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News Summary
- Second quarter revenue was $4.83 billion, up 23% year-over-year (YoY). Cloud revenue increased by 89%, Client revenue declined by 1%, and Consumer revenue remained flat YoY.
- Second quarter GAAP earnings per share (EPS) was $1.79 and non-GAAP EPS was $2.30. Non-GAAP EPS included $70 million in COVID-related expenses.
- Generated operating cash flow of $666 million and free cash flow of $407 million.
- Completed debt refinancing transaction and reduced gross debt balance to $7.40 billion.
- Expect fiscal third quarter 2022 revenue to be in the range of $4.45 billion to $4.65 billion with non-GAAP EPS in the range of $1.50 to $1.80.
Western Digital Corp. (NASDAQ:WDC) today reported fiscal second quarter 2022 financial results.
“I'm proud of the Western Digital team for delivering another quarter of strong results that exceeded guidance, even in the midst of ongoing supply chain disruptions and COVID-related challenges,” said David Goeckeler, Western Digital CEO. “While we continue to experience strong demand across our end markets, these challenges continue to present a headwind to near-term results. We've executed well in building a solid foundation for future profitable growth driven by innovative products within our flash and hard drive businesses. As these transitory headwinds subside, we expect to emerge in a stronger position to drive better through-cycle results, creating value for our shareholders, employees and customers."
Q2 2022 Financial Highlights
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GAAP |
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Non-GAAP |
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Q2 2022 |
Q1 2022 |
Q/Q |
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Q2 2022 |
Q1 2022 |
Q/Q |
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Revenue ($M) |
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$4,833 |
$5,051 |
down 4% |
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$4,833 |
$5,051 |
down 4% |
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Gross Margin |
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32.8% |
33.0% |
down 0.2 ppt |
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33.6% |
33.9% |
down 0.3 ppt |
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Operating Expenses ($M) |
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$856 |
$887 |
down 3% |
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$741 |
$761 |
down 3% |
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Operating Income ($M) |
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$727 |
$778 |
down 7% |
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$882 |
$952 |
down 7% |
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Net Income ($M) |
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$564 |
$610 |
down 8% |
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$724 |
$787 |
down 8% |
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Earnings Per Share |
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$1.79 |
$1.93 |
down 7% |
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$2.30 |
$2.49 |
down 8% |
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GAAP |
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Non-GAAP |
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Q2 2022 |
Q2 2021 |
Y/Y |
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Q2 2022 |
Q2 2021 |
Y/Y |
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Revenue ($M) |
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$4,833 |
$3,943 |
up 23% |
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$4,833 |
$3,943 |
up 23% |
|
Gross Margin |
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32.8% |
24.3% |
up 8.5 ppt |
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33.6% |
26.4% |
up 7.2 ppt |
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Operating Expenses ($M) |
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$856 |
$802 |
up 7% |
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$741 |
$696 |
up 6% |
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Operating Income ($M) |
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$727 |
$158 |
up 360% |
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$882 |
$343 |
up 157% |
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Net Income ($M) |
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$564 |
$62 |
up 810% |
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$724 |
$212 |
up 242% |
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Earnings Per Share |
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$1.79 |
$0.20 |
up 795% |
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$2.30 |
$0.69 |
up 233% |
The company generated $666 million in cash flow from operations, made a total debt repayment of $2.21 billion, issued $1.00 billion in notes and ended the quarter with $2.53 billion of total cash and cash equivalents. During the quarter, the company fully repaid the remaining balance of its Term-Loan B-4 in an amount of $943 million, and repaid $1.27 billion on its Term-Loan A-1. In addition, the company closed a public offering of $1.00 billion aggregate principal amount in senior unsecured notes, bringing total gross debt outstanding to $7.40 billion at the end of the fiscal second quarter.
Additional details can be found within the company's earnings presentation, which is accessible online at investor.wdc.com.
New End Market Summary
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Revenue ($M) |
Q2 2022 |
Q1 2022 |
Q/Q |
Q2 2021 |
Y/Y |
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Cloud |
$1,920 |
$2,225 |
down 14% |
$1,014 |
up 89% |
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Client |
$1,854 |
$1,853 |
– |
$1,869 |
down 1% |
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Consumer |
$1,059 |
$973 |
up 9% |
$1,060 |
– |
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Total Revenue |
$4,833 |
$5,051 |
down 4% |
$3,943 |
up 23% |
Cloud represented 40% of total revenue. Supply chain disruptions impacted cloud hard drive deployments at certain customers, which led to a sequential decline in exabyte shipments in the fiscal second quarter. However, healthy overall demand for capacity enterprise drives, along with Western Digital's leadership position at the 18 terabyte capacity point, drove a greater than 50% year-over-year increase in exabyte shipments.
Client accounted for 38% of total revenue. The continued ramp of 5G phones helped offset declines in both client SSD and client hard drive revenue. Within mobile, shipments of BiCS5 products into leading 5G smartphones increased over 60% sequentially and 50% year-over-year, led by strong content growth.
Consumer represented 22% of total revenue. With a strong holiday season, retail flash led the sequential growth in Consumer. The WD_BLACK premium SSD product line, optimized for the best gaming experience, continues to gain momentum, with revenue increasing approximately 50% sequentially and doubling in calendar year 2021.
