Exhibit 99.1
CONTACT: | Investor Contacts: | Media Contact: | ||
Lori Barker Padon | Mike Wong | |||
(408) 801-1384 | (408) 801-1240 | |||
Jay Iyer | ||||
(408) 801-2067 |
SANDISK REPORTS Q3 REVENUE OF $751 MILLION; UP 27% YEAR-OVER-YEAR
• | EPS grew to $0.51 GAAP and $0.61 Non-GAAP | ||
• | Megabytes sold increased 217% from Q3 2005 |
Milpitas, CA, October 19, 2006 – SanDisk® Corporation (NASDAQ:SNDK), the world’s largest supplier of flash storage card products, today announced results for the third quarter ended October 1, 2006. Total third quarter revenue increased 27% on a year-over-year basis to a record $751 million. Third quarter net income as reported in accordance with U.S. Generally Accepted Accounting Principles (GAAP) was $103 million, or $0.51 per diluted share.
Excluding the impact of stock compensation expense and amortization of acquisition related intangible assets and the related tax effects, third quarter non-GAAP net income grew 15% to $124 million, or $0.61 per diluted share, which compares to the third quarter 2005 GAAP net income of $107 million, or $0.55 per diluted share.
“We are very pleased with our third quarter results,” said Eli Harari, chairman and chief executive officer of SanDisk Corporation. “Demand for our mobile products continued to be strong in the fast growing mobile phone market and we are pleased with our flash audio player U.S retail market share gains in the third quarter. Despite a challenging pricing environment in the third quarter we delivered non-GAAP operating margin of 21%, primarily due to our highly competitive product cost structure from our captive Flash business ventures in Japan. We expect to benefit in the fourth quarter from projected seasonally strong holiday sales of digital cameras, handsets, flash audio players, USB flash drives and gaming consoles and we now believe growth in our megabytes sold will be approximately 200% for 2006.”
Metrics and Highlights |
• | Product revenue grew 27% and license and royalty revenue grew 31% year-over-year. | ||
• | Megabytes sold in the third quarter increased 217% year-over-year and 40% from the second quarter of 2006. | ||
• | Average capacity per card sold in retail grew 16% sequentially to 882 megabytes. | ||
• | Average price per megabyte sold declined 25% sequentially and 60% from the third quarter of 2005. | ||
• | GAAP product gross margin for the third quarter of 2006 was 32% of product revenue similar to 32% in the second quarter of 2006 and compared to 37% in the third quarter of 2005. | ||
• | GAAP operating income for the third quarter of 2006 was $128 million or 17% of revenues. Non-GAAP operating income was $158 million or 21% of revenue compared to GAAP operating income of $159 million or 27% of revenue in the third quarter of 2005. |
• | Cash flow from operations was $291 million compared to $209 million in the third quarter of 2005, and total cash and investments increased sequentially by $286 million to $3.0 billion. | ||
• | SanDisk entered into a definitive agreement to acquire msystemsTM Ltd. in an all stock transaction expected to close around the end of the calendar year. | ||
• | SanDisk introduced high capacity new products including the 4-gigabyte (GB) SD Ultra II High Capacity (HC) card, the 4-GB miniSDHC, the 2-GB microSDTM and the 16-GB Extreme III Compact Flash. | ||
• | Retail presence grew to more than 196,000 storefronts including 62,000 in the mobile channel. | ||
• | SanDisk and Toshiba began construction on a new 300-millimeter NAND wafer fabrication facility in Yokkaichi, Japan, with initial production expected to begin in the fourth quarter of 2007. |
Scheduled Interviews
SanDisk Corporation Chairman and Chief Executive Officer, Eli Harari, is scheduled to appear on CNBC’s “Closing Bell with Maria Bartiromo,” on October 19, 2006 at approximately 1:10 p.m. PDT. Judy Bruner, SanDisk’s Executive Vice President, Administration and CFO is scheduled to appear on Bloomberg TV’s “Bloomberg On The Markets” and Bloomberg Radio’s “Bloomberg on the Radio,” October 20, 2006 beginning at approximately 7:40 a.m. PDT.
Conference Call
SanDisk’s third quarter 2006 conference call is scheduled for 2:00 p.m. PDT, Thursday, October 19, 2006. The conference call will be webcast by CCBN and can be accessed live, and throughout the quarter, at SanDisk’s website at www.sandisk.com/IR and at www.streetevents.com for registered streetevents.com users. To participate in the call via telephone, the dial-in number is (913) 981-5523. A copy of this press release will be filed with the Securities and Exchange Commission on a current report on Form 8-K and will be posted to our website prior to the conference call.
