WDC
$69.20
Western Digital Cp
($.27)
(.39%)
Earnings Details
3rd Quarter March 2021
Thursday, April 29, 2021 4:01:00 PM
Tweet Share Watch
Summary

Western Digital Cp Beats

Western Digital Cp (WDC) reported 3rd Quarter March 2021 earnings of $0.95 per share on revenue of $4.1 billion. The consensus earnings estimate was $0.68 per share on revenue of $4.0 billion. The Earnings Whisper number was $0.75 per share. Revenue fell 0.9% compared to the same quarter a year ago.

The company said it expects fourth quarter non-GAAP earnings of $1.30 to $1.60 per share on revenue of $4.40 billion to $4.60 billion. The current consensus earnings estimate is $1.01 per share on revenue of $4.24 billion for the quarter ending June 30, 2021.

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
$0.95
Earnings Whisper
$0.75
Consensus Estimate
$0.68
Reported Revenue
$4.14 Bil
Revenue Estimate
$3.97 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Western Digital Reports Fiscal Third Quarter 2021 Financial Results

News Summary

  • Third quarter revenue was $4.1 billion, down 1% year-over-year (YoY). Client Devices revenue increased 10%, Data Center Devices and Solutions revenue declined 19%, and Client Solutions revenue increased 8% YoY.
  • Third quarter GAAP earnings per share (EPS) was $0.63 and non-GAAP EPS was $1.02.
  • Generated operating cash flow of $116 million and free cash flow was negative $11 million in the third quarter.
  • Expecting fiscal fourth quarter 2021 revenue to be in the range of $4.40 billion to $4.60 billion with non-GAAP EPS in the range of $1.30 to $1.60.

SAN JOSE, Calif.--(BUSINESS WIRE)--Western Digital Corp. (Nasdaq: WDC) today reported fiscal third quarter 2021 financial results.

“We reported solid results above the guidance range, driven by increasing momentum of our energy-assisted drives and our second-generation NVMe enterprise SSDs, improving NAND flash pricing trends, along with the continued accelerated digital transformation across end markets,” said David Goeckeler, Western Digital CEO. “Western Digital’s strengths in technology and cost leadership, expansive product portfolio and broad routes to market are providing a foundation upon which we are solidifying our position as an essential building block of the digital economy. These strengths, combined with our increased operational and strategic focus enabled by our new business unit structure, are driving results. As we continue to face a dynamic environment, we are seeing the benefits of the synergistic value in the breadth of Western Digital’s portfolio, and our unique ability to deliver both hard drive and flash solutions to our diverse end-markets and customer base.”

Q3 2021 Financial Highlights

 

 

GAAP

 

Non-GAAP

 

 

 

 

 

 

 

 

 

 

 

Q3 2021

Q3 2020

vs. Q3 2020

 

Q3 2021

Q3 2020

vs. Q3 2020

Revenue ($M)

 

$4,137

$4,175

down 1%

 

$4,137

$4,175

down 1%

Gross Margin

 

26.4%

24.1%

up 2.3 ppt

 

27.7%

27.9%

down 0.2 ppt

Operating Expenses ($M)

 

$774

$852

down 9%

 

$732

$738

down 1%

Operating Income ($M)

 

$317

$153

up 107%

 

$412

$427

down 4%

Net Income ($M)

 

$197

$17

up 1059%

 

$318

$257

up 24%

Earnings Per Share

 

$0.63

$0.06

up 950%

 

$1.02

$0.85

up 20%

The company generated $116 million in cash flow from operations, made a total debt repayment of $212 million, and ended the quarter with $2.7 billion of total cash and cash equivalents. There were 313 million ordinary shares outstanding at the end of the quarter.

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

Key End Market Summary

Revenue ($M)

 

Q3 2021

Q3 2020

vs. Q3 2020

Client Devices

 

$2,012

$1,831

up 10%

Data Center Devices & Solutions

 

$1,237

$1,523

down 19%

Client Solutions

 

$888

$821

up 8%

Total Revenue

 

$4,137

$4,175

down 1%

In the fiscal third quarter of 2021, Western Digital’s revenue decreased 1% year-over-year to $4.1 billion, driven by a decline in Data Center Devices & Solutions offset by strong performance in gaming and consumer markets.

