SanDisk’s (SNDK) CEO Sanjay Mehrotra on Q3 2014 Results – Earnings Call Transcript

SanDisk (NASDAQ:SNDK)

Q3 2014 Results Earnings Conference Call

October 16, 2014, 5:00 p.m. ET

Executives

Jay Iyer – Senior Director, IR

Sanjay Mehrotra – President and CEO

Judy Bruner – EVP of Administration and CFO

Analysts

Mehdi Hosseini – Susquehanna Financial Group

Doug Freedman – RBC Capital Markets

Timothy Arcuri – Cowen & Company

Craig Ellis – B. Riley & Company

Ambrish Srivastava – BMO Capital Markets

Mark Newman – Sanford Bernstein Mark Delaney – Goldman Sachs

John Pitzer – Credit Suisse

CJ Muse – ISI Group

Joe Moore – Morgan Stanley

Operator

Good day and welcome to the SanDisk third quarter 2014 financial results conference call. Today’s conference is being recorded. At this time I would like to turn the conference over to Jay Iyer. Please go ahead, sir.

Jay Iyer – Senior Director, IR

Thank you, operator, and good afternoon everyone. With me on the call are Sanjay Mehrotra, President and CEO of SanDisk, and Judy Bruner, Executive Vice President of Administration and CFO. In a moment, we will hear remarks from both of them, followed by Q&A.

Before we begin, please note that any non-GAAP financial measures being discussed during the call, as defined by the SEC in Regulation G, will be reconciled to the most directly comparable GAAP financial measure.

That reconciliation is now available along with supplemental schedules on our website at SanDisk.com/ir. Please note that non-GAAP to GAAP reconciliation tables for all applicable guidance will also be posted on our website. This guidance is exclusive of any one-time transactions and does not reflect the effect of any acquisitions, divestitures, or similar transactions that may be completed after October 16, 2014.

In addition, during our call today we will make forward-looking statements that refer to expectations, projections, or other future events. Please refer to today’s press release and our SEC filings, including the most recent 10-Q, for information on the risk factors that could cause results to differ materially from those expressed in the forward-looking statements. SanDisk assumes no obligation to update these forward-looking statements which speak as of today.

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This communication does not constitute an offer to buy or solicitation of an offer to sell any securities. The tender offer to purchase all of the outstanding shares of common stock of Fusion-io, Inc. is being made solely by means of the offer to purchase, the letter of transmittal and related documents, which contain the full terms and conditions of the tender offer and have been mailed to Fusion-io’s stockholders and filed with the SEC. Investors and security holders of Fusion-io are urged to read these and other documents filed with the SEC, as well as any amendments or supplements to those documents carefully in their entirety when they become available, because they contain or will contain important information about the proposed transaction.

With that, I’ll turn the call over to Sanjay.

Sanjay Mehrotra – President and CEO

Thank you, Jay, and good afternoon everyone. We are very pleased to report record revenue, strong earnings and cash flow, and to have returned more than half a billion dollars of capital to shareholders during the quarter.

With the acquisition of Fusion-io, SanDisk now has the most comprehensive enterprise portfolio in the industry. Our solutions range from the highest performance, lowest latency products that enable application acceleration and disrupt traditional IT architectures, to products that have a compelling value proposition to replace hard drives in a variety of applications.

This portfolio, coupled with our broad and expanding customer reach and well established vertical integration capabilities, positions us well to accelerated our momentum in the fast-growing market for enterprise flash. We expect our enterprise SSD revenue to surpass $1 billion in 2015, a year ahead of our previously stated timeline.

Our enterprise SSD revenue grew strongly on a year over year basis during the third quarter, driven by our SaaS leadership position and growing presence in enterprise SATA, and it was further bolstered by a partial quarter of revenues from Fusion-io solutions.

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We have now converted the vast majority of Smart Storage’s products to captive NAND flash and this provides us with an important advantage as we pursue several large opportunities with hyperscale customers.

We are delighted to report first revenue shipments of ULLtraDIMM, our high-performance, low-latency SSDs to leading server and storage OEMs. [Design] traction for ULLtraDIMM SSDs continues to grow with successful qualifications at Super Micro Computer and Huawei, achieve in the third quarter.

The Fusion-io business performed in line with our expectations post-acquisition. On the product front, multiple OEMs have now qualified and are offering our next-generation Fusion-io PCIe products. Our plan is to continue supporting the majority of Fusion-io products on non-captive NANDs in 2015.

In addition to the growth of the enterprise SSD portfolio, we are pleased that Dell will begin incorporating SanDisk DAS Cache software into certain Dell-powered edge servers as part of the base configuration.

This FlashSoft server side caching software that allows customers to benefit from server attached SSDs as a cache, for an application’s most frequently accessed data. Following the completion of the Fusion-io acquisition in late July, we have made excellent progress in integrating Fusion-io into SanDisk.

To best realize the capabilities, talent, and scale of the two teams, we have decided to accelerate the combination of the legacy SanDisk enterprise storage solutions group and the newly added Fusion-io team by forming one enterprise storage organization under John Scaramuzzo.

As planned at the time of the acquisition of Fusion-io, the sales team has been integrated under the leadership of Henri Richard. Lance Smith has decided to leave SanDisk to pursue other opportunities.

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