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Western Digital Reports Fiscal Third Quarter 2023 Financial Results

News Summary

  • Third quarter revenue was $2.8 billion, at the high end of the guidance range.
  • Third quarter GAAP earnings per share (EPS) was $(1.82) and Non-GAAP EPS was $(1.37), which includes $200 million of underutilization related charges in Flash and HDD.
  • Third quarter GAAP operating loss was $472 million and Non-GAAP operating loss was $304 million.
  • Expect fiscal fourth quarter 2023 revenue to be in the range of $2.40 billion to $2.60 billion.
  • Expect Non-GAAP EPS in the range of $(2.20) to $(1.90) which includes $220 to $240 million of underutilization charges in Flash and HDD.

Western Digital Corp. (Nasdaq: WDC) today reported fiscal third quarter 2023 financial results.

“Over the last several years, our team has focused on enhancing business agility and delivering a range of innovative, industry-leading products that address the increasing data storage demands of our customers,” said David Goeckeler, Western Digital CEO. “The groundwork we laid, combined with the actions we have taken since the beginning of this fiscal year to right-size and refocus our businesses, have enabled us to navigate a dynamic environment. I am pleased that we delivered non-GAAP gross margin at the higher end of our guidance range due to strong execution across both our HDD and Flash businesses.”

Q3 2023 Financial Highlights

 

 

GAAP

 

Non-GAAP

 

 

 

 

 

 

 

 

 

 

 

Q3 2023

Q2 2023

Q/Q

 

Q3 2023

Q2 2023

Q/Q

Revenue ($M)

 

$2,803

$3,107

down 10%

 

$2,803

$3,107

down 10%

Gross Margin

 

10.2%

17.0%

down 6.8 ppt

 

10.6%

17.4%

down 6.8 ppt

Operating Expenses ($M)

 

$758

$849

down 11%

 

$602

$659

down 9%

Operating Loss ($M)

 

$(472)

$(321)

up 47%

 

$(304)

$(119)

*

Net Loss ($M)

 

$(572)

$(446)

up 28%

 

$(427)

$(135)

*

Earnings Per Share

 

$(1.82)

$(1.40)

up 30%

 

$(1.37)

$(0.42)

*

 

 

GAAP

 

Non-GAAP

 

 

 

 

 

 

 

 

 

 

 

Q3 2023

Q3 2022

Y/Y

 

Q3 2023

Q3 2022

Y/Y

Revenue ($M)

 

$2,803

$4,381

down 36%

 

$2,803

$4,381

down 36%

Gross Margin

 

10.2%

27.0%

down 16.8 ppt

 

10.6%

31.7%

down 21.1 ppt

Operating Expenses ($M)

 

$758

$857

down 12%

 

$602

$740

down 19%

Operating Income (Loss) ($M)

 

$(472)

$324

*

 

$(304)

$650

*

Net Income (Loss) ($M)

 

$(572)

$25

*

 

$(427)

$521

*

Earnings Per Share

 

$(1.82)

$0.08

*

 

$(1.37)

$1.65

*

* not a meaningful figure

The company had an operating cash outflow of $381 million and ended the quarter with $2.22 billion of total cash and cash equivalents.

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

End Market Summary

Revenue ($M)

Q3 2023

Q2 2023

Q/Q

Q3 2022

Y/Y

Cloud

$1,205

$1,224

down 2%

$1,774

down 32%

Client

975

1,089

down 10%

1,732

down 44%

Consumer

623

794

down 22%

875

down 29%

Total Revenue

$2,803

$3,107

down 10%

$4,381

down 36%

In the fiscal third quarter:

  • Cloud represented 43% of total revenue. Sequentially, an increase in capacity enterprise drive shipments was offset by a decrease in flash shipments. The year-over-year decline was primarily due to a decline in shipments of both hard drive and flash products, as well as price decreases in Flash.
  • Client represented 35% of total revenue. On both a sequential and year-over-year basis, the decrease was driven by price declines across our flash products and a lower client SSD and hard drive shipments for PC applications.
  • Consumer represented 22% of total revenue. Sequentially, the decrease was due to a seasonal decline in shipments of both retail hard drive and flash products, as well as price declines in retail Flash. The year-over-year decrease was driven by lower retail hard drive shipments and price declines in Flash.

