TechDogs-"Western Digital Reports Fiscal Third Quarter 2023 Financial Results"

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Western Digital Reports Fiscal Third Quarter 2023 Financial Results

By Business Wire

Business Wire
Overall Rating

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.

SAN JOSE, Calif.--(BUSINESS WIRE)--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.

Contacts

Western Digital Corp.

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

Media Contact:
Robin Schultz
408.573.5043
robin.schultz@wdc.com

Read full story here

First published on Tue, May 9, 2023

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Western Digital Data Storage Solutions Western Digital® SanDisk® and WD®

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