Western Digital Reports Fiscal Third Quarter 2020 Financial Results

Western Digital Corp. (Nasdaq: WDC) today reported fiscal third quarter 2020 financial results.

"I joined Western Digital a little over a month ago because I have strong conviction in the digital transformation that is reshaping every industry, every company and how all of us live our daily lives," said David Goeckeler, Western Digital CEO. "While I couldn't have anticipated the unprecedented series of events that have transpired, I'm very proud of how the company has responded to an extremely dynamic environment with dedicated focus both on our employees' safety as well as delivering our market leading technology to our customers. As the only company in the world to provide a broad array of NAND flash, Solid State Drives (SSD) and Hard Disk Drives (HDD) solutions, I'm confident our innovation will drive significant new value for customers around the world."

Q3 2020 Financial Highlights

*not a meaningful figure

We generated $142 million in cash from operations during the fiscal third quarter of 2020 and ended the quarter with $2.9 billion of total cash and cash equivalents. We returned $149 million to shareholders through dividends and used $212 million to reduce debt. On February 13, 2020, we declared a cash dividend of $0.50 per share of common stock, which was paid to shareholders on April 17, 2020. Going forward, we are suspending our dividend to strengthen our reinvestment in growth and innovation and to support our ongoing deleveraging efforts. We will reevaluate our dividend policy as leverage ratios improve.

Key End Market Summary

We are leading the industry in bringing next generation energy-assisted drives to market, as we recognized revenue for our 16- and 18-terabyte drives during the quarter. Customer interest in these products, specifically our 18-terabyte drive, is very high, and the ramp is on schedule.

Customer acceptance of our enterprise SSDs continued to grow. Our latest 96-layer NVMeTM based SSDs have completed more than 20 qualifications, with well over 100 qualifications in progress at multiple Cloud and Original Equipment Manufacturer customers worldwide.

Demand for our notebook solutions was greater than expected due to the shift to working from home and e-learning. We experienced record client SSD revenue during the quarter and expect continued growth in the fiscal fourth quarter.

Desktop hard drive revenue was down due to normal seasonality and the shift towards notebook solutions. In addition, smart video hard drive demand was softer than expected as a result of COVID-19.

Mobile flash bit shipments remained modest in the quarter as we strategically managed our exposure to this part of the market.

Retail was particularly affected by COVID-19, in a typically seasonally weaker quarter. As we approached the end of the quarter, we experienced a decline in demand from traditional brick and mortar retailers as they started to temporarily close their stores. While many retailers shifted to curbside pickup and began pushing sales through their online channels, we expect physical store closures will create a headwind in our fiscal fourth quarter.

(1) Non-GAAP gross margin guidance excludes amortization of acquired intangible assets, stock-based compensation expense, and charges related to cost saving initiatives totaling approximately $150 million to $170 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 charges related to cost saving initiatives 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 $260 million to $300 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.

(2) The non-GAAP tax rates provided are based on a percentage of non-GAAP pre-tax income.

Investor Communications

The investment community conference call to discuss these results and the company's business outlook for the fiscal fourth quarter of 2020 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, a leader in data infrastructure, creates environments for data to thrive. 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, the company's 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 the Private Securities Litigation Reform Act of 1995, including statements concerning the company's preliminary financial results for its fiscal third quarter ended April 3, 2020; the company's business outlook for the fiscal fourth quarter of 2020; expectations regarding the impact of COVID-19; demand trends and market conditions; the company's dividend suspension and related plans; future changes to the company's dividend policy; the company's product portfolio; customer acceptance and ramp of the company's products; and expected future financial performance. 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 April 3, 2020 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; business conditions and growth in the storage ecosystem; impact of restructuring activities and cost saving initiatives; impact of competitive products and pricing; market acceptance and cost of commodity materials and specialized product components; actions by competitors; unexpected advances in competing technologies; our development and introduction of products based on new technologies and expansion into new data storage markets; risks associated with acquisitions, divestitures, mergers and joint ventures; difficulties or delays in manufacturing; 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-Q filed with the SEC on February 11, 2020, 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 these forward-looking statements to reflect new information or events.

Third Quarter Fiscal 2020 Press Release with Financial Tables and Guidance Summary

Third Quarter Fiscal 2020 Earnings Presentation

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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. The NVMe mark is a registered trademark of NVM Express, Inc.