WDC
$58.39
Western Digital Cp
$.29
.50%
Earnings Details
4th Quarter June 2018
Thursday, July 26, 2018 4:10:00 PM
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Summary

Western Digital Cp Beats but Guides Lower

Western Digital Cp (WDC) reported 4th Quarter June 2018 earnings of $3.71 per share on revenue of $5.1 billion. The consensus earnings estimate was $3.50 per share on revenue of $5.1 billion. The Earnings Whisper number was $3.62 per share. Revenue grew 5.7% on a year-over-year basis.

The company said during its conference call it expects first quarter earnings of $3.00 to $3.10 per share on revenue of $5.10 billion to $5.20 billion. The current consensus earnings estimate is $3.60 per share on revenue of $5.35 billion for the quarter ending September 30, 2018.

Western Digital Corp is a developer, manufacturer & provider of data storage solutions that enable consumers, businesses, governments & other organizations to create, manage, experience & preserve digital content. Its product include; HDDs and SSDs.

Results
Reported Earnings
$3.71
Earnings Whisper
$3.62
Consensus Estimate
$3.50
Reported Revenue
$5.12 Bil
Revenue Estimate
$5.06 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Western Digital Announces Financial Results for Fourth Quarter and Fiscal Year 2018

SAN JOSE, Calif.--(BUSINESS WIRE)-- Western Digital Corp. (NASDAQ: WDC):

Fiscal 2018 Revenue Grows to $20.6 Billion, +8% Year-over-Year

Authorizes New $5 Billion Share Repurchase Program

Western Digital Corp. (NASDAQ: WDC) today reported revenue of $5.1 billion for its fourth fiscal quarter ended June 29, 2018. Operating income was $843 million with net income of $756 million, or $2.46 per share. Excluding certain non-GAAP adjustments, the company achieved non-GAAP operating income of $1.3 billion and non-GAAP net income of $1.1 billion, or $3.61 per share.

In the year-ago quarter, the company reported revenue of $4.8 billion, operating income of $652 million and net income of $280 million, or $0.93 per share. Non-GAAP operating income in the year-ago quarter was $1.2 billion and non-GAAP net income was $881 million, or $2.93 per share.

The company generated $863 million in cash from operations during the fourth fiscal quarter of 2018, ending with $5.1 billion of total cash, cash equivalents and available-for-sale securities. On May 2, 2018, the company declared a cash dividend of $0.50 per share of its common stock, which was paid to shareholders on July 16, 2018.

For fiscal 2018, the company achieved record revenue of $20.6 billion, operating income of $3.6 billion and net income of $675 million, or $2.20 per share, compared to fiscal 2017 revenue of $19.1 billion, operating income of $2.0 billion and net income of $397 million, or $1.34 per share. On a non-GAAP basis, fiscal 2018 operating income was $5.4 billion and net income was $4.5 billion, or $14.73 per share, compared to fiscal 2017 operating income of $3.9 billion and net income of $2.7 billion, or $9.19 per share. The company generated $4.2 billion in cash from operations during the fiscal year 2018 and returned $1.2 billion to shareholders through share repurchases and dividends.

“I am pleased with our financial performance as we report strong revenue, profitability and cash flow generation,” said Steve Milligan, chief executive officer of Western Digital. “The Western Digital platform allows us to continue to deliver differentiated financial performance enabling us to effectively navigate dynamic market conditions. With a deepening customer engagement, and our growing exposure to secular growth areas such as mobility and cloud, we remain poised to deliver compelling long-term shareholder value.”

The company also announced that its Board of Directors has authorized a new $5 billion share repurchase program, replacing all prior programs.

“Western Digital’s products and solutions are a key enabler of the ongoing growth in the volume and value of data. Our differentiated performance has demonstrated the stability, reliability and resiliency of our business model,” said Steve Milligan. “This new significant share repurchase authorization reflects ongoing confidence in the fundamentals of our business and its cash flow generation capabilities. We believe it is an excellent capital allocation opportunity to enhance long-term shareholder value.”

The investment community conference call to discuss these results, the company’s guidance for the first fiscal quarter 2019 and an accompanying presentation will be broadcast live online today at 2:30 p.m. Pacific/5:30 p.m. Eastern. The live and archived conference call/webcast, the company’s guidance for the first fiscal quarter and the earnings presentation can be accessed online at investor.wdc.com. The telephone replay number in the U.S. is 1(855) 859-2056 or +1(404) 537-3406 for international callers. The required conference ID is 8876946.

About Western Digital®

Western Digital creates environments for data to thrive. The company is driving the innovation needed to help customers capture, preserve, access and transform an ever-increasing diversity of data. Everywhere data lives, from advanced data centers to mobile sensors to personal devices, our industry-leading solutions deliver the possibilities of data. Western Digital data-centric solutions are marketed under the G-Technology™, HGST, SanDisk®, Tegile™, Upthere™ and WD® brands. Financial and investor information is available on the company's Investor Relations website at investor.wdc.com.

