Robert Blair - Investor Relations
Good afternoon everyone.
This conference call will contain forward-looking statements within the meaning of the federal securities laws, including statements concerning our expected financial performance for our fourth fiscal quarter ending July 1, 2016. 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, including those listed in our quarterly report on Form 10-Q filed with the SEC on May 9, 2016. We undertake no obligation to update our forward-looking statements to reflect new information or events.
Further, references will be made during this call to non-GAAP financial measures. We have not reconciled our non-GAAP financial measure guidance to the most directly comparable GAAP measures because material items that impact these measures are out of our control and/or cannot be reasonably predicted. Accordingly, a reconciliation of the non-GAAP financial measure guidance to the corresponding GAAP measures is not available without unreasonable effort.
Before I hand over the call to executive management, please note that the purpose of today’s call is to provide an update on our prior guidance for our fourth fiscal quarter ending July 1, 2016, to reflect the close of the SanDisk acquisition on May 12. We expect to provide more details about our combined company in upcoming earnings calls, as well as at our next Investor Day which will take place on Tuesday, December 6 in Milpitas.
Concurrent with the start of today’s call, we issued a press release with the updated guidance for the combined company for our fourth fiscal quarter and we will be posting during this call an updated Quarterly Fact Sheet to the Investor Relations section of our website. The Fact Sheet will include updated guidance on page 1 and information on our debt and estimated effective tax rate ranges on page 3. Copies of the prepared remarks from today’s call will also be available in the Investor Relations section of our website following the conclusion of this call.
In the question/answer part of today’s call we ask that you limit yourselves to one question to allow as many callers in the time allowed on the call to ask their question. I thank you in advance for your cooperation.
With that, I will now turn the call over to our CEO, Steve Milligan.
Steve Milligan - President & Chief Executive Officer
Good afternoon and thank you for joining us today. With me are President and Chief Operating Officer Mike Cordano and Chief Financial Officer Olivier Leonetti. After my opening remarks, Olivier will summarize our updated guidance for the fourth fiscal quarter.
The integration of SanDisk is well underway. We are pleased to welcome Sanjay Mehrotra to our board of directors and Siva Sivaram, Executive Vice President of Memory Technology, and Manish Bhatia, Executive Vice President of Silicon Operations, to our executive leadership team. We are also excited to have the rest of the talented SanDisk team join Western Digital. Sanjay and his team created a valuable enterprise with a leading position in the NAND industry and we are looking forward to realizing the full potential of our combined organization.
I am very excited by the initial reaction we are receiving from our customers regarding the new Western Digital, ranging from hyper-scale service providers to systems OEMs to our channel partners around the world. They see the new Western Digital as an increasingly significant strategic partner that provides the broadest range of storage expertise.
Additionally, I am very encouraged by the enthusiasm from the newly combined team of legacy SanDisk and Western Digital employees. As we bring the two companies together, I am pleased with the optimism for the future, the level of positive collaboration and the depth of our experience in operations – all off which bode well for the future growth and positioning of our company.
We will address the rapidly growing and evolving storage industry like no other company in the world. Data growth continues unabated – and Western Digital will lead the way in providing storage solutions to a full range of market segments – the data center, client, consumer, and mobile. We have the technology and capabilities that are needed to address this opportunity. Working strategically with our customers, we will help build and influence the design of future storage architectures, embracing the different perspectives of our two companies, creating stronger solutions and greater value with what we believe to be the most capable set of storage resources. It’s a compelling story: we will integrate legacy, emerging and future storage technologies into differentiated solutions and provide them in both traditional and new growth markets.
The task for us is to execute on this tremendous strategic opportunity to create long term value for our customers, shareholders and employees. We have a strong history of operational excellence and of successfully integrating businesses. We plan to build on this track record with a proven and engaged team that brings together best in class capability in operations, design, manufacturing and customer service.
Together with my team, I am very excited about the value of what we can accomplish as a combined company, and I look forward to keeping you informed of our progress.
Olivier Leonetti - Executive VP Finance & Chief Financial Officer
Thank you, Steve and good afternoon everyone.
In my remarks today, I will provide our updated guidance for the fourth fiscal quarter ending on July 1st, 2016, that includes ownership of the SanDisk business by Western Digital since the close of the acquisition on May 12th. I will also provide additional details on the impact of the acquisition close including a brief overview of key accounting changes.
For the fourth fiscal quarter, we expect:
- Revenue to be in the range of three billion three hundred and fifty million dollars ($3350M) to three billion four hundred and fifty million dollars ($3450M).
On a non-GAAP basis, we expect:
- Gross margin percentage to be approximately thirty one percent (31%)
- Operating expenses of approximately six hundred and eighty ($680) million dollars
- Total interest costs of approximately two hundred and twenty ($220) million dollars. This includes interest expenses on the newly issued debt of approximately one hundred and eighty five ($185) million dollars and amortization of debt issuance costs of approximately thirty ($30) million dollars. Interest expense on the newly issued debt includes approximately fifty ($50) million dollars incurred prior to the deal closing date.
- Due to the impact of the interest expense, we estimate a tax benefit of approximately fifteen ($15) million dollars for the quarter.
- Diluted share count for the quarter, with partial SanDisk ownership, is expected to be two hundred and sixty six (266) million. This is equivalent to two hundred and ninety (290) million shares on a full quarter basis.
- We estimate non-GAAP earnings per share between sixty five cents ($0.65) and seventy cents ($0.70).
- As previously mentioned, additional details on debt and tax rate estimates are available in the updated Quarterly Fact Sheet being provided today in the Investor Relations section of our website.
Our non-GAAP guidance includes the following items:
- A change in the revenue recognition policy for the legacy SanDisk distribution and retail business from sell-through to sell-in post-acquisition. This change in policy will not have a material impact in the fourth fiscal quarter financial results.
- Inclusion of stock based compensation expense in our non-GAAP earnings following legacy WDC practice. As a reminder, legacy SanDisk excluded the impact of stock based compensation from its non-GAAP earnings.
We have begun detailed integration and business planning processes for the combined company and we expect to provide updated specifics related to synergies and non-GAAP earnings per share accretion estimates later in the year. We plan to host our next Investor Day on December 6th of 2016 where we will provide additional information about our business strategy and business model.
Operator, we are now ready to open the call for questions.
Thank you again for joining us. We look forward to staying in touch with you. And I look forward to seeing many of you at the investment conferences in the next few weeks. Have a good rest of the day. Thank you.