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Western Digital Reports Fiscal Third Quarter 2024 Financial Results
"As evidenced by our excellent third quarter results, Western Digital continues improving through-cycle profitability and dampening business cycles by leveraging our strategy of developing a diversified portfolio of industry-leading products across a broad range of end markets," said David Goeckeler, Western Digital CEO. "We are in the early innings of unlocking the full potential of this company, and as industry supply and demand dynamics continue to improve, we will remain disciplined around our capital spending and focused on driving innovation and efficiency across our businesses. We are confident in our strategy and the actions we have taken to-date, which successfully position us to capitalize on the promising growth prospects that lie ahead."
Q3 2024 Financial Highlights
GAAP Non-GAAP
------------------------------------------------------------ ------------------------------------------------------------
Q3 2024 Q2 2024 Q/Q Q3 2024 Q2 2024 Q/Q
------------------------------------------------------------------ -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------------------
Revenue ($M) $3,457 $3,032 up 14% $3,457 $3,032 up 14%
Gross Margin 29.0% 16.2% up 12.8 ppt 29.3% 15.5% up 13.8 ppt
Operating Expenses ($M) $728 $702 up 4% $632 $561 up 13%
Operating Income (Loss) ($M) $273 $(210) * $380 $(91) *
Diluted Net Income (Loss) Attributable to Common Shareholders ($M) $113 $(301) * $210 $(243) *
Net Income (Loss) Per Share $0.34 $(0.93) * $0.63 $(0.75) *
GAAP Non-GAAP
------------------------------------------------------------ ------------------------------------------------------------
Q3 2024 Q3 2023 Y/Y Q3 2024 Q3 2023 Y/Y
------------------------------------------------------------------ -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------------------
Revenue ($M) $3,457 $2,803 up 23% $3,457 $2,803 up 23%
Gross Margin 29.0% 10.2% up 18.8 ppt 29.3% 10.6% up 18.7 ppt
Operating Expenses ($M) $728 $758 down 4% $632 $602 up 5%
Operating Income (Loss) ($M) $273 $(472) * $380 $(304) *
Diluted Net Income (Loss) Attributable to Common Shareholders ($M) $113 $(580) * $210 ($435) *
Net Income (Loss) Per Share $0.34 $(1.82) * $0.63 $(1.36) *
The company had an operating cash inflow of $58 million and ended the quarter with $1.89 billion of total cash and cash equivalents.
Additional details can be found within the company's earnings presentation, which is accessible online at investor.wdc.com.
End Market Summary
Revenue ($M) Q3 2024 Q2 2024 Q/Q Q3 2023 Y/Y
------------ ------- ------- -------- ------- ------
Cloud $1,553 $1,071 up 45% $1,205 up 29%
Client 1,174 1,122 up 5% 975 up 20%
Consumer 730 839 down 13% 623 up 17%
------- ------- -------
In the fiscal third quarter:
Cloud represented 45% of total revenue. The growth was primarily attributed to higher nearline shipments and improved nearline per unit pricing with flash revenue up both sequentially and year-over-year. Client represented 34% of total revenue. Sequentially, the increase in flash ASP more than offset a decline in flash bit shipments while HDD revenue decreased. The year-over-year increase was driven by growth in both flash and HDD ASPs and flash bit shipments. Consumer represented 21% of total revenue. Sequentially, both flash and HDD were down at approximately similar rates and in line with seasonality. The year-over-year increase was driven by growth in flash bit shipments and ASP.
Business Outlook for Fiscal Fourth Quarter of 2024
Three Months Ending
June 28, 2024
GAAP(1) Non-GAAP(1)
------------- -------------
Revenue ($B) $3.60 - $3.80 $3.60 - $3.80
Gross margin 31.5% - 33.5% 32.0% - 34.0%
Operating expenses ($M) $770 - $800 $670 - $690
Interest and other expense, net ($M) $105 $105
Income tax expense ($M)(2) N/A $30 - $40
Diluted earnings per share N/A $0.90 - $1.20
__________
(1) Non-GAAP gross margin guidance excludes amortization of acquired intangible assets and stock-based compensation expense of approximately $10 million to $15 million. The company's Non-GAAP operating expenses guidance excludes stock-based compensation expense, and expenses related to business separation costs, totaling approximately $100 million to $110 million. In the aggregate, Non-GAAP diluted earnings per share guidance excludes these items totaling approximately $110 million to $125 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. 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) 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 or loss; (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.