In Client Devices, continued strength in notebook and desktop PC demand, along with new game console ramps, drove solid revenue growth.

In Data Center Devices and Solutions, while revenue was down 19% from the prior year, Western Digital experienced significant sequential growth with its second generation, NVMe enterprise SSD at a cloud titan. In addition, many cloud customers also utilize NAND flash for their consumer product lines, creating additional end market opportunities for Western Digital as the company continues to diversify and balance the end markets served. Qualifications of Western Digital’s energy-assisted hard drives have also been completed with nearly all cloud and enterprise customers, including all cloud titans.

In Client Solutions, revenue increased due to strength in retail, which remains a high performing end market, as Western Digital’s brand recognition, broad product portfolio, and extensive distribution channels continue to distinguish Western Digital from its competitors.

Business Outlook for Fiscal Fourth Quarter of 2021

 

Three Months Ending

July 2, 2021

 

GAAP(1)

 

Non-GAAP(1)

Revenue ($B)

$4.40 - $4.60

 

$4.40 - $4.60

Gross margin

29.0% - 31.0%

 

30.0% - 32.0%

Operating expenses ($M)

$860 - $890

 

$760 - $790

Interest and other expense, net ($M)

$75 - $80

 

$68 - $73

Tax rate

N/A

 

~ 17% (2)

Diluted earnings per share

N/A

 

$1.30 - $1.60

Diluted shares outstanding (in millions)

~ 317

 

~ 317

______________________

(1) Non-GAAP gross margin guidance excludes amortization of acquired intangible assets and stock-based compensation expense, totaling approximately $40 million to $60 million. The company’s non-GAAP operating expenses guidance excludes amortization of acquired intangible assets; stock-based compensation expense; and employee termination, asset impairment and other charges, totaling approximately $90 million to $110 million. The company's non-GAAP interest and other expense guidance excludes approximately $10 million of convertible debt activity. In the aggregate, non-GAAP diluted earnings per share guidance excludes these items totaling $140 million to $180 million. The timing and amount of these charges excluded from non-GAAP gross margin, non-GAAP operating expenses, non-GAAP interest and other expense, net 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 interest and other expense, non-GAAP tax rate and non-GAAP diluted earnings per share to the most directly comparable GAAP financial measures (gross margin, operating expenses, interest and other expense, 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.

Investor Communications

The investment community conference call to discuss these results and the company’s business outlook for the fiscal fourth quarter of 2021 will be broadcast live online today at 1:30 p.m. Pacific/4:30 p.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, a leader in data infrastructure, creates environments for data to thrive. The company is driving the innovation needed to help customers capture, preserve, access, analyze, and transform an ever-increasing diversity of data. Everywhere data lives, from advanced data centers to mobile sensors to personal devices, the company's industry-leading solutions deliver the possibilities of data. Western Digital data-centric solutions are comprised of the Western Digital®, G-Technology™, SanDisk® 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 fiscal third quarter ended April 2, 2021; the company’s business outlook for the fiscal fourth quarter of 2021; our market position and portfolio synergies; consumer trends and market conditions; and expectations regarding pricing trends, product momentum, diversification strategies and market opportunities. 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 third quarter ended April 2, 2021 included in this press release represent the most current information available to management. The company’s actual results when disclosed in its Form 10-Q 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 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; 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 high level of debt and other financial obligations; changes to our relationships with key customers; disruptions in operations from cyberattacks 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 28, 2020, 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, 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)

 

 

April 2,
2021

 

July 3,
2020

 

 

 

 

ASSETS

Current assets:

 

 

 

Cash and cash equivalents

$

2,734

 

 

$

3,048

 

Accounts receivable, net

1,905

 

 

2,379

 

Inventories

3,683

 

 

3,070

 

Other current assets

710

 

 

551

 

Total current assets

9,032

 

 

9,048

 

Property, plant and equipment, net

3,061

 