Forward-Looking Statements
This news release contains certain forward-looking statements, including statements about our business prospects and outlook for the forth quarter of 2006, including anticipated increased demand for our products, market supply and demand, expected fabrication production schedules and scheduled appearances by our CEO and CFO that are based on our current expectations and involve numerous risks and uncertainties that may cause these forward-looking statements to be inaccurate and may significantly and adversely affect our business, financial condition and results of operations. Risks that may cause these forward-looking statements to be inaccurate include among others: slower than expected growth in market demand for our products or a slower adoption rate for these products in current and new markets that we are targeting, any interruption of or delay in supply from any of the semiconductor manufacturing or subcontracting facilities, including test and assembly facilities that supply products to us, slower than expected expansion of our global sales channels, fluctuations in operating results, unexpected yield variances related to our conversion to 70-nanometer NAND flash technology or the ramp-up of the 300mm flash fabrication facility, our inability to make additional planned smaller geometry conversions in a timely manner, future average selling price erosion that may be more severe than our expectations due to decreased demand or possible excess industry capacity of flash memory from ourselves as well as from existing suppliers or from new competitors, less than expected growth in the average megabyte capacity per card, price increases from non-captive flash memory sources and third-party subcontractors, higher than expected operating expenses, higher than anticipated capital equipment expenditures, adverse global economic and geo-political conditions, including adverse currency exchange rates and acts of terror and war, the timely development, internal qualification and customer acceptance of new
products that are based on 70-nanometer NAND technology, fluctuations in license and royalty revenues, business interruption due to earthquakes, hurricanes, pandemics, power outages or other natural disasters, particularly in areas in the Pacific Rim and Japan where we manufacture and assemble products, potential impact of high energy prices and other global events outside of our control which could adversely impact consumer confidence and hence reduce demand for our products, risks related to our potential acquisition of msystems, including that the acquisition may not be consummated in a timely manner or at all, that we may not realize the expected benefits of the acquisition due to integration challenges, the loss of customers, suppliers, distributors or other third parties or other issues, that we may incur substantial costs or other damages associated with pending or future litigation related to the merger or costs or damages related to msystems’ prior stock option grant practices and that we may incur charges or other accounting changes as a result of the merger, the risk that scheduled appearances by our executives could be cancelled or delayed by us or the network, and the other risks detailed from time-to-time under the caption “Risk Factors” and elsewhere in our Securities and Exchange Commission filings and reports, including, but not limited to, our Form 10-K for the fiscal year ended January 1, 2006 and our quarterly reports on Form 10-Q. Future results may differ materially from those previously reported. We do not intend to update the information contained in this release.
About SanDisk
SanDisk is the original inventor of flash storage cards and is the world’s largest supplier of flash data storage card products using its patented, high-density flash memory and controller technology. SanDisk is headquartered in Milpitas, CA and has operations worldwide with more than half its sales outside the U.S.
www.sandisk.com
SanDisk is a trademark of SanDisk Corporation, registered in the United States and other countries. msystems is a trademark of msystems Ltd.