Revisions to Prior Period Financial Results
As previously reported, in connection with the preparation of its condensed consolidated financial statements as of and for the three and six months ended December 29, 2023, the company identified certain errors related to the company's reporting and recording of its interests in its equity method investments in Flash Ventures. These errors related to unadjusted differences between Flash Ventures' application of Japanese generally accepted accounting principles to certain lease-related transactions compared to the applicable U.S. generally accepted accounting principles. These unadjusted differences resulted in differences in the equity in earnings from these entities recognized by the company in Other income (expense), net and the carrying value of the company's equity method investments in Flash Ventures in the unaudited condensed consolidated financial statements. The company evaluated the errors and determined the related impacts were not material to its financial statements for the prior periods when they occurred. The company has revised previously reported financial information for such immaterial errors, and the unaudited preliminary condensed consolidated financial statements included in this press release incorporate revisions made to correct these errors for the periods presented. Please refer to the tables outlining revisions to results of operations in the company's earnings presentation, which is accessible online at investor.wdc.com, and to the company's upcoming Quarterly Report on Form 10-Q for the fiscal third quarter ending March 29, 2024, for additional information related to these revisions.
Investor Communications
The investment community conference call to discuss these results and the company's business outlook for the fiscal fourth quarter of 2024 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(R), SanDisk(R) and WD(R) 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 2024 and beyond; the company's ability to dampen cyclicality and improve through-cycle profitability; industry and supply conditions and dynamics; and the company's approach to capital spending and ability to capitalize on 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 March 29, 2024 included in this press release represent the most current information available to management. Actual results when disclosed in the company's 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 filing of the company's Form 10-Q. Other key 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; operational, financial and legal challenges and difficulties inherent in implementing a separation of the company's HDD and Flash businesses; the final approval of the separation by the company's board of directors; inflation; increase in interest rates and economic recession; future responses to and effects of global health crises; the impact of business and market conditions; the outcome and impact of the company's announced separation transaction, 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; the impact of competitive products and pricing; the company's 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 the company's strategic relationships; difficulties or delays in manufacturing or other supply chain disruptions; hiring and retention of key employees; the company's level of debt and other financial obligations; changes to the company's relationships with key customers; compromise, damage or interruption from cybersecurity incidents or other data system security risks; actions by competitors; the company's ability to achieve its GHG emissions reduction and other ESG goals; the impact of international conflicts; 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 Annual Report on Form 10-K filed with the SEC on August 22, 2023 and Quarterly Reports on Form 10-Q filed with the SEC on November 7, 2023 and February 12, 2024, 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 29, June 30,
2024 2023
----------------------------------- -----------------------------------
ASSETS
Current assets:
$ 1,894 $ 2,023
Cash and cash equivalents
1,800 1,598
Accounts receivable, net
3,215 3,698
Inventories
623 567
Other current assets
-------------------- --------------- -------------------- ---------------
7,532 7,886
Total current assets
Property, plant and equipment, net 3,253 3,620
Notes receivable and investments in Flash Ventures 1,099 1,410
Goodwill 10,034 10,037
Other intangible assets, net 78 80
Other non-current assets 1,805 1,513
-------------------- --------------- -------------------- ---------------
$ 23,801 $ 24,546
Total assets
==================== =============== ==================== ===============
LIABILITIES, CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
Current liabilities:
$ 1,400 $ 1,293
Accounts payable
310 292
Accounts payable to related parties
972 1,288
Accrued expenses
476 999
Income taxes payable
445 349
Accrued compensation
450 1,213
Current portion of long-term debt
-------------------- --------------- -------------------- ---------------
4,053 5,434
Total current liabilities
Long-term debt 7,318 5,857
Other liabilities 1,433 1,415
-------------------- --------------- -------------------- ---------------
12,804 12,706
Total liabilities
Convertible preferred stock, aggregate liquidation preference of $968 and $924, respectively 876 876
Total shareholders' equity 10,121 10,964