Business Outlook for Fiscal Third Quarter of 2022
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Three Months Ending April 1, 2022 |
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GAAP(1) |
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Non-GAAP(1) |
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Revenue ($B) |
$4.45 – $4.65 |
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$4.45 – $4.65 |
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Gross margin |
30.0% – 32.0% |
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30.0% – 32.0% |
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Operating expenses ($M) |
$860 – $880 |
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$750 – $770 |
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Interest and other expense, net ($M) |
~$80 |
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~$70 |
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Tax rate |
N/A |
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~11%(2) |
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Diluted earnings per share |
N/A |
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$1.50 – $1.80 |
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Diluted shares outstanding (in millions) |
~318 |
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~318 |
| _______________ | |||
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(1) Non-GAAP gross margin guidance excludes amortization of acquired intangible assets and stock-based compensation expense, totaling approximately $10 million to $20 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 $100 million to $120 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 $120 million to $150 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. |
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(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. |
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Investor Communications
The investment community conference call to discuss these results and the company's business outlook for the fiscal third quarter of 2022 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 creates environments for data to thrive. As a leader in data infrastructure, the company is driving the innovation needed to help customers capture, preserve, access, and transform an ever-increasing diversity of data. Everywhere data lives, from advanced data centers to mobile sensors to personal devices, our industry-leading solutions deliver the possibilities of data. Western Digital data-centric solutions are 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 federal securities laws, including statements regarding expectations for the company's business outlook for the fiscal third quarter of 2022; effects of the COVID-19 pandemic; supply chain conditions and constraints; our market position and future financial performance; demand trends and market conditions; and expectations regarding our product portfolio and momentum. 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 second quarter ended December 31, 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 substantial 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 27, 2021, 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, G-Technology, SanDisk and WD are registered trademarks or trademarks of Western Digital Corporation or its affiliates in the US and/or other countries.
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WESTERN DIGITAL CORPORATION PRELIMINARY CONDENSED CONSOLIDATED BALANCE SHEETS (in millions; unaudited; on a US GAAP basis) |
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December 31, 2021 |
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July 2, 2021 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
$ |
2,531 |
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$ |
3,370 |
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Accounts receivable, net |
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2,743 |
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2,257 |
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Inventories |
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3,647 |
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3,616 |
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Other current assets |
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614 |
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514 |
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Total current assets |
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9,535 |
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9,757 |
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Property, plant and equipment, net |
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3,367 |
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3,188 |
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Notes receivable and investments in Flash Ventures |
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1,553 |
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1,586 |
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Goodwill |
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10,065 |
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10,066 |
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Other intangible assets, net |
|
300 |
|
|
442 |
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Other non-current assets |
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1,205 |
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|
1,093 |
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Total assets |
$ |
26,025 |
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$ |
26,132 |
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LIABILITIES AND SHAREHOLDERS' EQUITY |
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Current liabilities: |
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Accounts payable |
$ |
2,022 |
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$ |
1,934 |
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Accounts payable to related parties |
|
389 |
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|
398 |
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Accrued expenses |
|
1,700 |
|
|
1,653 |
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Accrued compensation |
|
567 |
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|
634 |
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Current portion of long-term debt |
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251 |
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|
251 |
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Total current liabilities |
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4,929 |
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4,870 |
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Long-term debt |
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7,057 |
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8,474 |
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Other liabilities |
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2,021 |
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|
2,067 |
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Total liabilities |
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14,007 |
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15,411 |
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Total shareholders' equity |
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12,018 |
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|
10,721 |
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Total liabilities and shareholders' equity |
$ |
26,025 |
|
$ |
26,132 |
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WESTERN DIGITAL CORPORATION PRELIMINARY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in millions, except per share amounts; unaudited; on a US GAAP basis) |
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Three Months Ended |
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Six Months Ended |
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December 31, 2021 |
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January 1, 2021 |
|
December 31, 2021 |
|
January 1, 2021 |
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Revenue, net |
$ |
4,833 |
|
|
$ |
3,943 |
|
|
$ |
9,884 |
|
|
$ |
7,865 |
|
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Cost of revenue |
|
3,250 |
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|
|
2,983 |
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|
|
6,636 |
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|
6,001 |
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Gross profit |
|
1,583 |
|
|
|
960 |
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|
3,248 |
|
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|
1,864 |
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Operating expenses: |
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Research and development |
|
575 |
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|
535 |
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1,153 |
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|
1,090 |
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Selling, general and administrative |
|
279 |
|
|
|
265 |
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|
|
570 |
|
|
|
521 |
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Employee termination, asset impairment and other charges |
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2 |
|
|
|
2 |
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|
|
20 |
|
|
|
25 |
|
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Total operating expenses |
|
856 |
|
|
|
802 |
|
|
|
1,743 |
|
|
|
1,636 |
|
|
Operating income |
|
727 |
|
|
|
158 |
|
|
|
1,505 |
|
|
|
228 |
|
|
Interest and other expense, net |
|
(81 |
) |
|
|
(73 |
) |
|
|
(155 |
) |
|
|
(146 |
) |
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Income before taxes |
|
646 |
|
|
|
85 |
|
|
|
1,350 |
|
|
|
82 |
|
|
Income tax expense |
|
82 |
|
|
|
23 |
|
|
|
176 |
|
|
|
80 |
|
|
Net income |
$ |
564 |
|
|
$ |
62 |
|
|
$ |
1,174 |
|
|
$ |
2 |
|
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Income per common share |
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Basic |
$ |
1.81 |
|
|
$ |
0.20 |
|
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$ |
3.77 |
|
|
$ |
0.01 |
|
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Diluted |
$ |
1.79 |
|
|
$ |
0.20 |
|
|
$ |
3.73 |
|
|
$ |
0.01 |
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Weighted average shares outstanding: |
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Basic |
|
312 |
|
|
|
305 |
|
|
|
311 |
|
|
|
304 |
|
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Diluted |
|
315 |
|
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Full story available on Benzinga.com
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