Business Outlook for Fiscal Fourth Quarter of 2023

 

Three Months Ending

 

June 30, 2023

 

GAAP(1)

 

Non-GAAP(1)

Revenue ($B)

$2.40 - $2.60

 

$2.40 - $2.60

Gross margin

2.4% - 4.4%

 

3.0% - 5.0%

Operating expenses ($M)

$730 - $750

 

$580 - $600

Interest and other expense, net ($M)

~$90

 

~$90

Income tax expense ($M)(2)

N/A

 

$60 - $70

Diluted earnings per share

N/A

 

$(2.20) - $(1.90)

Diluted shares outstanding (in millions)

~321

 

~321

_______________________

(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, stock-based compensation expense, employee termination, asset impairment and other charges, and expenses related to strategic review, totaling approximately $140 million to $160 million. In the aggregate, Non-GAAP diluted earnings per share guidance excludes these items totaling $150 million to $175 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 income tax expense 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 income tax expense and Non-GAAP diluted earnings per share to the most directly comparable GAAP financial measures (GAAP gross profit, GAAP operating expenses, income tax expense and diluted earnings per share, respectively) are not available without unreasonable effort.

(2) The Non-GAAP income tax expense is determined based on a percentage of Non-GAAP pre-tax income or loss. Our estimated Non-GAAP tax dollars may differ from our GAAP tax dollars (i) due to differences in the tax treatment of items excluded from our Non-GAAP net income; (ii) the fact that our GAAP income tax expense or benefit recorded in any interim period is based on an estimated forecasted GAAP tax rate for the full year, excluding loss jurisdictions; and (iii) because our GAAP taxes recorded in any interim period are dependent on the timing and determination of certain GAAP operating expenses.

Investor Communications

The investment community conference call to discuss these results and the company’s business outlook for the fiscal fourth quarter of 2023 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 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 storage 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 fourth quarter of 2023; the company's market position; overall market conditions; demand trends; product innovations and cost reductions. 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 March 31, 2023 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: volatility in global economic conditions; future responses to and effects of the COVID-19 pandemic or other similar global health crises; 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; compromise, damage or interruption from cybersecurity incidents or other data 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 25, 2022, 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)

 

 

March 31,

2023

 

July 1,

2022

 

 

 

 

ASSETS

Current assets:

 

 

 

Cash and cash equivalents

$

2,220

 

$

2,327

Accounts receivable, net

 

1,591

 

 

2,804

Inventories

 

3,979

 

 

3,638

Other current assets

 

693

 

 

684

Total current assets

 

8,483

 

 

9,453

Property, plant and equipment, net

 

3,668

 

 

3,670

Notes receivable and investments in Flash Ventures

 

1,379

 

 

1,396

Goodwill

 

10,041

 

 

10,041

Other intangible assets, net

 

97

 

 

213

Other non-current assets

 

1,483

 

 

1,486

Total assets

$

25,151

 

$

26,259

LIABILITIES, CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS’ EQUITY

Current liabilities:

 

 

 

Accounts payable

$

1,307

 

$

1,902

Accounts payable to related parties

 

265

 

 

320

Accrued expenses

 

1,158

 

 

1,636

Income taxes payable

 

1,013

 

 

869

Accrued compensation

 

343

 

 

510

Current portion of long-term debt

 

1,175

 

 

Total current liabilities

 

5,261

 

 

5,237

Long-term debt

 

5,898

 

 

7,022

Other liabilities

 

1,505

 

 

1,779

Total liabilities

 

12,664

 

 

14,038

Convertible preferred stock

 

876

 

 

Total shareholders’ equity

 

11,611

 

 

12,221

Total liabilities, convertible preferred stock and shareholders’ equity

$

25,151

 

$

26,259

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

 

March 31,

2023

 

April 1,

2022

 

March 31,

2023

 

April 1,

2022

Revenue, net

$

2,803

 

 

$

4,381

 

 

$

9,646

 

 

$

14,265

 

Cost of revenue

 

2,517

 

 

 

3,200

 

 

 