 

2,854

 

Notes receivable and investments in Flash Ventures

1,694

 

 

1,875

 

Goodwill

10,066

 

 

10,067

 

Other intangible assets, net

519

 

 

941

 

Other non-current assets

1,037

 

 

877

 

Total assets

$

25,409

 

 

$

25,662

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

 

 

 

Accounts payable

$

1,807

 

 

$

1,945

 

Accounts payable to related parties

397

 

 

407

 

Accrued expenses

1,552

 

 

1,296

 

Accrued compensation

494

 

 

472

 

Current portion of long-term debt

251

 

 

286

 

Total current liabilities

4,501

 

 

4,406

 

Long-term debt

8,678

 

 

9,289

 

Other liabilities

2,281

 

 

2,416

 

Total liabilities

15,460

 

 

16,111

 

Total shareholders’ equity

9,949

 

 

9,551

 

Total liabilities and shareholders’ equity

$

25,409

 

 

$

25,662

 

 

WESTERN DIGITAL CORPORATION

PRELIMINARY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

 

 

Three Months Ended

 

Nine Months Ended

 

April 2,
2021

 

April 3,
2020

 

April 2,
2021

 

April 3,
2020

Revenue, net

$

4,137

 

 

 

$

4,175

 

 

 

$

12,002

 

 

 

$

12,449

 

 

Cost of revenue

3,046

 

 

 

3,170

 

 

 

9,047

 

 

 

9,751

 

 

Gross profit

1,091

 

 

 

1,005

 

 

 

2,955

 

 

 

2,698

 

 

Operating expenses:

 

 

 

 

 

 

 

Research and development

555

 

 

 

563

 

 

 

1,645

 

 

 

1,715

 

 

Selling, general and administrative

287

 

 

 

281

 

 

 

808

 

 

 

884

 

 

Employee termination, asset impairment and other charges

(68

)

 

 

8

 

 

 

(43

)

 

 

25

 

 

Total operating expenses

774

 

 

 

852

 

 

 

2,410

 

 

 

2,624

 

 

Operating income

317

 

 

 

153

 

 

 

545

 

 

 

74

 

 

Interest and other expense, net

(68

)

 

 

(107

)

 

 

(214

)

 

 

(305

)

 

Income (loss) before taxes

249

 

 

 

46

 

 

 

331

 

 

 

(231

)

 

Income tax expense

52

 

 

 

29

 

 

 

132

 

 

 

167

 

 

Net income (loss)

$

197

 

 

 

$

17

 

 

 

$

199

 

 

 

$

(398

)

 

 

 

 

 

 

 

 

 

Income (loss) per common share

 

 

 

 

 

 

 

Basic

$

0.64

 

 

 

$

0.06

 

 

 

$

0.65

 

 

 

$

(1.34

)

 

Diluted

$

0.63

 

 

 

$

0.06

 

 

 

$

0.65

 

 

 

$

(1.34

)

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

Basic

306

 

 

 

299

 

 

 

305

 

 

 

298

 

 

Diluted

313

 

 

 

303

 

 

 

308

 

 

 

298

 

 

 

WESTERN DIGITAL CORPORATION

PRELIMINARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

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

 

 

Three Months Ended

 

Nine Months Ended

 

April 2,
2021

 

April 3,
2020

 

April 2,
2021

 

April 3,
2020

Operating Activities

 

 

 

 

 

 

 

Net income (loss)

$

197

 

 

 

$

17

 

 

 

$

199

 

 

 

$

(398

)

 

Adjustments to reconcile net income (loss) to net cash provided by operations:

 

 

 

 

 

 

 

Depreciation and amortization

251

 

 

 

384

 

 

 

961

 

 

 

1,189

 

 

Stock-based compensation

83

 

 

 

78

 

 

 

239

 

 

 

232

 

 

Deferred income taxes

(36

)

 

 

(11

)

 

 

(41

)

 

 

(53

)

 

Loss (gain) on disposal of assets

(66

)

 

 

3

 

 

 

(65

)

 

 

(9

)

 