SanDisk Corporation
Condensed Consolidated Statements of Income
(In thousands, except per share data, unaudited)
Condensed Consolidated Statements of Income
(In thousands, except per share data, unaudited)
Three months ended | Nine months ended | |||||||||||||||
October 1, 2006 | October 2, 2005 | October 1, 2006 | October 2, 2005 | |||||||||||||
Revenues: | ||||||||||||||||
Product | $ | 673,189 | $ | 529,735 | $ | 1,847,592 | $ | 1,383,176 | ||||||||
License and royalty | 78,196 | 59,896 | 246,238 | 172,326 | ||||||||||||
Total revenues | 751,385 | 589,631 | 2,093,830 | 1,555,502 | ||||||||||||
Cost of product revenues | 455,345 | 332,847 | 1,270,389 | 884,832 | ||||||||||||
Gross profits | 296,040 | 256,784 | 823,441 | 670,670 | ||||||||||||
Operating expenses: | ||||||||||||||||
Research and development | 78,073 | 43,420 | 215,620 | 150,771 | ||||||||||||
Sales and marketing | 44,961 | 31,610 | 133,403 | 83,241 | ||||||||||||
General and administrative | 40,247 | 23,186 | 107,445 | 58,527 | ||||||||||||
Write-off of acquired in-process technology | — | — | 39,600 | — | ||||||||||||
Amortization of acquisition related intangible assets | 4,432 | — | 12,579 | — | ||||||||||||
Total operating expenses | 167,713 | 98,216 | 508,647 | 292,539 | ||||||||||||
Operating income | 128,327 | 158,568 | 314,794 | 378,131 | ||||||||||||
Total other income | 32,223 | 11,999 | 72,700 | 22,614 | ||||||||||||
Income before taxes | 160,550 | 170,567 | 387,494 | 400,745 | ||||||||||||
Provision for income taxes | 57,269 | 63,109 | 153,457 | 148,275 | ||||||||||||
Net income | $ | 103,281 | $ | 107,458 | $ | 234,037 | $ | 252,470 | ||||||||
Net income per share: | ||||||||||||||||
Basic | $ | 0.53 | $ | 0.59 | $ | 1.20 | $ | 1.39 | ||||||||
Diluted | $ | 0.51 | $ | 0.55 | $ | 1.15 | $ | 1.32 | ||||||||
Shares used in computing net income per share: | ||||||||||||||||
Basic | 196,317 | 183,047 | 194,974 | 181,716 | ||||||||||||
Diluted | 202,747 | 194,321 | 202,660 | 191,527 |
SanDisk Corporation
Reconciliation of GAAP to Non-GAAP Operating Results (*)
(In thousands, except per share data, unaudited)
Reconciliation of GAAP to Non-GAAP Operating Results (*)
(In thousands, except per share data, unaudited)
Three months ended | Nine months ended | |||||||||||||||
October 1, 2006 | October 2, 2005 | October 1, 2006 | October 2, 2005 | |||||||||||||
GAAP gross profit | $ | 296,040 | $ | 256,784 | $ | 823,441 | $ | 670,670 | ||||||||
Equity-based compensation (a) | 2,621 | — | 5,099 | — | ||||||||||||
Non-GAAP gross profit | $ | 298,661 | $ | 256,784 | $ | 828,540 | $ | 670,670 | ||||||||
GAAP total operating expenses | $ | 167,713 | $ | 98,216 | $ | 508,647 | $ | 292,539 | ||||||||
Equity-based compensation (a) | (22,572 | ) | — | (64,750 | ) | — | ||||||||||
Write-off of acquired in-process technology (b) | — | — | (39,600 | ) | — | |||||||||||
Amortization of acquisition-related intangible assets (c) | (4,432 | ) | — | (12,579 | ) | — | ||||||||||
Non-GAAP total operating expenses | $ | 140,709 | $ | 98,216 | $ | 391,718 | $ | 292,539 | ||||||||
GAAP operating income | $ | 128,327 | $ | 158,568 | $ | 314,794 | $ | 378,131 | ||||||||
Cost of goods sold adjustments (a) | 2,621 | — | 5,099 | — | ||||||||||||
Operating expense adjustments (a-c) | 27,004 | — | 116,929 | — | ||||||||||||
Non-GAAP operating income | $ | 157,952 | $ | 158,568 | $ | 436,822 | $ | 378,131 | ||||||||
GAAP net income | $ | 103,281 | $ | 107,458 | $ | 234,037 | $ | 252,470 | ||||||||
Cost of goods sold adjustments (a) | 2,621 | — | 5,099 | — | ||||||||||||
Operating expense adjustments (a-c) | 27,004 | — | 116,929 | — | ||||||||||||
Income tax adjustments (d) | (9,292 | ) | — | (24,875 | ) | — | ||||||||||
Non-GAAP net income | $ | 123,614 | $ | 107,458 | $ | 331,190 | $ | 252,470 | ||||||||
Basic net income per share: | ||||||||||||||||
GAAP | $ | 0.53 | $ | 0.59 | $ | 1.20 | $ | 1.39 | ||||||||
Non-GAAP | $ | 0.63 | $ | 0.59 | $ | 1.70 | $ | 1.39 | ||||||||
Diluted net income per share: | ||||||||||||||||
GAAP | $ | 0.51 | $ | 0.55 | $ | 1.15 | $ | 1.32 | ||||||||