7,851

 

 

 

9,836

 

Gross profit

 

286

 

 

 

1,181

 

 

 

1,795

 

 

 

4,429

 

Operating expenses:

 

 

 

 

 

 

 

Research and development

 

476

 

 

 

572

 

 

 

1,551

 

 

 

1,725

 

Selling, general and administrative

 

242

 

 

 

281

 

 

 

739

 

 

 

851

 

Employee termination, asset impairment, and other charges

 

40

 

 

 

4

 

 

 

140

 

 

 

24

 

Total operating expenses

 

758

 

 

 

857

 

 

 

2,430

 

 

 

2,600

 

Operating income (loss)

 

(472

)

 

 

324

 

 

 

(635

)

 

 

1,829

 

Interest and other expense, net

 

(57

)

 

 

(62

)

 

 

(195

)

 

 

(217

)

Income (loss) before taxes

 

(529

)

 

 

262

 

 

 

(830

)

 

 

1,612

 

Income tax expense

 

43

 

 

 

237

 

 

 

161

 

 

 

413

 

Net income (loss)

$

(572

)

 

$

25

 

 

$

(991

)

 

$

1,199

 

Less: cumulative dividends allocated to preferred shareholders

 

9

 

 

 

 

 

 

9

 

 

 

 

Net income (loss) attributable to common shareholders

$

(581

)

 

$

25

 

 

$

(1,000

)

 

$

1,199

 

 

 

 

 

 

 

 

 

Income (loss) per common share:

 

 

 

 

 

 

 

Basic

$

(1.82

)

 

$

0.08

 

 

$

(3.14

)

 

$

3.84

 

Diluted

$

(1.82

)

 

$

0.08

 

 

$

(3.14

)

 

$

3.79

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

Basic

 

319

 

 

 

313

 

 

 

318

 

 

 

312

 

Diluted

 

319

 

 

 

316

 

 

 

318

 

 

 

316

 

WESTERN DIGITAL CORPORATION

PRELIMINARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

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

 

 

Three Months Ended

 

Nine Months Ended

 

March 31,

2023

 

April 1,

2022

 

March 31,

2023

 

April 1,

2022

Operating Activities

 

 

 

 

 

 

 

Net income (loss)

$

(572

)

 

$

25

 

 

$

(991

)

 

$

1,199

 

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

 

 

 

 

 

 

 

Depreciation and amortization

 

213

 

 

 

216

 

 

 

643

 

 

 

708

 

Stock-based compensation

 

74

 

 

 

86

 

 

 

246

 

 

 

249

 

Deferred income taxes

 

9

 

 

 

3

 

 

 

34

 

 

 

41

 

Gain on disposal of assets

 

(8

)

 

 

(15

)

 

 

(7

)

 

 

(14

)

Non-cash portion of asset impairment

 

3

 

 

 

 

 

 

18

 

 

 

 

Amortization of debt issuance costs and discounts

 

4

 

 

 

13

 

 

 

9

 

 

 

34

 

Other non-cash operating activities, net

 

(63

)

 

 

29

 

 

 

6

 

 

 

42

 

Changes in:

 

 

 

 

 

 

 

Accounts receivable, net

 

314

 

 

 

390

 

 

 

1,213

 

 

 

(96

)

Inventories

 

(206

)

 

 

(15

)

 

 

(341

)

 

 

(45

)

Accounts payable

 

79

 

 

 

(196

)

 

 

(442

)

 

 

(100

)

Accounts payable to related parties

 

(103

)

 

 

7

 

 

 

(54

)

 

 

(2

)

Accrued expenses

 

(258

)

 

 

(79

)

 

 

(484

)

 

 

2

 

Income taxes payable

 

(12

)

 

 

(16

)

 

 

144

 

 

 

(50

)

Accrued compensation

 

(7

)

 

 

(83

)

 

 

(169

)

 

 

(149

)

Other assets and liabilities, net

 

152

 

 

 

33

 

 

 

(165

)

 

 

(234

)

Net cash provided by (used in) operating activities

 

(381

)

 

 

398

 

 

 

(340

)

 

 

1,585

 

Investing Activities

 

 

 

 

 

 