Write-off of issuance costs and amortization of debt discounts

10

 

 

 

10

 

 

 

30

 

 

 

30

 

 

Other non-cash operating activities, net

(8

)

 

 

12

 

 

 

(26

)

 

 

(8

)

 

Changes in:

 

 

 

 

 

 

 

Accounts receivable, net

(72

)

 

 

(187

)

 

 

474

 

 

 

(774

)

 

Inventories

(108

)

 

 

24

 

 

 

(613

)

 

 

179

 

 

Accounts payable

(209

)

 

 

(39

)

 

 

(139

)

 

 

131

 

 

Accounts payable to related parties

3

 

 

 

33

 

 

 

(10

)

 

 

66

 

 

Accrued expenses

173

 

 

 

4

 

 

 

251

 

 

 

331

 

 

Accrued compensation

(29

)

 

 

(104

)

 

 

22

 

 

 

87

 

 

Other assets and liabilities, net

(73

)

 

 

(82

)

 

 

(378

)

 

 

(351

)

 

Net cash provided by operating activities

116

 

 

 

142

 

 

 

904

 

 

 

652

 

 

Investing Activities

 

 

 

 

 

 

 

Purchases of property, plant and equipment, net

(162

)

 

 

(127

)

 

 

(699

)

 

 

(432

)

 

Acquisitions, net of cash acquired

 

 

 

 

 

 

 

 

 

(22

)

 

Activity related to Flash Ventures, net

35

 

 

 

161

 

 

 

129

 

 

 

627

 

 

Strategic Investments and Other, net

1

 

 

 

(2

)

 

 

8

 

 

 

19

 

 

Net cash provided by (used in) investing activities

(126

)

 

 

32

 

 

 

(562

)

 

 

192

 

 

Financing Activities

 

 

 

 

 

 

 

Employee stock plans, net

 

 

 

(8

)

 

 

20

 

 

 

10

 

 

Dividends paid to shareholders

 

 

 

(149

)

 

 

 

 

 

(445

)

 

Repayment of debt

(212

)

 

 

(212

)

 

 

(673

)

 

 

(919

)

 

Other

 

 

 

 

 

 

(9

)

 

 

 

 

Net cash used in financing activities

(212

)

 

 

(369

)

 

 

(662

)

 

 

(1,354

)

 

Effect of exchange rate changes on cash

 

 

 

1

 

 

 

6

 

 

 

(2

)

 

Net decrease in cash and cash equivalents

(222

)

 

 

(194

)

 

 

(314

)

 

 

(512

)

 

Cash and cash equivalents, beginning of period

2,956

 

 

 

3,137

 

 

 

3,048

 

 

 

3,455

 

 

Cash and cash equivalents, end of period

$

2,734

 

 

 

$

2,943

 

 

 

$

2,734

 

 

 

$

2,943

 

 

 

WESTERN DIGITAL CORPORATION

PRELIMINARY RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(in millions; unaudited)

 

 

Three Months Ended

 

Nine Months Ended

 

April 2,
2021

 

April 3,
2020

 

April 2,
2021

 

April 3,
2020

GAAP cost of revenue

$

3,046

 

 

 

$

3,170

 

 

 

$

9,047

 

 

 

$

9,751

 

 

Amortization of acquired intangible assets

(39

)

 

 

(145

)

 

 

(293

)

 

 

(466

)

 

Stock-based compensation expense

(14

)

 

 

(13

)

 

 

(41

)

 

 

(38

)

 

Charges related to cost saving initiatives

 

 

 

(2

)

 

 

 

 

 

(3

)

 

Charges related to a power outage incident and related recovery

 

 

 

 

 

 

75

 

 

 

(68

)

 

Other

 

 

 

 

 

 

 

 

 

8

 

 

Non-GAAP cost of revenue

$

2,993

 

 

 

$

3,010

 

 

 

$

8,788

 

 

 

$

9,184

 

 

 

 

 

 

 

 

 

 

GAAP gross profit

$

1,091

 

 

 

$

1,005

 

 

 

$

2,955

 

 

 

$

2,698

 

 

