?

 

 

 

38

 

 

 

66

 

 

 

331

 

Recoveries from a power outage incident

 

?

 

 

 

(7

)

 

 

?

 

 

 

(7

)

 

 

(75

)

Non-GAAP gross profit

$

1,462

 

 

$

1,390

 

 

$

1,618

 

 

$

6,188

 

 

$

4,832

 

 

 

 

 

 

 

 

 

 

 

GAAP operating expenses

$

883

 

 

$

857

 

 

$

891

 

 

$

3,483

 

 

$

3,301

 

Stock-based compensation expense

 

(65

)

 

 

(73

)

 

 

(65

)

 

 

(278

)

 

 

(263

)

Amortization of acquired intangible assets

 

(39

)

 

 

(39

)

 

 

(38

)

 

 

(155

)

 

 

(155

)

Employee termination, asset impairment and other charges

 

(19

)

 

 

(4

)

 

 

4

 

 

 

(43

)

 

 

47

 

Other

 

?

 

 

 

(1

)

 

 

(2

)

 

 

(5

)

 

 

(4

)

Non-GAAP operating expenses

$

760

 

 

$

740

 

 

$

790

 

 

$

3,002

 

 

$

2,926

 

 

 

 

 

 

 

 

 

 

 

GAAP operating income

$

562

 

 

$

324

 

 

$

675

 

 

$

2,391

 

 

$

1,220

 

Cost of revenue adjustments

 

17

 

 

 

209

 

 

 

52

 

 

 

314

 

 

 

311

 

Operating expense adjustments

 

123

 

 

 

117

 

 

 

101

 

 

 

481

 

 

 

375

 

Non-GAAP operating income

$

702

 

 

$

650

 

 

$

828

 

 

$

3,186

 

 

$

1,906

 

 

 

 

 

 

 

 

 

 

 

GAAP interest and other expense, net

$

(51

)

 

$

(62

)

 

$

(79

)

 

$

(268

)

 

$

(293

)

Non-cash economic interest and Other

 

(14

)

 

 

(2

)

 

 

?

 

 

 

3

 

 

 

11

 

Non-GAAP interest and other expense, net

$

(65

)

 

$

(64

)

 

$

(79

)

 

$

(265

)

 

$

(282

)

 

 

 

 

 

 

 

 

 

 

GAAP income tax expense/(benefit)

$

210

 

 

$

237

 

 

$

(26

)

 

$

623

 

 

$

106

 

Income tax adjustments

 

(140

)

 

 

(172

)

 

 

95

 

 

 

(301

)

 

 

112

 

Non-GAAP income tax expense

$

70

 

 

$

65

 

 

$

69

 

 

$

322

 

 

$

218

 

WESTERN DIGITAL CORPORATION

PRELIMINARY RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(in millions, except per share amounts; unaudited)

 

Three Months Ended

 

Years Ended

 

July 1,
2022

 

April 1,
2022

 

July 2,
2021

 

July 1,
2022

 

July 2,
2021

GAAP net income

$

301

 

 

$

25

 

 

$

622

 

 

$

1,500

 

 

$

821

 

Contamination related charges

 

4

 

 

 

203

 

 

 

?

 

 

 

207

 

 

 

?

 

Stock-based compensation expense

 

77

 

 

 

86

 

 

 

79

 

 

 

326

 

 

 

318

 

Amortization of acquired intangible assets

 

40

 

 

 

39

 

 

 

76

 

 

 

221

 

 

 

486

 

Recoveries from a power outage incident

 

?

 

 

 

(7

)

 

 

?

 

 

 

(7

)

 

 

(75

)

Employee termination, asset impairment and other charges

 

19

 

 

 

4

 

 

 

(4

)

 

 

43

 

 

 

(47

)

Non-cash economic interest and Other

 

(14

)

 

 

(1

)

 

 

2

 

 

 

8

 

 

 

15

 

Income tax adjustments

 

140

 

 

 

172

 

 

 

(95

)

 

 

301

 

 

 

(112

)

Non-GAAP net income

$

567

 

 

$

521

 

 

$

680

 

 

$

2,599

 

 

$

1,406

 

 

 

 

 

 

 

 

 

 

 

Diluted income per common share

 

 

 

 

 

 

 

 

 

GAAP

$

0.95

 

 

$

0.08

 

 

$

1.97

 

 

$

4.75

 

 

$

2.66

 

Non-GAAP

$

1.78

 

 

$

1.65

 

 

$

2.16

 

 

$

8.22

 

 

$

4.55

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

GAAP

 

318

 

 

 

316

 

 

 

315

 

 

 

316

 

 

 

309

 

Non-GAAP

 

318

 

 

 

316

 

 

 

315

 

 

 

316

 

 

 

309

 

 

 

 

 

 

 

 

 

 

 

Cash flows

 

 

 

 

 

 

 

 

 

Cash flow provided by operating activities

$

295

 

 

$

398

 

 

$

994

 

 

$

1,880

 

 

$

1,898

 

Purchases of property, plant and equipment, net

 

(278

)

 

 

(290

)

 

 

(304

)

 

 

(1,107

)

 

 

(1,003

)

Activity related to Flash Ventures, net

 

(114

)

 

 

40

 

 

 

102

 

 

 

(91

)

 

 

231

 

Free cash flow

$

(97

)

 

$

148

 

 

$

792

 

 

$

682

 

 

$

1,126

 

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 gross margin; Non-GAAP operating expenses; Non-GAAP operating income; Non-GAAP interest and other expense, net; Non-GAAP income tax expense; Non-GAAP net income; Non-GAAP diluted income per common share and free cash flow ("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, as applicable, contamination related charges, stock-based compensation expense, amortization of acquired intangible assets, recoveries from a power outage incident, employee termination, asset impairment and other charges, non-cash economic interest, 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:

Contamination related charges. In February 2022, a contamination of certain materials used in the company's manufacturing process occurred and affected production operation at the flash-based memory manufacturing facilities in Yokkaichi and Kitakami, Japan, which are operated through the company's joint business ventures with Kioxia Corporation (collectively, "Flash Ventures"). The contamination resulted in scrapped inventory and rework costs, decontamination and other costs needed to restore the facilities to normal capacity, and under absorption of overhead costs, which are expensed as incurred. These charges are inconsistent in amount and frequency, and the company believes these charges are not part of the ongoing production operation of its business.

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.

Recoveries from a power outage incident. In June 2019, an unexpected power outage incident occurred at the flash-based memory manufacturing facilities operated through the company's joint venture with Kioxia Corporation in Yokkaichi, Japan. The power outage incident resulted in costs associated with the repair of damaged tools and the write-off of damaged inventory and unabsorbed manufacturing overhead costs which are expensed as incurred. During fiscal years 2021 and 2022, the company received recoveries of these losses from other parties. The recoveries are inconsistent in amount and frequency, and the company believes they are not part of the ongoing production operation of its business.

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 Flash Ventures, net. The company considers free cash flow generated in any period to be a useful indicator of cash that is available for strategic opportunities including, among others, investing in the company's business, making strategic acquisitions, repaying debt and strengthening the balance sheet.


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