 

Purchases of property, plant and equipment, net

 

(110

)

 

 

(290

)

 

 

(688

)

 

 

(829

)

Activity related to Flash Ventures, net

 

(36

)

 

 

40

 

 

 

46

 

 

 

23

 

Strategic investments and other, net

 

8

 

 

 

(3

)

 

 

22

 

 

 

(16

)

Net cash used in investing activities

 

(138

)

 

 

(253

)

 

 

(620

)

 

 

(822

)

Financing Activities

 

 

 

 

 

 

 

Employee stock plans, net

 

(13

)

 

 

(3

)

 

 

(20

)

 

 

(23

)

Net proceeds from convertible preferred stock

 

882

 

 

 

 

 

 

882

 

 

 

 

Repayments of debt

 

 

 

 

(1,046

)

 

 

(1,180

)

 

 

(3,471

)

Proceeds from debt

 

 

 

 

896

 

 

 

1,180

 

 

 

1,894

 

Debt issuance costs

 

(1

)

 

 

(14

)

 

 

(6

)

 

 

(23

)

Net cash provided by (used in) financing activities

 

868

 

 

 

(167

)

 

 

856

 

 

 

(1,623

)

Effect of exchange rate changes on cash

 

 

 

 

(4

)

 

 

(3

)

 

 

(5

)

Net increase (decrease) in cash and cash equivalents

 

349

 

 

 

(26

)

 

 

(107

)

 

 

(865

)

Cash and cash equivalents, beginning of period

 

1,871

 

 

 

2,531

 

 

 

2,327

 

 

 

3,370

 

Cash and cash equivalents, end of period

$

2,220

 

 

$

2,505

 

 

$

2,220

 

 

$

2,505

 

WESTERN DIGITAL CORPORATION

Supplemental Operating Segment Results

(in millions; except percentages; unaudited)

 

 

Three Months Ended

 

Nine Months Ended

 

March 31,

2023

 

April 1,

2022

 

March 31,

2023

 

April 1,

2022

 

 

 

 

Net revenue:

 

 

 

 

 

 

 

Flash

$

1,307

 

 

$

2,243

 

 

$

4,686

 

 

$

7,353

 

HDD

 

1,496

 

 

 

2,138

 

 

 

4,960

 

 

 

6,912

 

Total net revenue

$

2,803

 

 

$

4,381

 

 

$

9,646

 

 

$

14,265

 

Gross profit:

 

 

 

 

 

 

 

Flash

$

(65

)

 

$

798

 

 

$

597

 

 

$

2,665

 

HDD

 

363

 

 

 

592

 

 

 

1,237

 

 

 

2,061

 

Total gross profit for segments

 

298

 

 

 

1,390

 

 

 

1,834

 

 

 

4,726

 

Unallocated corporate items:

 

 

 

 

 

 

 

Stock-based compensation expense

 

(12

)

 

 

(13

)

 

 

(38

)

 

 

(36

)

Amortization of acquired intangible assets

 

 

 

 

 

 

 

(1

)

 

 

(65

)

Contamination related charges

 

 

 

 

(203

)

 

 

 

 

 

(203

)

Recoveries from a power outage incident

 

 

 

 

7

 

 

 

 

 

 

7

 

Total unallocated corporate items

 

(12

)

 

 

(209

)

 

 

(39

)

 

 

(297

)

Consolidated gross profit

$

286

 

 

$

1,181

 

 

$

1,795

 

 

$

4,429

 

Gross margin:

 

 

 

 

 

 

 

Flash

 

(5.0

)%

 

 

35.6

%

 

 

12.7

%

 

 

36.2

%

HDD

 

24.3

%

 

 

27.7

%

 

 

24.9

%

 

 

29.8

%

Total gross margin for segments

 

10.6

%

 

 

31.7

%

 

 

19.0

%

 

 

33.1

%

Consolidated gross margin

 

10.2

%

 

 

27.0

%

 

 

18.6

%

 

 

31.0

%

The Company manages and reports under two reportable segments: flash-based products (“Flash”) and hard disk drives (“HDD”). In the table above, total gross profit for segments and total gross margin for segments are Non-GAAP financial measures, which are also referred to herein as Non-GAAP gross profit and Non-GAAP gross margin, respectively.