Amortization of acquired intangible assets

39

 

 

 

145

 

 

 

293

 

 

 

466

 

 

Stock-based compensation expense

14

 

 

 

13

 

 

 

41

 

 

 

38

 

 

Charges related to cost saving initiatives

 

 

 

2

 

 

 

 

 

 

3

 

 

Charges related to a power outage incident and related recovery

 

 

 

 

 

 

(75

)

 

 

68

 

 

Other

 

 

 

 

 

 

 

 

 

(8

)

 

Non-GAAP gross profit

$

1,144

 

 

 

$

1,165

 

 

 

$

3,214

 

 

 

$

3,265

 

 

 

 

 

 

 

 

 

 

GAAP operating expenses

$

774

 

 

 

$

852

 

 

 

$

2,410

 

 

 

$

2,624

 

 

Amortization of acquired intangible assets

(39

)

 

 

(40

)

 

 

(117

)

 

 

(120

)

 

Stock-based compensation expense

(69

)

 

 

(65

)

 

 

(198

)

 

 

(194

)

 

Employee termination, asset impairment and other charges

68

 

 

 

(8

)

 

 

43

 

 

 

(25

)

 

Charges related to acquisitions and dispositions

 

 

 

(2

)

 

 

 

 

 

(9

)

 

Charges related to cost saving initiatives

(1

)

 

 

1

 

 

 

(1

)

 

 

(6

)

 

Other

(1

)

 

 

 

 

 

(1

)

 

 

 

 

Non-GAAP operating expenses

$

732

 

 

 

$

738

 

 

 

$

2,136

 

 

 

$

2,270

 

 

 

 

 

 

 

 

 

 

GAAP operating income (loss)

$

317

 

 

 

$

153

 

 

 

$

545

 

 

 

$

74

 

 

Cost of revenue adjustments

53

 

 

 

160

 

 

 

259

 

 

 

567

 

 

Operating expense adjustments

42

 

 

 

114

 

 

 

274

 

 

 

354

 

 

Non-GAAP operating income

$

412

 

 

 

$

427

 

 

 

$

1,078

 

 

 

$

995

 

 

 

 

 

 

 

 

 

 

GAAP interest and other expense, net

$

(68

)

 

 

$

(107

)

 

 

$

(214

)

 

 

$

(305

)

 

Convertible debt activity

7

 

 

 

7

 

 

 

21

 

 

 

21

 

 

Other

(6

)

 

 

9

 

 

 

(10

)

 

 

13

 

 

Non-GAAP interest and other expense, net

$

(67

)

 

 

$

(91

)

 

 

$

(203

)

 

 

$

(271

)

 

 

 

 

 

 

 

 

 

GAAP income tax expense

$

52

 

 

 

$

29

 

 

 

$

132

 

 

 

$

167

 

 

Income tax adjustments

(25

)

 

 

50

 

 

 

17

 

 

 

12

 

 

Non-GAAP income tax expense

$

27

 

 

 

$

79

 

 

 

$

149

 

 

 

$

179

 

 

 

WESTERN DIGITAL CORPORATION

PRELIMINARY RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(in millions, except per share amounts; unaudited)

 

 

Three Months Ended

 

Nine Months Ended

 

April 2,
2021

 

April 3,
2020

 

April 2,
2021

 

April 3,
2020

GAAP net income (loss)

$

197

 

 

 

$

17

 

 

 

$

199

 

 

 

$

(398

)

 

Amortization of acquired intangible assets

78

 

 

 

185

 

 

 

410

 

 

 

586

 

 

Stock-based compensation expense

83

 

 

 

78

 

 

 

239

 

 

 

232

 

 

Employee termination, asset impairment and other charges

(68

)

 

 

8

 

 

 

(43

)

 

 

25

 

 

Charges related to acquisitions and dispositions

 

 

 

2

 

 

 

 

 

 

9

 

 

Charges related to cost saving initiatives

1

 

 

 

1

 

 

 

1

 

 

 

9

 

 

Charges related to a power outage incident and related recovery

 

 

 

 

 

 

(75

)

 

 