-------------------- --------------- -------------------- ---------------
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 29, March 31, March 29, March 31,
2024 2023 2024 2023
---------------------------------------------- ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------
Revenue, net $ 3,457 $ 2,803 $ 9,239 $ 9,646
Cost of revenue 2,456 2,517 7,647 7,851
-------------------- ------ -------------------- -------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- --------------------
1,001 286 1,592 1,795
Gross profit
-------------------- ------ -------------------- -------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- --------------------
Operating expenses:
494 476 1,369 1,551
Research and development
203 242 608 739
Selling, general and administrative
8 40 89 140
Employee termination, asset impairment, and other
23 -- 59 --
Business separation costs
-------------------- ------ -------------------- -------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- --------------------
728 758 2,125 2,430
Total operating expenses
-------------------- ------ -------------------- -------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- --------------------
Operating income (loss) 273 (472 ) (533 ) (635 )
Interest and other expense (95 ) (56 ) (230 ) (181 )
-------------------- ------ -------------------- -------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- --------------------
Income (loss) before taxes 178 (528 ) (763 ) (816 )
Income tax expense 43 43 74 159
-------------------- ------ -------------------- -------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- --------------------
Net income (loss) 135 (571 ) (837 ) (975 )
-------------------- ------ -------------------- -------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- --------------------
Less: cumulative dividends allocated to preferred shareholders 15 9 44 9
Less: income attributable to preferred shareholders 7 -- -- --
-------------------- ------ -------------------- -------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- --------------------
Net income (loss) attributable to common shareholders $ 113 $ (580 ) $ (881 ) $ (984 )
==================== ====== ==================== ==================== ============== ==================== ==================== ============== ==================== ==================== ============== ====================
Net income (loss) per common share:
$ 0.35 $ (1.82 ) $ (2.72 ) $ (3.09 )
Basic
$ 0.34 $ (1.82 ) $ (2.72 ) $ (3.09 )
Diluted
Weighted average shares outstanding:
326 319 324 318
Basic
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 29, March 31, March 29, March 31,
2024 2023 2024 2023
------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------
Operating Activities
Net income (loss) $ 135 $ (571 ) $ (837 ) $ (975 )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operations:
140 213 430 643
Depreciation and amortization
77 74 226 246
Stock-based compensation
(52 ) 9 (120 ) 30
Deferred income taxes
-- (8 ) (87 ) (7 )
Gain on disposal of assets
4 3 99 18
Non-cash asset impairment
-- -- (4 ) --
Gain on repurchase of debt
5 4 14 9
Amortization of debt issuance costs and discounts
52 (64 ) 24 (8 )
Other non-cash operating activities, net
Changes in:
(277 ) 314 (202 ) 1,213
Accounts receivable, net
1 (206 ) 483 (341 )
Inventories
(88 ) 79 211 (442 )
Accounts payable
59 (103 ) 18 (54 )
Accounts payable to related parties
(64 ) (258 ) (310 ) (484 )
Accrued expenses
(30 ) (12 ) (524 ) 144
Income taxes payable
93 (7 ) 97 (169 )
Accrued compensation
3 152 (178 ) (163 )
Other assets and liabilities, net
-------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- --------------------
58 (381 ) (660 ) (340 )
Net cash provided by (used in) operating activities
-------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- --------------------
Investing Activities
Purchases of property, plant and equipment, net (95 ) (110 ) (176 ) (688 )
Activity related to Flash Ventures, net 128 (36 ) 207 46
Strategic investments and other, net (26 ) 8 -- 22
-------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- --------------------
7 (138 ) 31 (620 )
Net cash provided by (used in) investing activities
-------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- --------------------
Financing Activities
Employee stock plans, net (16 ) (13 ) (26 ) (20 )
Net proceeds from convertible preferred stock -- 882 (5 ) 882
Purchase of capped calls -- -- (155 ) --
Repurchases of debt -- -- (505 ) --
Proceeds from debt, net of repayments (629 ) -- 1,233 --
Debt issuance costs -- (1 ) (36 ) (6 )
-------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- --------------------
(645 ) 868 506 856
Net cash provided by (used in) financing activities
-------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- --------------------
Effect of exchange rate changes on cash (7 ) -- (6 ) (3 )
Net increase (decrease) in cash and cash equivalents (587 ) 349 (129 ) (107 )
Cash and cash equivalents, beginning of period 2,481 1,871 2,023 2,327
-------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- --------------------
WESTERN DIGITAL CORPORATION
SUPPLEMENTAL OPERATING SEGMENT RESULTS
(in millions; except percentages; unaudited)
Three Months Ended Nine Months Ended
------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------
March 29, March 31, March 29, March 31,
2024 2023 2024 2023