WESTERN DIGITAL CORPORATION

PRELIMINARY RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(in millions; unaudited)

 

 

Three Months Ended

 

Nine Months Ended

 

March 31,

2023

 

December 30,

2022

 

April 1,

2022

 

March 31,

2023

 

April 1,

2022

GAAP cost of revenue

$

2,517

 

 

$

2,579

 

 

$

3,200

 

 

$

7,851

 

 

$

9,836

 

Stock-based compensation expense

 

(12

)

 

 

(12

)

 

 

(13

)

 

 

(38

)

 

 

(36

)

Amortization of acquired intangible assets

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

(65

)

Contamination related charges

 

 

 

 

 

 

 

(203

)

 

 

 

 

 

(203

)

Recoveries from a power outage incident

 

 

 

 

 

 

 

7

 

 

 

 

 

 

7

 

Non-GAAP cost of revenue

$

2,505

 

 

$

2,567

 

 

$

2,991

 

 

$

7,812

 

 

$

9,539

 

 

 

 

 

 

 

 

 

 

 

GAAP gross profit

$

286

 

 

$

528

 

 

$

1,181

 

 

$

1,795

 

 

$

4,429

 

Stock-based compensation expense

 

12

 

 

 

12

 

 

 

13

 

 

 

38

 

 

 

36

 

Amortization of acquired intangible assets

 

 

 

 

 

 

 

 

 

 

1

 

 

 

65

 

Contamination related charges

 

 

 

 

 

 

 

203

 

 

 

 

 

 

203

 

Recoveries from a power outage incident

 

 

 

 

 

 

 

(7

)

 

 

 

 

 

(7

)

Non-GAAP gross profit

$

298

 

 

$

540

 

 

$

1,390

 

 

$

1,834

 

 

$

4,726

 

 

 

 

 

 

 

 

 

 

 

GAAP operating expenses

$

758

 

 

$

849

 

 

$

857

 

 

$

2,430

 

 

$

2,600

 

Stock-based compensation expense

 

(62

)

 

 

(74

)

 

 

(73

)

 

 

(208

)

 

 

(213

)

Amortization of acquired intangible assets

 

(39

)

 

 

(39

)

 

 

(39

)

 

 

(116

)

 

 

(116

)

Employee termination, asset impairment and other charges

 

(40

)

 

 

(76

)

 

 

(4

)

 

 

(140

)

 

 

(24

)

Strategic review

 

(15

)

 

 

 

 

 

 

 

 

(15

)

 

 

 

Other

 

 

 

 

(1

)

 

 

(1

)

 

 

(1

)

 

 

(5

)

Non-GAAP operating expenses

$

602

 

 

$

659

 

 

$

740

 

 

$

1,950

 

 

$

2,242

 

 

 

 

 

 

 

 

 

 

 

GAAP operating income (loss)

$

(472

)

 

$

(321

)

 

$

324

 

 

$

(635

)

 

$

1,829

 

Cost of revenue adjustments

 

12

 

 

 

12

 

 

 

209

 

 

 

39

 

 

 

297

 

Operating expense adjustments

 

156

 

 

 

190

 

 

 

117

 

 

 

480

 

 

 

358

 

Non-GAAP operating income (loss)

$

(304

)

 

$

(119

)

 

$

650

 

 

$

(116

)

 

$

2,484

 

 

 

 

 

 

 

 

 

 

 

GAAP interest and other expense, net

$

(57

)

 

$

(64

)

 

$

(62

)

 

$

(195

)

 

$

(217

)

Non-cash economic interest and Other

 

(6

)

 

 

 

 

 

(2

)

 

 

(7

)

 

 

17

 

Non-GAAP interest and other expense, net

$

(63

)

 

$

(64

)

 

$

(64

)

 

$

(202

)

 

$

(200

)

 

 

 

 

 

 

 

 

 

 

GAAP income tax expense

$

43

 

 

$

61

 

 

$

237

 

 

$

161

 

 

$

413

 

Income tax adjustments

 

17

 

 

 

(109

)

 

 

(172

)

 

 