68

 

 

Convertible debt activity

7

 

 

 

7

 

 

 

21

 

 

 

21

 

 

Other

(5

)

 

 

9

 

 

 

(9

)

 

 

5

 

 

Income tax adjustments

25

 

 

 

(50

)

 

 

(17

)

 

 

(12

)

 

Non-GAAP net income

$

318

 

 

 

$

257

 

 

 

$

726

 

 

 

$

545

 

 

 

 

 

 

 

 

 

 

Diluted income (loss) per common share

 

 

 

 

 

 

 

GAAP

$

0.63

 

 

 

$

0.06

 

 

 

$

0.65

 

 

 

$

(1.34

)

 

Non-GAAP

$

1.02

 

 

 

$

0.85

 

 

 

$

2.36

 

 

 

$

1.81

 

 

 

 

 

 

 

 

 

 

Diluted weighted average shares outstanding:

 

 

 

 

 

 

 

GAAP

313

 

 

 

299

 

 

 

308

 

 

 

298

 

 

Non-GAAP

313

 

 

 

303

 

 

 

308

 

 

 

301

 

 

 

 

 

 

 

 

 

 

Cash flows

 

 

 

 

 

 

 

Cash flow provided by operating activities

$

116

 

 

 

$

142

 

 

 

$

904

 

 

 

$

652

 

 

Purchase of property, plant and equipment, net

(162

)

 

 

(127

)

 

 

(699

)

 

 

(432

)

 

Activity related to flash ventures, net

35

 

 

 

161

 

 

 

129

 

 

 

627

 

 

Free cash flow

$

(11

)

 

 

$

176

 

 

 

$

334

 

 

 

$

847

 

 

 

 

 

 

 

 

 

 

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; 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, the amortization of acquired intangible assets, stock-based compensation expense, employee termination, asset impairment and other charges, charges related to acquisitions and dispositions, charges related to cost saving initiatives, charges related to a power outage incident and related recovery, convertible debt activity, other adjustments, and income tax adjustments, and the company believes these measures along with the related reconciliations to the GAAP measures provide additional detail and comparability for assessing the company's results. These Non-GAAP measures are some of the primary indicators management uses for assessing the company's performance and planning and forecasting future periods. These measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP results.

As described above, the company excludes the following items from its Non-GAAP measures:

Amortization of acquired intangible assets. The company incurs expenses from the amortization of acquired intangible assets over their economic lives. Such charges are significantly impacted by the timing and magnitude of the company's acquisitions and any related impairment charges.

Stock-based compensation expense. Because of the variety of equity awards used by companies, the varying methodologies for determining stock-based compensation expense, the subjective assumptions involved in those determinations, and the volatility in valuations that can be driven by market conditions outside the company's control, the company believes excluding stock-based compensation expense enhances the ability of management and investors to understand and assess the underlying performance of its business over time and compare it against the company's peers, a majority of whom also exclude stock-based compensation expense from their non-GAAP results.

Employee termination, asset impairment and other charges. From time-to-time, in order to realign the company's operations with anticipated market demand or to achieve cost synergies from the integration of acquisitions, the company may terminate employees and/or restructure its operations. From time-to-time, the company may also incur charges from the impairment of intangible assets and other long-lived assets. 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.

Charges related to acquisitions and dispositions. In connection with the company's business combinations or dispositions, 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 and dispositions, are inconsistent in amount and frequency, and the company believes they 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 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 of assets.

Charges related to a power outage incident and related recovery. 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. In the fiscal first and second quarters of 2021, the company received recoveries of these losses from insurance carriers. These charges and recoveries are inconsistent in amount and frequency, and the company believes these charges or recoveries are not part of the ongoing production operation of its business.

Convertible debt activity. 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. 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 of proceeds from sales of property, plant and equipment, 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.

Western Digital Corp.

Investor Contact:
T. Peter Andrew
949.672.9655
peter.andrew@wdc.com
investor@wdc.com

Media Contact:
Lisa Neitzel
408.717.7607
lisa.neitzel@wdc.com

Source: Western Digital Corp.