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 fourth fiscal quarter ended June 29, 2018 and fiscal year 2018; platform and product portfolio; market positioning; growth opportunities; and potential repurchases in the future by the company of shares of its common stock. 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 fourth fiscal quarter ended June 29, 2018 and fiscal year 2018 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: volatility in global economic conditions; business conditions and growth in the storage ecosystem; impact of competitive products and pricing; market acceptance and cost of commodity materials and specialized product components; actions by competitors; unexpected advances in competing technologies; our development and introduction of products based on new technologies and expansion into new data storage markets; risks associated with acquisitions, mergers and joint ventures; difficulties or delays in manufacturing; 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-Q filed with the SEC on May 8, 2018, 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 these forward-looking statements to reflect new information or events.

Western Digital, the Western Digital logo, G-Technology, HGST, SanDisk, Tegile, Upthere 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)
 
June 29, June 30,
2018 2017
 
ASSETS
 
Current assets:
Cash and cash equivalents $ 5,005 $ 6,354
Accounts receivable, net 2,197 1,948
Inventories 2,944 2,341
Other current assets   492   413
Total current assets 10,638 11,056
Property, plant and equipment, net 3,095 3,033
Notes receivable and investments in Flash Ventures 2,105 1,340
Goodwill 10,075 10,014
Other intangible assets, net 2,680 3,823
Other non-current assets   642   594
Total assets $ 29,235 $ 29,860
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
Current liabilities:
Accounts payable $ 2,265 $ 2,144
Accounts payable to related parties 259 206
Accrued expenses 1,274 1,255
Accrued compensation 479 506
Current portion of long-term debt   179   233
Total current liabilities 4,456 4,344
Long-term debt 10,993 12,918
Other liabilities   2,255   1,180
Total liabilities 17,704 18,442
Total shareholders' equity   11,531   11,418
Total liabilities and shareholders' equity $ 29,235 $ 29,860
 
 
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
June 29, June 30, June 29, June 30,
2018 2017 2018 2017
 
Revenue, net $ 5,117 $ 4,842 $ 20,647 $ 19,093
Cost of revenue   3,265     3,161     12,942     13,021  
Gross profit   1,852     1,681     7,705     6,072  
Operating expenses:
Research and development 577 604 2,400 2,441
Selling, general and administrative 352 345 1,473 1,445
Employee termination, asset impairment and other charges   80     80     215     232  
Total operating expenses   1,009     1,029     4,088     4,118  
Operating income 843 652 3,617 1,954
Interest and other expense, net   (114 )   (237 )   (1,532 )   (1,185 )
Income before taxes 729 415 2,085 769
Income tax expense (benefit)   (27 )   135     1,410     372  
Net income $ 756   $ 280   $ 675   $ 397  
 
Income per common share:
Basic $ 2.53   $ 0.96   $ 2.27   $ 1.38  
Diluted $ 2.46   $ 0.93   $ 2.20   $ 1.34  
 
Weighted average shares outstanding:
Basic   299     292     297     288  
Diluted   307     301     307     296  
 
 
WESTERN DIGITAL CORPORATION
             
PRELIMINARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(in millions; unaudited; on a US GAAP basis)
 
Three Months Ended Years Ended
June 29, June 30, June 29, June 30,
2018 2017 2018 2017
 
Operating Activities
Net income $ 756 $ 280 $ 675 $ 397

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

Depreciation and amortization 489 546 2,056 2,128
Stock-based compensation 78 91 377 394
Deferred income taxes (12 ) (49 ) (348 ) 12
Loss on disposal of assets 5 6 21 18
Write-off of issuance costs and amortization of debt discounts 13 10 221 285
Cash premium on extinguishment of debt - - 720 5
Non-cash portion of employee termination, asset impairment, and other charges - - 16 13
Other non-cash operating activities, net (4 ) 35 (19 ) 94
Changes in:
Accounts receivable, net (186 ) 2 (244 ) (487 )
Inventories (274 ) (87 ) (598 ) (204 )
Accounts payable 26 (96 ) (15 ) 223
Accounts payable to related parties (23 ) 13 53 38
Accrued expenses 72 71 (17 ) 231
Accrued compensation (28 ) 25 (26 ) 115
Other assets and liabilities, net   (49 )   92     1,333     175  
Net cash provided by operating activities   863     939     4,205     3,437  
 
Investing Activities
Purchases of property, plant and equipment, net (190 ) (125 ) (809 ) (557 )
Activity related to Flash Ventures, net (35 ) (53 ) (742 ) (277 )
Acquisitions, net of cash acquired (1 ) - (100 ) -
Investment activity, net (11 ) (1 ) (22 ) 230
Strategic investments and other, net   (12 )   (11 )   18     (32 )
Net cash used in investing activities   (249 )   (190 )   (1,655 )   (636 )
 