Non-GAAP | $ | 0.61 | $ | 0.55 | $ | 1.63 | $ | 1.32 | ||||||||
Shares used in computing basic net income per share: | ||||||||||||||||
GAAP | 196,317 | 183,047 | 194,974 | 181,716 | ||||||||||||
Non-GAAP | 196,317 | 183,047 | 194,974 | 181,716 | ||||||||||||
Shares used in computing diluted net income per share: | ||||||||||||||||
GAAP | 202,747 | 194,321 | 202,660 | 191,527 | ||||||||||||
Non-GAAP | 203,757 | 194,321 | 203,744 | 191,527 |
(*) | To supplement our consolidated financial statements presented in accordance with generally accepted accounting principles (GAAP), we use non-GAAP measures of operating results, net income and earnings per share, which are adjusted from results based on GAAP to exclude certain expenses, gains and losses. These non-GAAP financial measures are provided to enhance the user’s overall understanding of our current financial performance and our prospects for the future. Specifically, we believe the non-GAAP results provide useful information to both management, and investors as these non-GAAP results exclude certain expenses, gains and losses that we believe are not indicative of our core operating results and because it is consistent with the financial models and estimates published by many analysts who follow the Company. For example, because the non-GAAP results exclude the expenses we recorded for stock compensation in accordance with SFAS 123(R) effective January 2, 2006 and the acquisition of Matrix Semiconductor, Inc. in January 2006, we believe the inclusion of non-GAAP financial measures provide consistency in our financial reporting. These non-GAAP results are one of the primary indicators management uses for assessing our performance, allocating resources and planning and forecasting future periods. Further, management uses non-GAAP information as certain non-cash charges such as amortization of purchased intangibles and stock based compensation do not reflect the cash operating results of the business and certain one-time expenses such as write-off of acquired in-process technology that do not reflect the ongoing results. 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. These non-GAAP measures may be different than the non-GAAP measures used by other companies. | |
(a) | Equity based compensation expense. | |
(b) | Write-off of acquired in-process technology associated with the Matrix acquisition (January 2006). | |
(c) | Amortization of acquisition-related intangible assets, primarily core and developed technology, related to the acquisition of Matrix. | |
(d) | Income taxes associated with certain non-GAAP adjustments. |
SanDisk Corporation
Condensed Consolidated Balance Sheets
(In thousands)
Condensed Consolidated Balance Sheets
(In thousands)
October 1, 2006 | ||||||||
(unaudited) | January 1, 2006* | |||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 1,474,155 | $ | 762,058 | ||||
Short-term investments | 1,077,257 | 935,639 | ||||||
Accounts receivable, net | 304,934 | 329,014 | ||||||
Inventories | 396,220 | 331,584 | ||||||
Deferred taxes | 99,610 | 95,518 | ||||||
Other current assets | 80,814 | 121,922 | ||||||
Total current assets | 3,432,990 | 2,575,735 | ||||||
Long-term investments | 419,916 | — | ||||||
Property and equipment, net | 256,437 | 211,092 | ||||||
Notes receivable and investments in flash ventures | 480,868 | 265,074 | ||||||
Deferred taxes | 150,114 | — | ||||||
Goodwill | 160,681 | 5,415 | ||||||
Intangibles, net | 92,299 | 4,608 | ||||||
Other non-current assets | 57,450 | 58,263 | ||||||
Total Assets | $ | 5,050,755 | $ | 3,120,187 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 147,009 | $ | 231,208 | ||||
Accounts payable to related parties | 100,852 | 74,121 | ||||||
Other current accrued liabilities | 169,714 | 115,525 | ||||||
Deferred income on shipments to distributors and retailers and deferred revenue | 133,079 | 150,283 | ||||||
Total current liabilities | 550,654 | 571,137 | ||||||
Convertible senior notes | 1,150,000 | — | ||||||
Deferred revenue and non-current liabilities | 36,729 | 25,259 | ||||||
Total Liabilities | 1,737,383 | 596,396 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ Equity: | ||||||||
