Sandisk Corporation Common Stock 2026 Q4 Earnings Call

Please go ahead. Before we begin, please note that today's discussion will contain forward-looking statements based on management's current assumptions and expectations, which are subject to various risks and uncertainties.

These forward-looking statements include expectations for our technology and product portfolio, our business plans and performance, our capital allocation priorities, market trends and opportunities, and our future financial results. We assume no obligation to update these statements. Please refer to our annual report on Form 10-K and our other filings with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially from expectations. We will also make references to non-GAAP financial measures today. Reconciliations between the non-GAAP and comparable GAAP financial measures are included in the written materials posted in the investor relations section of our website. With that, I'll turn the call over to David.

Thanks, Ivan. Good afternoon, and thank you for joining SanDisk's fiscal fourth quarter earnings call. As we close fiscal year 2026, we believe SanDisk is in a strong strategic position to deliver for our shareholders and customers. The strategic actions we have taken over the past year have established a stronger foundation through technology leadership, longer term customer partnerships, financial flexibility, and operational capabilities, which collectively position us well for the next stage of execution, growth, and shareholder returns. Over the past year, we strengthened our portfolio with BiCS leadership across both TLC and QLC, and the continued advancement of High Bandwidth Flash. Established data center as a major pillar of growth, deepened customer relationships through multi-year partnerships enabled by our New Business Models, our NBMs, with momentum continuing to build during the quarter.

We reinforced our supply chain and transformed our business model with a net cash balance sheet and a capital allocation framework designed to generate growing and durable free cash flow to reinvest in the business and return excess capital to shareholders. The fiscal fourth quarter provided our clearest proof point yet. We delivered record revenue, gross margin, and earnings per share, each above the high end of our guidance, and repurchased $4.5 billion of company stock. We are encouraged by this progress and believe the long-term earnings power, cash generation, and resilience of this business will become increasingly evident as we execute against this new foundation. Underlying our performance is the most important force in our market, the era of inference. AI is fundamentally a memory centric, storage intensive problem, and it is reshaping the demand equation for NAND.

The shift to inference in agentic AI is generating data at a scale that is redefining storage requirements. Every AI interaction creates content that must be stored, retrieved, and served at low latency, and each of these steps relies on data storage products, including our high capacity enterprise SSDs. NAND is the most scalable semiconductor technology in the world, and it has become a critical component of the AI architecture. This demand is anchored in strategic long-term infrastructure investments by the world's largest technology companies, which are increasingly working with suppliers who can scale, partner with them, and secure supply that ensures performance and reliability years in advance. These enduring and mutually beneficial partnerships give customers greater confidence in long-term supply, while giving SanDisk clearer visibility into demand and a stronger foundation for planning, investment, and more durable cash flow generation.

Our technology leadership is how we are capturing this opportunity. BiCS has become recognized as an industry gold standard for NAND, and this year we ramped BiCS8 to the majority of our bit production, delivering industry-leading performance, density, and power efficiency across both TLC and QLC. BiCS8 was enabled by innovations like CBA, hybrid wafer bonding, and our roadmap builds on that same fundamental approach with future generations extending performance and cost leadership through continued innovation across multiple dimensions of scaling. Our leadership is translating directly into customer adoption across our various end markets. We scaled our compute focused TLC enterprise SSDs across a broad set of hyperscale and AI infrastructure customers.

This quarter, we began shipping our QLC Stargate platform for revenue, giving us a complete complementary portfolio spanning performance intensive compute workloads and high capacity AI data lakes. A year ago, data center represented roughly 12% of our bits. Exiting fiscal year 2026, it represents 38% of our portfolio and is our fastest-growing end market. Our technology leadership also extends well beyond data center. Edge remains a large and strategically important end market for SanDisk, spanning smartphones, PCs, tablets, and an expanding set of emerging use cases in the realm of physical AI, including automotive, robotics, and on-device agentic AI. Near term, both PCs and smartphones are working through a period of adjustment as demand is shifting towards AI-enabled devices and premium configurations, driving higher storage content, particularly in smartphones.

In the PC market, OEMs are growing revenue and expanding margin on a more profitable mix, reflecting demand for higher-end devices. We expect these markets to return to growth in calendar year 2027, and over the longer term, on-device AI, richer content, and entirely new form factors will continue to expand the role of high-performance flash at the edge. Our ability to deliver high performance, density, and power efficiency positions us well as these platforms evolve, and we expect increases in content per device through future refresh cycles. SanDisk's global consumer presence remains a meaningful differentiator within the industry, giving us a unique connection with end users and channel partners. We continue to invest behind the brand, sharpen our go-to-market capabilities, and innovate around the products, capabilities, and experiences that consumers value. Our ability to innovate at this level is enabled by our operational excellence.

SanDisk manages the entire value chain, from the design of the NAND die through front-end wafer manufacturing at some of the largest fab complexes in the world with our JV partner, to system-level design, including our world-class controllers and final back-end assembly and test, all the way to the hands of our customers. This end-to-end integration, combined with our R&D depth, proprietary BiCS systems expertise, and the market diversity that gives us the optionality to direct our technology where it delivers the most value, is what enables us to serve customers at attractive returns. Just as important, we grow supply primarily through nodal transitions rather than wafer additions, delivering mid to high teens bit growth from the productivity of our technology roadmap, with capital intensity that continues to decline as a percentage of revenue. This is a structural advantage and what makes this franchise such a powerful cash generator.

With that, I'll turn the call over to Luis for an update on our new business models and a deeper dive into our financial performance and guidance.

Thank you, David. Fiscal year 2026 was a transformational year for SanDisk. We exited the year significantly stronger than when we entered it. We believe that we're well positioned to create sustainable value for customers and shareholders. Our new business models, or NBMs, reflect the stronger and longer-term partnerships that we're building with our most strategic customers, the value they place on our technology and products, and the confidence that they have in their demand. Our revenue growth, margin expansion, and asset efficiency enables us to deliver leading free cash flow per share, and therefore generate an attractive return to shareholders. Since announcing 5 NBMs during our April earnings call, we have signed 5 additional agreements, 3 NBMs with new customers and 2 deals expanding on previously signed NBMs. These extensions reflect our customers' strengthening demand exceeding their prior estimates.

One of the 5 signed deals, 3 closed before the end of the fourth quarter, and 2 closed after quarter end. In total, we now have NBMs with 8 diverse data center and edge customers and reflect the conviction our customers have in their long-term demand and the value they place on SanDisk. The length of our NBMs varies, extending up to 5 years, with a weighted average duration of over 4 years. We expect our NBMs to represent more than 50% of our bits in fiscal year 2027 and approximately two-thirds of our bits in fiscal year 2028. NBMs are quickly becoming our predominant way of doing business. We will continue supporting our non-NBM business with uncommitted supply. Pricing for our NBMs include both fixed and variable elements, with a variable portion subject to floors and ceilings. We expect attractive margins even at floor pricing.

Pricing of our non-NBM business will fluctuate with the market. The total expected revenue from all our NBMs we have signed is a minimum of $93.9 billion, assuming floor pricing. We believe actual revenue will be above that minimum. The remaining performance obligation, or RPO, at the end of the quarter was $59.8 billion, and would be $91.1 billion, including the two NBMs signed after the quarter closed. The difference between the total NBM revenue and the RPO is the revenue that has already been recognized. Each one of our NBMs include financial guarantees through a combination of cash deposits and financial instruments totaling $16.5 billion, which are intended to protect Sandisk if a customer fails to satisfy its purchase obligations under these agreements. These funds and financial instruments are mostly held by or provided through third-party financial institutions, with the remaining in our cash balance.