19

 

 

 

(161

)

Non-GAAP income tax expense

$

60

 

 

$

(48

)

 

$

65

 

 

$

180

 

 

$

252

 

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

 

March 31,

2023

 

December 30,

2022

 

April 1,

2022

 

March 31,

2023

 

April 1,

2022

GAAP net income (loss)

$

(572

)

 

$

(446

)

 

$

25

 

 

$

(991

)

 

$

1,199

 

Stock-based compensation expense

 

74

 

 

 

86

 

 

 

86

 

 

 

246

 

 

 

249

 

Amortization of acquired intangible assets

 

39

 

 

 

39

 

 

 

39

 

 

 

117

 

 

 

181

 

Contamination related charges

 

 

 

 

 

 

 

203

 

 

 

 

 

 

203

 

Recoveries from a power outage incident

 

 

 

 

 

 

 

(7

)

 

 

 

 

 

(7

)

Employee termination, asset impairment and other charges

 

40

 

 

 

76

 

 

 

4

 

 

 

140

 

 

 

24

 

Strategic review

 

15

 

 

 

 

 

 

 

 

 

15

 

 

 

 

Non-cash economic interest and Other

 

(6

)

 

 

1

 

 

 

(1

)

 

 

(6

)

 

 

22

 

Income tax adjustments

 

(17

)

 

 

109

 

 

 

172

 

 

 

(19

)

 

 

161

 

Non-GAAP net income (loss)

 

(427

)

 

 

(135

)

 

 

521

 

 

 

(498

)

 

 

2,032

 

Less: cumulative dividends allocated to preferred shareholders

 

9

 

 

 

 

 

 

 

 

 

9

 

 

 

 

Non-GAAP net income (loss) attributable to common shareholders

$

(436

)

 

$

(135

)

 

$

521

 

 

$

(507

)

 

$

2,032

 

 

 

 

 

 

 

 

 

 

 

Diluted income (loss) per common share

 

 

 

 

 

 

 

 

 

GAAP

$

(1.82

)

 

$

(1.40

)

 

$

0.08

 

 

$

(3.14

)

 

$

3.79

 

Non-GAAP

$

(1.37

)

 

$

(0.42

)

 

$

1.65

 

 

$

(1.59

)

 

$

6.43

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

GAAP

 

319

 

 

 

318

 

 

 

316

 

 

 

318

 

 

 

316

 

Non-GAAP

 

319

 

 

 

318

 

 

 

316

 

 

 

318

 

 

 

316

 

 

 

 

 

 

 

 

 

 

 

Cash flows

 

 

 

 

 

 

 

 

 

Cash flow provided by operating activities

$

(381

)

 

$

35

 

 

$

398

 

 

$

(340

)

 

$

1,585

 

Purchases of property, plant and equipment, net

 

(110

)

 

 

(258

)

 

 

(290

)

 

 

(688

)

 

 

(829

)

Activity related to Flash Ventures, net

 

(36

)

 

 

(17

)

 

 

40

 

 

 

46

 

 

 

23

 

Free cash flow

$

(527

)

 

$

(240

)

 

$

148

 

 

$

(982

)

 

$

779

 

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 and loss; Non-GAAP interest and other expense, net; Non-GAAP income tax expense; Non-GAAP net income and loss; Non-GAAP diluted income and loss 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, stock-based compensation expense, amortization of acquired intangible assets, contamination related charges, recoveries from a power outage incident, employee termination, asset impairment and other charges, expenses related to our strategic review, 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:

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

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

Contamination related charges. In 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.

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 for 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.

Strategic review. The company incurred expenses associated with its ongoing review of potential strategic alternatives aimed at further optimizing the long-term value for stockholders. The company believes these charges do not reflect the company’s operating results and that they are not indicative of the underlying performance of its business.

Non-cash economic interest. The company has excluded non-cash economic interest expense associated with its convertible notes recognized in periods prior to the company’s adoption of the Financial Accounting Standards Board Accounting Standards Update No. 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”, which the company adopted at the beginning of its fiscal year ending June 30, 2023. The exclusion of such amounts from prior periods facilitates a comparison of the company's prior period results to the current period presentation.

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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