Common stock | 2,166,506 | 1,622,007 | ||||||
Retained earnings | 1,140,661 | 906,624 | ||||||
Accumulated other comprehensive income | 6,205 | 2,635 | ||||||
Deferred compensation | — | (7,475 | ) | |||||
Total stockholders’ equity | 3,313,372 | 2,523,791 | ||||||
Total Liabilities and Stockholders’ Equity | $ | 5,050,755 | $ | 3,120,187 | ||||
*Information derived from the audited Condensed Consolidated Financial Statements. |
SanDisk Corporation
Condensed Consolidated Statement of Cash Flows
(In thousands, unaudited)
Condensed Consolidated Statement of Cash Flows
(In thousands, unaudited)
Three months ended | Nine months ended | |||||||||||||||
October 1, 2006 | October 2, 2005 | October 1, 2006 | October 2, 2005 | |||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net income | $ | 103,281 | $ | 107,458 | $ | 234,037 | $ | 252,470 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
Deferred taxes | (6,626 | ) | (1,270 | ) | (24,021 | ) | (194 | ) | ||||||||
Loss (gain) on investments | (169 | ) | (501 | ) | (1,364 | ) | 8,752 | |||||||||
Depreciation and amortization | 32,043 | 17,493 | 89,709 | 46,906 | ||||||||||||
Provision for doubtful accounts | 1,759 | 52 | 2,760 | (111 | ) | |||||||||||
Stock-based compensation expense | 25,193 | 522 | 69,881 | 1,591 | ||||||||||||
Tax benefit from share-based compensation | (3,057 | ) | — | (64,080 | ) | — | ||||||||||
Write-off of acquired in-process technology | — | — | 39,600 | — | ||||||||||||
Other non-cash charges | 7,946 | 7,194 | 3,201 | 9,468 | ||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Accounts receivable | 5,228 | 31,227 | 28,276 | (16,573 | ) | |||||||||||
Inventories | (17,789 | ) | (57,285 | ) | (57,765 | ) | (90,456 | ) | ||||||||
Other assets | 55,851 | 47,978 | 47,108 | 32,737 | ||||||||||||
Accounts payable trade | 35,395 | 31,210 | (88,363 | ) | 61,342 | |||||||||||
Accounts payable, related party | 15,314 | 408 | 28,380 | 16,355 | ||||||||||||
Other liabilities | 37,006 | 24,021 | 95,804 | 79,697 | ||||||||||||
Total adjustments | 188,094 | 101,049 | 169,126 | 149,514 | ||||||||||||
Net cash provided by operating activities | 291,375 | 208,507 | 403,163 | 401,984 | ||||||||||||
Cash flows from investing activities: | ||||||||||||||||
Purchases of short and long term investments | (632,895 | ) | (195,700 | ) | (1,438,195 | ) | (491,282 | ) | ||||||||
Proceeds from sale and maturities of short and long-term investments | 506,326 | 174,150 | 881,772 | 455,758 | ||||||||||||
Investment in Flash Partners and Flash Alliance | (4,290 | ) | — | (132,209 | ) | — | ||||||||||
Acquisition of capital equipment, net | (33,721 | ) | (24,282 | ) | (123,443 | ) | (80,500 | ) | ||||||||
Notes receivable from Flash Vision | 8,524 | (12,027 | ) | 8,524 | (34,249 | ) | ||||||||||
Notes receivable from Flash Partners | — | — | (95,445 | ) | — | |||||||||||
Cash acquired in business combination with Matrix, net of acquisition costs | — | — | 9,432 | — | ||||||||||||
Net cash used in investing activities | (156,056 | ) | (57,859 | ) | (889,564 | ) | (150,273 | ) | ||||||||
Cash flows from financing activities: | ||||||||||||||||
Proceeds from issuance of convertible notes, net of issuance costs | — | — | 1,125,500 | — | ||||||||||||
Purchase of convertible bond hedge | — | — | (386,090 | ) | — | |||||||||||
Proceeds from issuance of warrants | — | — | 308,672 | — | ||||||||||||
Proceeds from employee stock programs | 17,258 | 32,390 | 86,108 | 48,243 | ||||||||||||
Tax benefit from share-based compensation | 3,057 | — | 64,080 | — | ||||||||||||
Net cash provided by financing activities | 20,315 | 32,390 | 1,198,270 | 48,243 | ||||||||||||
Effect of changes in foreign currency exchange rates on cash | 42 | 485 | 228 | 863 | ||||||||||||
Net increase in cash and cash equivalents | 155,676 | 183,523 | 712,097 | 300,817 | ||||||||||||
Cash and cash equivalents at beginning of period | 1,318,479 | 581,089 | 762,058 | 463,795 | ||||||||||||
Cash and cash equivalents at end of period | $ | 1,474,155 | $ | 764,612 | $ | 1,474,155 | $ | 764,612 | ||||||||