Financing Activities
Employee stock plans, net 67 128 49 230
Repurchases of common stock (436 ) - (591 ) -
Proceeds from acquired call option - - - 61
Dividends paid to shareholders (150 ) (146 ) (593 ) (574 )
Settlement of debt hedge contracts - (21 ) 28 (21 )
Proceeds from revolving credit facility - - 500 -
Proceeds from debt, net of issuance costs 2,449 - 13,781 7,898
Repayment of debt and premiums   (2,493 )   (10 )   (17,074 )   (12,189 )
Net cash used in financing activities   (563 )   (49 )   (3,900 )   (4,595 )
Effect of exchange rate changes on cash   (9 )   2     1     (3 )
Net increase (decrease) in cash and cash equivalents 42 702 (1,349 ) (1,797 )
Cash and cash equivalents, beginning of period   4,963     5,652     6,354     8,151  
Cash and cash equivalents, end of period $ 5,005   $ 6,354   $ 5,005   $ 6,354  
 
 
WESTERN DIGITAL CORPORATION
           
PRELIMINARY RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
 
(in millions, except per share amounts; unaudited)
 
Three Months Ended Years Ended
June 29, June 30, June 29, June 30,
2018 2017 2018 2017
 
GAAP cost of revenue $ 3,265 $ 3,161 $ 12,942 $ 13,021
Amortization of acquired intangible assets (234) (279) (1,022) (1,003)
Stock-based compensation expense (12) (12) (49) (49)
Acquisition-related charges - - - (18)
Charges related to cost saving initiatives 1 (24) 7 (68)
Other - (2) - (5)
Non-GAAP cost of revenue $ 3,020 $ 2,844 $ 11,878 $ 11,878
 
GAAP gross profit $ 1,852 $ 1,681 $ 7,705 $ 6,072
Amortization of acquired intangible assets 234 279 1,022 1,003
Stock-based compensation expense 12 12 49 49
Acquisition-related charges - - - 18
Charges related to cost saving initiatives (1) 24 (7) 68
Other - 2 - 5
Non-GAAP gross profit $ 2,097 $ 1,998 $ 8,769 $ 7,215
 
GAAP operating expenses $ 1,009 $ 1,029 $ 4,088 $ 4,118
Amortization of acquired intangible assets (41) (40) (163) (159)
Stock-based compensation expense (66) (77) (327) (333)
Employee termination, asset impairment and other charges (80) (80) (215) (232)
Acquisition-related charges (1) - (13) (17)
Charges related to cost saving initiatives (1) (16) (19) (86)
Other - (4) 3 (8)
Non-GAAP operating expenses $ 820 $ 812 $ 3,354 $ 3,283
 
GAAP operating income $ 843 $ 652 $ 3,617 $ 1,954
Cost of revenue adjustments 245 317 1,064 1,143
Operating expense adjustments 189 217 734 835
Non-GAAP operating income $ 1,277 $ 1,186 $ 5,415 $ 3,932
 
GAAP interest and other expense, net $ (114) $ (237) $ (1,532) $ (1,185)
Convertible debt activity, net 7 (1) 10 6
Debt extinguishment costs 3 - 899 274
Other 3 41 5 54
Non-GAAP interest and other expense, net $ (101) $ (197) $ (618) $ (851)
 
GAAP income tax expense (benefit) $ (27) $ 135 $ 1,410 $ 372
Income tax adjustments 94 (27) (1,136) (11)
Non-GAAP income tax expense $ 67 $ 108 $ 274 $ 361
 
GAAP net income $ 756 $ 280 $ 675 $ 397
Amortization of acquired intangible assets 275 319 1,185 1,162
Stock-based compensation expense 78 89 376 382
Employee termination, asset impairment and other charges 80 80 215 232
Acquisition-related charges 1 - 13 35
Charges related to cost saving initiatives - 40 12 154
Convertible debt activity, net 7 (1) 10 6
Debt extinguishment costs 3 - 899 274
Other 3 47 2 67
Income tax adjustments (94) 27 1,136 11
Non-GAAP net income $ 1,109 $ 881 $ 4,523 $ 2,720
 
Diluted income per common share:
GAAP $ 2.46 $ 0.93 $ 2.20 $ 1.34
Non-GAAP $ 3.61 $ 2.93 $ 14.73 $ 9.19
 
Diluted weighted average shares outstanding:
GAAP 307 301 307 296
Non-GAAP 307 301 307 296
 

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, debt extinguishment costs, other charges, 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. During the fiscal quarter ended June 29, 2018, the company incurred charges related to a planned hard drive manufacturing site closure and consolidation, as well as other restructuring actions. 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.

Debt extinguishment costs. From time-to-time, the company replaces its existing debt with new financing at more favorable interest rates or utilizes available capital to settle debt early, both of which generate interest savings in future periods. The company incurs debt extinguishment charges consisting of the costs to call the existing debt and/or the write-off of any related unamortized debt issuance costs. These 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 charges. 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, as a result of the Tax Cuts and Jobs Act, the fiscal year ended June 29, 2018 income tax adjustments include a net provisional income tax expense of $1.6 billion for the one-time mandatory deemed repatriation tax and a provisional income tax benefit of $65 million related to the re-measurement of deferred tax assets and liabilities.

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

Source: Western Digital Corp.