---------------------------------------------- -------------------- ------------------------------------------------------ ---------------------------------------------- ------------------------------------------------------
Net revenue:
$ 1,705 $ 1,307 $ 4,926 $ 4,686
Flash
1,752 1,496 4,313 4,960
HDD
-------------------- ------ -------------------- -------------------- -------------- -------------------- -------------------- ------ -------------------- -------------------- -------------- --------------------
$ 3,457 $ 2,803 $ 9,239 $ 9,646
Total net revenue
==================== ====== ==================== ==================== ============== ==================== ==================== ====== ==================== ==================== ============== ====================
Gross profit:
$ 467 $ (65 ) $ 437 $ 597
Flash
545 363 1,157 1,237
HDD
-------------------- ------ -------------------- -------------------- -------------- -------------------- -------------------- ------ -------------------- -------------------- -------------- --------------------
1,012 298 1,594 1,834
Total gross profit for segments
-------------------- ------ -------------------- -------------------- -------------- -------------------- -------------------- ------ -------------------- -------------------- -------------- --------------------
Unallocated corporate items:
(11 ) (12 ) (37 ) (38 )
Stock-based compensation expense
(1 ) -- (2 ) (1 )
Amortization of acquired intangible assets
1 -- 37 --
Recovery from contamination incident
-------------------- ------ -------------------- -------------------- -------------- -------------------- -------------------- ------ -------------------- -------------------- -------------- --------------------
(11 ) (12 ) (2 ) (39 )
Total unallocated corporate items
-------------------- ------ -------------------- -------------------- -------------- -------------------- -------------------- ------ -------------------- -------------------- -------------- --------------------
$ 1,001 $ 286 $ 1,592 $ 1,795
Consolidated gross profit
==================== ====== ==================== ==================== ============== ==================== ==================== ====== ==================== ==================== ============== ====================
Gross margin:
27.4 % (5.0 )% 8.9 % 12.7 %
Flash
31.1 % 24.3 % 26.8 % 24.9 %
HDD
29.3 % 10.6 % 17.3 % 19.0 %
Total gross margin for segments
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 29, December 29, March 31, March 29, March 31,
2024 2023 2023 2024 2023
------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------
GAAP gross profit $ 1,001 $ 492 $ 286 $ 1,592 $ 1,795
11 13 12 37 38
Stock-based compensation expense
1 1 -- 2 1
Amortization of acquired intangible assets
(1 ) (36 ) -- (37 ) --
Recovery from contamination incident
-------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- --------------------
Non-GAAP gross profit $ 1,012 $ 470 $ 298 $ 1,594 $ 1,834
==================== ============== ==================== ==================== ============== ==================== ==================== ============== ==================== ==================== ============== ==================== ==================== ============== ====================
GAAP operating expenses $ 728 $ 702 $ 758 $ 2,125 $ 2,430
(66 ) (59 ) (62 ) (189 ) (208 )
Stock-based compensation expense
(23 ) (36 ) -- (59 ) --
Business separation costs
(8 ) (24 ) (40 ) (89 ) (140 )
Employee termination, asset impairment, and other
-- (20 ) (15 ) (37 ) (15 )
Strategic review
-- -- (39 ) -- (116 )
Amortization of acquired intangible assets
1 (2 ) -- (3 ) (1 )
Other
-------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- --------------------
Non-GAAP operating expenses $ 632 $ 561 $ 602 $ 1,748 $ 1,950
==================== ============== ==================== ==================== ============== ==================== ==================== ============== ==================== ==================== ============== ==================== ==================== ============== ====================
GAAP operating income (loss) $ 273 $ (210 ) $ (472 ) $ (533 ) $ (635 )
11 (22 ) 12 2 39
Gross profit adjustments
96 141 156 377 480
Operating expense adjustments
-------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- --------------------
Non-GAAP operating income (loss) $ 380 $ (91 ) $ (304 ) $ (154 ) $ (116 )
==================== ============== ==================== ==================== ============== ==================== ==================== ============== ==================== ==================== ============== ==================== ==================== ============== ====================
GAAP interest and other expense, net $ (95 ) $ (49 ) $ (56 ) $ (230 ) $ (181 )
3 (64 ) (6 ) (61 ) (7 )
Other
-------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- --------------------
Non-GAAP interest and other expense, net $ (92 ) $ (113 ) $ (62 ) $ (291 ) $ (188 )
==================== ============== ==================== ==================== ============== ==================== ==================== ============== ==================== ==================== ============== ==================== ==================== ============== ====================
GAAP income tax expense $ 43 $ 28 $ 43 $ 74 $ 159
8 (3 ) 17 27 21
Income tax adjustments
-------------------- -------------- -------------------- -------------------- -------------- ----